It’s time for China’s investment bankers to put their luxury cars and Shanghai’s nightlife on hold. China’s Communist Party, under the leadership of President Xi Jinping, is shifting focus toward a principle it calls “common prosperity,” a campaign geared toward economic equality launched in 2021. The campaign is causing ripples across the finance industry, specifically targeting the hedonistic culture that has grown within investment banking.
Remember this quote from Marx? “From each according to his abilities, to each according to his needs.” This is where socialism comes back to bite you. While few people feel sorry for investment bankers and whether they “earned” their money is open to debate, China has decided they have too much and have decided, as a government policy, to take the money away.
On February 23rd, an official commentary from the corruption watchdog struck a severe tone. It issued an order to financiers to break free from “financial elitism, worship of wealth, and reverence for the West”. Adding tension to the situation, high-profile banker Bao Fan mysteriously disappeared to reportedly partake in an investigation, creating unease within the industry.
Not so long ago, a steady influx of Chinese-born, Wall Street-trained bankers was moving from London and New York to Beijing, Hong Kong, and Shanghai. These individuals often exchanged mid-level positions at elite Western financial firms for higher-paying positions at Chinese investment banks. However, this trend was not solely driven by better salaries; many bankers desired to return to their homeland, which was flourishing economically and culturally. Expanding foreign financial firms, a vibrant nightlife, gourmet restaurants, and luxurious car dealerships were additional attractions pulling them back.
In an article by Daniel Davies titled “Hedonistic Bankers Accept a Mandatory Pay Cut for the Common Good,” he argues that the perks of a banking career often boil down to two primary factors: the wealth and the lifestyle it affords. Interestingly, these same reasons often top the list of public grievances against bankers.
Davies specifically highlights the plight of Citic Securities’ employees, who, according to Bloomberg, face pay cuts of up to 15%. The motive behind this move is not due to adverse market conditions but is a direct consequence of their Beijing location and Xi Jinping’s “common prosperity” campaign. This campaign urges the finance industry to relinquish their “financial elite” mindset and curb their indulgent lifestyles.
One could interpret this as a warning of the risks of being an investment banker in a communist country. However, it is worth pondering if the capitalist world is that different? Davies points to the example of Andrea Orcel, who missed out on the CEO position at Santander due to concerns over the optics of his hefty pay package. Even though Western markets don’t have a central commission for discipline inspection, the notion isn’t entirely alien.
Yet, the “common prosperity” policy is just one of many worries for Chinese bankers. For instance, Citic hasn’t announced bonuses yet, but their competitor, China International Corporation, saw a reduction of over 40% in bonuses. Add to that potential layoffs as international banks “rightsize” after periods of excessive hiring, and the picture becomes clear: bankers in China are likely to scale back their lifestyles.
In Hong Kong, austerity measures are in full swing. From salary and bonus reductions to discouraging staff from flaunting expensive clothes and watches, Chinese financial firms are heeding Beijing’s call to bridge the wealth gap. This shift is due, in part, to a vow by the authorities to clamp down on corruption within China’s $57 trillion financial sector. In an additional bid to promote austerity, Chinese bankers are being advised to shun extravagant Western lifestyles.
China’s Central Commission for Discipline Inspection (CCDI) has pledged to escalate its efforts against what it calls “unhealthy tendencies” of the financial elite. This pledge, part of the fight against corruption, is seen as another sign of President Xi Jinping tightening his grip on the financial system. CCDI is urging financial workers to eliminate the excesses of their lifestyle, with a particular focus on ostentatious displays of wealth.
But investment bankers are not stupid, and they have options. Watch for them to leave China in droves.
Welcome to totalitarian, communist government, where your money is theirs. Where the Chinese Communist Party’s theoretical principles, morality and justice can crush an individual just for being too successful. Perhaps nobody cares about the investment bankers but think about the precedent – and who else makes a lot of money. Small business owners? Programmers and Engineers? Doctors? Or any other above-average profession where hard earned capital can be redistributed to others (namely the government) at the whim of the party.
