Bankers’ 40% pay cuts show the China dream fading in its richest cities
For decades, China’s biggest cities have been home to one of the world’s greatest economic success stories: a nearly unbroken rise in living standards that lifted millions into the middle class.
That trend is now coming to a halt, creating an under-the-radar threat to President Xi Jinping’s campaign to revive growth.
Hiring salaries in Shanghai and Beijing dropped by 9 per cent and 6 per cent respectively in the second quarter from a year ago, Zhaopin data compiled by Bloomberg show. It’s the biggest slump since at least 2015 and a stark contrast with government figures indicating wages rose nationwide. For many white-collar workers, the blow has been compounded by companies quietly slashing benefits including travel and meal allowances. Prestigious sectors like finance – where senior bankers report compensation cuts of as much as 40 per cent – and technology are suffering. But even the typically stable government jobs that employ vast swathes of China’s middle class are not immune.
The risk is a downward spiral that leaves workers cutting back further on spending even as Beijing tries to restore confidence. To escape the middle-income trap and keep a lid on social unrest, authorities must work out how to create better jobs for city dwellers. Yet China’s limited room for debt-fuelled stimulus gives Xi few easy solutions.
“Unless we see a steady growth in disposable income, I don’t think consumption’s going to improve in China anytime soon,” said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis “Everybody thinks Chinese consumers are not consuming because they feel there’s too much uncertainty, they don’t feel like it. Some people in China cannot consume.”
Conversations with 18 people employed in the private sector and the government, most of whom declined to give their full names discussing sensitive matters, illustrate a growing unease over job security and personal spending. The pain in China’s labour market goes well beyond its record youth unemployment rate. Despite growing resentment, many urban workers of all ages are willing to accept steep pay cuts, fewer frills and longer working hours just to hang on to a job.
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Compensation cuts
Salaries are under pressure on multiple fronts. After three years of costly pandemic measures, many employers are struggling to deal with a slowdown that’s straining already tight budgets. For many more affluent businesses, the bigger challenge is Xi’s sweeping “common prosperity” campaign, aimed at reining in “the disorderly expansion of capital” in the private sector.
Citic Securities, one of the country’s top investment banks, slashed some bankers’ basic salaries by up to 15 per cent. Its rival China International Capital cut senior banker compensation, including bonuses, by more than 40 per cent, Bloomberg News reported previously. CICC also instructed its bankers to fly coach and to book the cheapest “hard seats” on most trains.
Eason, a business head at a commercial bank in Shanghai, is frustrated that his pay dropped 10 per cent last year, despite double-digit growth at the institution and strong personal performance.
“On the one hand, authorities encourage households to increase consumption, but on the other hand they call for pay cuts and limits,” he said.
“It’s not easy for financial institutions to keep salaries stable,” he added. “Once you raise pay, you’ll most likely be summoned to authorities.”
The consequences may reach much further than individual spending. One Hong Kong banker with mainland clients said that with fewer financial incentives and more emphasis on cutting risk, personal apathy is setting in and the financial industry is “lying flat.”
Benefits are also being chipped away, in finance and beyond. Chinese corporates often boost compensation with cash payments nominally aimed at improving one facet of life or another. But even these are now deemed too luxurious. This year, Eason’s bank replaced its usual summertime hot-weather subsidy with cans of Coca-Cola and sun visors.
A Shanghai-based consultant at a multinational firm said his daily meal allowance was slashed by nearly 80 per cent to US$27. Huang, a manager at a new media company in Hangzhou, said their firm had stopped paying for late-night taxi rides, ended overseas travel for team-building events and closed its second cafeteria.
“The company was aiming big for a public listing before the pandemic,” said Huang. “Now, the consensus is just trying to seize possible opportunity to survive.” They added that the firm has cut headcount by a third over the past three years and may let go of more people in the future.
Quiet firings
Employees in the so-called new economy are suffering too.
In industries such as electric vehicles, batteries or solar and wind power, the average entry-level salary declined 3.6 per cent to 13,755 yuan in June from a year ago, according to a private survey by Caixin Insight Group and Business Big Data. That’s the worst drop since at least 2015, despite double-digit growth in investments and exports. Wages declined again in August by 1.8 per cent compared with a year earlier.
The once free-wheeling technology sector is still grappling with the fallout of the common prosperity crackdown, which has wiped out billions in market value over the past two years. While policymakers signalled an end to the clampdown in July, the industry’s prospects remain uncertain.
China’s giant tech sector cut tens of thousands of jobs in 2022 in an unprecedented wave of cost controls, and of those, the industry’s twin stars – Alibaba Group Holding and Tencent Holdings – let go more than 20,000 employees alone. Many laid-off workers are willing to accept up to a 50 per cent pay cut for a new position, according to Prima Yi, a tech headhunter with Shanghai Jinfang Management Consultancy. Meanwhile, firms have become more cautious about offering pay increases and promotions to woo new candidates, she said.
Redundancies appear to be slowing, but quiet firings continue behind the scenes. One Shenzhen-based Tencent employee was asked to find a new job by her boss, who explained the human resources department would tell her next employer that she’d resigned. The strategy worked – when she took a new job with Alibaba in Beijing, she bagged a pay raise, although at 20 per cent it was less than half the amount she’d come to expect as industry standard.
Local government strain
Even China’s “iron rice bowl” – jobs that typically guarantee a modest but stable paycheck for life – is showing cracks. The government is trimming a combination of bonuses, cash subsidies and base pay for many employees, according to interviews with 10 local civil servants.
As a prison officer in a city in northern Guangdong province, Jason Wu has enjoyed annual pay rises for half a decade. But his bonus has been shrinking since 2021 without any official explanation, leaving his overall compensation 15 per cent lower. After spending most of the pandemic barred from travel – even to attend his grandmother’s funeral – and socialising, he’s dismayed.
Cuts like Jason’s are a sign of the strain on local governments as China’s property crisis deepens. Already weakened by pandemic-control costs, the massive drop in income from land sales has hit governments hard, and civil servants in poorer provinces are suffering most. In one heavily indebted northern province, an official said his overall pay had been cut by 35 per cent while another reported his bonus had been close to zero for three years.
Some government employees have been asked to return bonuses or cash subsidies going back as far as five years. For those without savings, repayment means a drastic drop in their monthly wages. Two officials in Chengdu and Shenzhen said they’ve been told to return payments designated for alleviating the impact of extreme climate events like flooding – in addition to coping with an overall drop in salary.
Plunging confidence
Beijing has ramped up restrictions on sensitive or unflattering information about the nation’s faltering recovery as growth has slowed, making pay cuts increasingly hard to quantify.
Liu Yuanchun, president of Shanghai University of Finance & Economics and a sometime adviser to the Politburo, is one of the few prominent Chinese economists to speak out on the issue of wages. “If we let the pay cuts become a trend, this will be very bad for the recovery of confidence and consumption,” he wrote in a May article. “We must not let the downward spiral of falling prices and income be formed.”
But wage pressures are now spilling over into broader sentiment. While nationwide salaries rose after the pandemic, confidence in the job market and incomes plunged to new lows. For the past five quarters, the Income Confidence Index – a gauge measuring near-term income expectations – has indicated an expected contraction in future income, according to the central bank’s quarterly survey published in late June. It’s a record slump in a dataset that dates back to 2001.
Some workers are considering moving out of big cities as a result.
Tech worker Li worries that gender discrimination will make her job more precarious as she approaches age 35 and thinks about starting a family. A layoff would make her Beijing mortgage impossible to manage. So she and her husband may relocate to Xi’an, giving up access to better-quality healthcare and education in return for lower living costs.
Continued urbanisation is key to the economy’s transition into high-value services and production. If the promise of a better life in the big city loses its appeal, avoiding the middle-income trap only gets harder.
China’s 10 biggest cities only account for about 12 per cent of the country’s population. And a slowdown in inflation this year – prices rose by the least in over a decade during the January-August period – may lift the living standard of those who still experience wage growth. But the spending problem will be compounded if salary stagnation spreads beyond the middle-class jobs that dominate metropolises to further deepen deflationary pressures and the property slump.
“If wage declines are happening for white-collar workers, that is quite a worrying sign with respect to the broader structural concern about economic rebalancing,” said Eli Friedman, a professor at Cornell University’s School of Industrial and Labor Relations who specialises in Chinese labour politics and urbanisation. To increase domestic consumption, he added, “individuals and households need to have more money and more confidence about the future.”
Older workers
Tougher working conditions and a slowing economy risk undermining the implicit social contract in China. For decades, millions of people have accepted limited personal freedoms in exchange for a better life. Now the opportunities – for a better job, more money and the chance to buy a home guaranteed to make you richer – appear to be fading.
Under-25s are bearing the brunt of this shift. Official statistics in June showed more than one in five could not find a job, before China stopped publishing the numbers. But the data also point to tougher conditions for older workers in cities, who are hanging onto jobs for longer at a moment when they’re also expected to put in more hours.
Since 2020, the official jobless rate in 31 major cities has exceeded the national average, but unemployment among staff aged 25 to 59 reached a record low of 4.1 per cent in May and June. Meanwhile, average working hours have hovered close to 50 a week since April – the highest level since data began in 2018.
“Older workers in big cities have become willing to accept lower wages and longer hours in order to save up and increase their sense of security,” said Gao Shanwen, chief economist at Essence Securities who has advised former premier Li Keqiang and various government agencies in the past. “This has squeezed out younger workers.”
China doesn’t permit labour unions that are independent from the Communist Party or the government, leaving workers with few opportunities to bargain with employers.
Downward spiral
Ensuring the labour market can provide enough jobs is one of the government’s top priorities, with various measures in place to drive growth, such as expanding recruitment by state-owned enterprises.
But so far, authorities haven’t launched any significant efforts to boost wages. Household savings rose by 11.9 trillion yuan in the first eight months of this year – up 10 per cent from a year earlier, official statistics show. That’s after savings soared 80 per cent in 2022.
In the US, the Biden administration turned to cash handouts to boost post-pandemic consumption and confidence. But China is unlikely to follow suit. While the government has made numerous modest policy announcements to support real estate and other sectors, Xi has previously lashed out at “welfarism” as an approach that encourages “lazy people.”
For Jason Wu, it’s unclear if his paycheck will ever return to what he once considered the norm.
“No one explained to us if those bonuses will still be paid, or when they may be paid,” said Wu. “But I don’t really need them to tell me. I just need to look at how bad the economy is.” BLOOMBERG
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