As the Chinese economy shows no signs of improvement, instead its major sectors, including real estate continue to face crisis. Banks across the country have resorted to salary cuts of their employees, while some financial institutions have asked their staff members to even return their performance-based bonuses.
In China, as many as 10 state-controlled financial institutions asked their employees to pay back performance-based bonuses worth $13.8 million, while around a dozen national banks controlled by shareholders cut salaries of their staff members as they lacked fund to manage their affairs amidst piling debt woes, data retrieved by South China Morning Post from the 2023 annual financial reports of Chinese banks, reported.
Bohai Bank, which is based in Tianjin, China’s most important manufacturing hub and one of the four autonomous municipalities, reported the largest pay cut of 11.8% to an average annual salary of 438,000 yuan ($60,621) per employee in 2023. Another financial institution, Ping An Bank, which offers services in retail and corporate banking, including investment banking services and has its headquarters in Shenzhen, reported an 8.5% cut in annual salary of each of its employees.
China Merchant Bank and China CITIC Bank International reported 6% cut in their employees’ salaries. Industrial Bank registered a 3.3% cut, while China Everbright Bank reported a cut of 3% in salaries, data gathered by the Hong Kong-based English daily newspaper from annual reports of these banks showed. However, Bloomberg News in its report on September 13, 2023 said that China CITIC Bank International, which is one of the country’s top investment banks, cut some of its employees’ basic salaries by up to 15 %. The New York-based international news agency further said that China International Capital, a partially state-owned investment and financial services company, cut its senior employees’ compensation, including bonuses by more than 40%.
Analysts say despite the Chinese government’s stress on increasing household consumption, employees of banks and other sectors are facing salary cuts in the country. Bloomberg News said in finance and beyond, China’s corporate sector often “boost compensation with cash payments nominally aimed at improving one facet of life or another. But even these are now deemed too luxurious.”
However, cost cutting exercise in Chinese banks is not just limited to employees’ salary, it also involves return of bonuses employees received in terms of perks and other incentives as well. As per data from Chinese banks’ annual report, 10 financial institutions, including state-owned banks, revealed they demanded employees to return performance-based bonuses worth around 99.88 million yuan ($13.8 million).
Leading the pack of banks asking employees to return bonuses they received in the year 2023 was China Merchants Bank as it ordered as many as 4,415 staff members to return a total of 43.3 million yuan. It was followed by Bank of China which requested 2,059 employees, while 499 employees at Bohai Bank were also ordered to return bonuses, annual bank filings of 2023 revealed.
Presenting a chilling report on the worrisome situation of China’s financial institutions, South China Morning Post said almost all employees in the industry have experienced salary cuts in the past few years. “The ratio of actual wages to payable wages is around 60%,” a banker quoted by the Hong Kong-based English daily newspaper said. Banks, majority of which are controlled by the state, account for around 90% of China’s 461 trillion-yuan financial industry.
However, it is not only banks, other sectors like electric vehicles, batteries, solar and wind power are also experiencing problems in China. According to a survey done by Caixin Insight Group and Business Big Data Co, the average entry level salary declined 3.6% to 13,755 yuan in June 2023 from a year ago.
Slump in the property sector, mounting local government debts, weak spending and high-rate of unemployment are the key reasons for overall economic woes in China. In particular, the crisis in the property sector has eroded the balance sheets of the country’s banks as their bad loans creep up. For example, Industrial &Commercial Bank of China in its recent filing on March 27, as per Bloomberg News, reported its bad loans from residential mortgages rising to 9.6% to 27.8 billion yuan. Bank of Communications reported its property-related bad loans jumping to 4.99% at the end of 2023 from 2.8% in 2022. The Agriculture Bank of China reported a 4.7% in bad residential mortgage loans last year.
China’s real estate market has been facing a crisis since 2021 when the government introduced measures to put a curb on borrowings by big property developers. Property developers like Evergrande and Country Garden have defaulted on their debts in the past few years. Country Garden, which defaulted on its overseas debt last year, is now facing a winding-up petition in a court, while Evergrande was ordered to liquidate by a Hong Kong court in January this year.
The property sector accounts for around a third of the Chinese economy. In 2023, overall housing sales declined by 6.5% in comparison to 2022 and 35.9% from the beginning of the crisis in 2021 in China. As a result, the impact of the crisis in this sector is having a major bearing on the other areas of the country’s economy.
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