After three years of financial reforms and anti-corruption efforts, there is no sign of slowing down. Recently, foreign media reported that the authorities will cut the salaries of employees in three major financial regulatory agencies by about 50%, aligning them with civil servant salaries. Experts believe that this move is not just an economic policy adjustment but also aimed at weakening Western influence, making the financial system more sluggish and politically loyal, a path reminiscent of the Great Leap Forward and the Cultural Revolution, ultimately leading to failure.
According to a report by Reuters on January 14th, the Chinese authorities will reduce the salaries of employees in the three major financial regulatory agencies by approximately 50%, bringing the compensation levels in line with civil servants.
The financial industry has already experienced several rounds of salary cuts, dimming its allure and even leading to it being mockingly referred to as “finance rats.” Many have switched professions, with the broad financial industry workforce decreasing by nearly 15,000 people since the end of 2022, and this trend is expected to continue.
Amid significant salary cuts in financial regulatory agencies during a slowdown in the Chinese economy, the authorities have been seeking to stimulate consumption to revive the slowing economy. Civil servants unexpectedly received a pay raise earlier this month, with an average monthly increase of about 500 yuan.
Wang Guochen, an assistant researcher at the Chinese Academy of Economic Research, told Dajiyuan that cutting the salaries of financial institutions is not a new move. This reflects Xi Jinping’s perception that banks are simply for borrowing and depositing money and do not need high salaries.
Wang Guochen stated that salary levels in China’s financial industry used to be very high, especially at the top levels, mainly due to speculation in real estate or financial products. When Xi Jinping cracked down on real estate, financial derivatives, and stocks, the profits of these individuals became limited.
“The salary increase for civil servants is related to the local debt swaps in October last year. He thinks that local government finances should be slightly relieved, which can make up for the previous pay cuts of civil servants. If civil servants are unhappy, the stability of the Communist regime will be even more at risk, while also hoping to encourage domestic market demand or consumption.”
American economist Davy J. Wong told Dajiyuan that under the backdrop of a slowing economic growth and increased fiscal pressure, the salary cuts and purging in the financial industry by the Beijing authorities are not only economic policy adjustments but also political management tools.
He believes that Beijing first sees finance as a core national resource that must be firmly controlled by the Party. By significantly cutting salaries, it forces financial practitioners to abandon the market-oriented high salary culture and turn the financial system into a tool controlled by the Party. Secondly, behind the salary cuts lies a move to challenge market-oriented approaches and eliminate the political signals of Western economics.
“The contrast between the salary increase for civil servants and the salary cuts in the financial industry indicates that the authorities hope to narrow the income gap both inside and outside the system and promote ideological unity.”
Since August 2021, the Chinese authorities have proposed the concept of “common prosperity,” a phrase that was also included in the 20th Party Congress report in October 2022.
Subsequently, sectors such as real estate, education services, electronic gaming, entertainment, and internet giants have undergone rectification and crackdown in the name of “common prosperity.”
After real estate and education services became targets, medical corruption became a focus area, as the authorities tried to shift social tensions through anti-corruption efforts.
However, unlike the rushed conclusion of medical anti-corruption, the anti-corruption efforts in the financial sector by the Chinese Communist Party have continued to expand and deepen without stopping.
According to incomplete statistics from the National Supervisory Commission of the CCP, over 70 officials in the financial system were reviewed in 2022, increasing to 101 in 2023, and at least 97 were investigated in 2024.
According to the Wall Street Journal, since 2022, the authorities have investigated over 500 financial professionals, including personnel from regulatory agencies, banks, and insurance companies. Some of these individuals have been retired for many years.
Wang Guochen explained that given Xi Jinping’s nature, with such great power, he must occasionally crack down on individuals. He needs financial professionals to handle financial issues, yet he is concerned they may form cliques that threaten his regime. It becomes a balancing act, reflecting Xi Jinping’s distinct personality of both demanding expertise and loyalty, which is an impossible demand.
“We also have a list of financial anti-corruption actions,” Wang Guochen said. Aside from those who have been arrested and prosecuted, experienced deputy bank presidents were also appointed to serve as deputy provincial governors or deputy mayors in charge of finance in local regions. Currently, there are approximately 17 such individuals. Among them, three individuals were reassigned to central government ministerial positions, creating a unique system of financial bureaucrats swapping between banking executives and government officials.
“However, Xi believes that finance is superfluous and has no intention of truly promoting their status. In fact, they have a ceiling, unable to enter the so-called Politburo.”
The Wall Street Journal cited experts as saying that Xi Jinping’s actions in financial anti-corruption mostly aim to dismantle power networks and alert who the true wielders of power are. Successors to purged bankers often lack Western experience but are promoted for their political reliability.
“If you investigate a person’s behavior over the past 20 years, can you really find someone completely untainted?” a former senior executive at a foreign bank in China stated. “This is selective law enforcement, this is politics.”
Davy J. Wong mentioned that selective law enforcement is essentially political cleansing. “Most of the purged financial high-ranking officials belonged to the group that previously studied Western economics, advocated market economy, and benefited from the reform and opening up period. The newly promoted individuals come from Party schools, following socialist economic principles, obedient, lacking in capability but politically reliable, increasing their dependence on the higher-ups.”
Davy J. Wong pointed out that the financial industry holds massive economic interests and power while being highly specialized. To Beijing, it not only involves technical intricacies but also numerous connections across various sectors, making it second only to the military and propaganda in terms of stability for the regime. Therefore, Beijing sees it as more critical than other sectors.
“Through cleaning up old power networks and cronyism, Beijing ensures the entire financial services industry flows where the Party needs it, preventing the emergence of financial oligarchs or power centers that could challenge central authority.”
The design of China’s financial industry initially aimed to benchmark Western industry standards, but the Chinese Communist Party now believes that the industry is overly focused on profit and should serve the needs of the Communist Party and the state, as opposed to the interests of bankers and their clients.
Wang Guochen stated that Xi’s goal is for these financial individuals to refrain from speculation and instead focus on issuing loans and managing financial risks diligently, without the need for more intervention from Xi.
“During Hu’s era or early Xi’s period, there was an emphasis on financial technology innovation, but we haven’t heard much about this term for a long time. He doesn’t see finance as a key industry for national development but rather wants to focus on manufacturing.”
Beijing’s core concept for the financial industry is that it must serve the real economy, the interests of the Party, and the state. However, these interests are not tangible entities; the main aim is to consolidate all real power to one person and one center.
“The financial industry has long been influenced by international financial regulations, market logic, and economic principles. This contradicts the revolutionary ideology of the class struggle proclaimed by Mao, especially conflicting with the leader’s ideas as he wishes to change economic laws and market principles.”
Davy J. Wong believes that purging market-oriented and Western economic school adherents is to weaken Western influence, making the financial system more sluggish and politically loyal. Beijing also worries that by liberalizing finance and lacking capital management, it may unleash financial oligarchs or competing financial powers in China. By highly centralizing control over the management, decision-making, and daily operations of finance, Beijing can more effectively steer every penny of capital flow from state-owned to market-based, preventing capital outflows and financial risks.
“Beijing also aims to change financial regulations and create socialist financial principles. In the event of an economic collapse in the future, it can reinterpret it with new terms as long as it tightly grasps the definitions of prosperity and growth, enabling the shaping of financial rules at will.”
The Wall Street Journal reported that many economists and bankers are concerned that these adjustments will stifle the vibrancy driving the Chinese economy since financial institutions and regulators will become more conservative.
China is facing complex financial risks that require precise regulation, including how to handle trillions of dollars in off-balance sheet debt of local governments and how to digest the accumulated non-performing loans in the real estate market on bank balance sheets. Meanwhile, China is losing experienced international bankers and regulators.
Several economists have noted that in the past, Chinese regulatory agencies often sought opinions from economists, including those working for foreign banks. While their suggestions may not always be adopted, their input was valuable. This two-way communication has become increasingly rare.
According to Wang Guochen, Xi Jinping underestimates the role of finance in industrial innovation, causing the decline of start-ups across mainland China, which will significantly impact high-tech development.
“In the future, China’s financial sector may become very simplistic, like the Qing Dynasty’s Qiao Family Courtyard in Shanxi, solely about transactions – I have money when you don’t, and I lend you money when you need it. He sees banks only as lenders, with no room for financial innovation.”
Davy J. Wong predicts that the future of China’s financial industry may witness the following scenarios:
First, it will become more institutionalized and red, emphasizing political loyalty and using the Party’s interests over national and ethnic interests. Inferior quality will replace superior quality, with low-skilled individuals taking the place of high-skilled ones. International talents with global experience and expertise will distance themselves from management and move away from China.
Second, financial innovation and openness will face strict restrictions, akin to China’s regulation of the internet. Due to concerns about risks and capital outflows, financial policies will become more closed and conservative.
Third, further detachment from the international financial market, as Beijing has been pursuing so-called de-dollarization and internationalization of the Renminbi, ultimately isolating the Renminbi and the Chinese economy from the global market.
Fourth, risk avoidance will become exceedingly challenging, leading to new financial crises.
In conclusion, the end result will likely drive away those who truly possess cultural knowledge and economic understanding from leadership positions, halting financial innovation. Similar to the times of Mao Zedong’s Four Pests Campaign, the Cultural Revolution, and the Great Leap Forward, it will ultimately lead to failure. This will not only hinder financial innovation and development but also make economic growth more difficult, possibly leading to regression.