Welcome to Foreign Policy’s China Brief.
The highlights this week: Executives at Chinese state banks face new pay limits, Hungarian Prime Minister Viktor Orban visits Beijing, and China’s trucking industry becomes embroiled in a cooking oil scandal.
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New Pay Limits Expected in Financial Sector
China is planning an annual pay cap of 3 million yuan (about $413,000) for executives in the state-owned financial sector, which dominates banking in the country. Financiers’ pay has already fallen since the COVID-19 pandemic amid a general economic slowdown and a calamitous stock market. Rolling corruption investigations, meanwhile, have snatched up many staff, with more than 30 senior regulators or bankers arrested so far this year. Some major banks have already seen across-the-board pay cuts of 10 percent or more.
Pay inequality is a big topic on the Chinese internet—a rare strain of anger that is both contentious and ideologically acceptable to the Chinese Communist Party (CCP). President Xi Jinping has pushed the idea of “common prosperity,” which makes it difficult for censors to crack down on complaints about the country’s wildly skewed wealth distribution.
Critics say the proposed pay restrictions will drive away talent and constrain China’s ambitions to build banks that can compete globally. That has already been the case among financial regulators, where deep pay cuts last year resulted in an exodus of the best staff.
Talent could flee from state banks to nonstate firms such as hedge funds and private equity, but the picture there, too, is fairly bleak amid declining investment in China. They might also join China’s ultra-rich in leaving the country entirely.
It could also be that the pay limits will count more on paper than in practice. The 3 million yuan figure harks back to similar measures imposed by the government in 2009 on executives at state-owned firms. Pay was capped at 2.8 million yuan (equivalent to about $385,000 today) in the aftermath of the global financial crisis.
But those regulations were barely applied, and within a couple of years, executive pay commonly exceeded the cap. Officially, the 2.8 million yuan limit was never removed.
The tiny rise in the official pay cap reported last week—just 7 percent, in a country where GDP has more than tripled since 2009—suggests that the limit is either wildly low or isn’t expected to be taken seriously.
Executive compensation at Chinese firms, especially state-owned ones, is opaque, with the rewards of a powerful job often coming through backdoor methods. Regulations issued in 2010 by the China Banking Regulatory Commission state that executives’ base salaries should make up no less than 35 percent of their total compensation, but that proved no more enforceable than other limits.
The opacity of compensation at state-owned firms is part of a much wider problem. Pay for government officials is both far too low and completely untransparent.
On paper, Xi himself makes only $1,833 a month, and many officials receive around $1,000 a month—comparable to amounts earned by the very lowest end of the Chinese urban middle class. But in reality, officials are compensated generously through government benefits, including housing benefits, subsidized meals, and annual bonuses.
Then there’s the money made illicitly. One study of high-ranking officials convicted for corruption found that they earned between eight and 14 times their annual income through graft. At the top, Xi’s family has accumulated a billion-dollar fortune—one of the most taboo subjects in Chinese reporting.
It might well be better for everyone if officials were properly and transparently compensated—as they are, for instance, in Singapore. But the CCP fears resentment against well-paid government officials. As a result, the last publicly announced pay raise was in 2015; it increased salaries by at least 31 percent for most officials but doubled or tripled the salaries of some of the lowest-ranked rural staff. The last pay raise before that was in 2006.
According to that timeline, another pay raise for officials could be expected this year or next. But local governments are going through a massive cash crunch, since the pandemic crash bought decades of accumulated debt to a crisis point. Some are struggling just to make payroll at all, and benefits have been slashed. Temporary staff are being hired for as little as $2,300 a year.
Being paid a mere $400,000 a year might be onerous for bankers—but compared with most other government workers, it’s the lap of luxury.
What We’re Following
Philippine murders. The kidnapping and killing of a Chinese citizen and a Chinese American in the Philippines have worsened already tense relations between Manila and Beijing, with China calling for harsh punishment for the perpetrators. The two victims were reportedly in the Philippines on business travel.
Ethnic Chinese citizens of Southeast Asian countries, a relatively wealthy group, are often targeted for kidnapping and ransom. The problem has grown with the rise of cryptocurrencies—which offer a largely untraceable form of ransom payment.
China has been historically ambiguous about the protection of ethnic Chinese people elsewhere in Asia. Beijing did little, for instance, to protect Chinese Indonesians during repeated pogroms but took in hundreds of thousands of Chinese Vietnamese expelled from the country after Beijing’s failed 1979 invasion.
Meanwhile, China has moved a “monster” coast guard ship—one of two in its fleet—inside the Philippines’s exclusive economic zone. The move is an attempt to intimidate Manila over the continuing standoff around Second Thomas Shoal, a disputed set of rocks in the South China Sea where the Philippines grounded a ship to act as a base 25 years ago.
Orban in Beijing. Hungarian Prime Minister Viktor Orban is in Beijing this week, where he has been fulsomely received by Xi. Orban, who has parroted Russian talking points and hampered Western aid efforts amid the war in Ukraine, is nominally supporting China’s mediation efforts in the conflict. In May, China and Brazil released a joint peace proposal that many Ukrainians have dismissed as pro-Russian.
Orban is fond of accusing his enemies of being communists but has no problem with the actual Chinese Communist Party. His government has brought Budapest much closer to Beijing, and Xi sees it as a rare ally in a Europe increasingly skeptical of Chinese influence. Hungary took over the European Union’s rotating presidency on July 1.
Tech and Business
Third Plenum. An important meeting in the Chinese political calendar is finally set to be held next week after a rare delay. The Third Plenum of the CCP’s Central Committee—the clumsy name means it’s the third such meeting in the five-year cycle of Chinese governance—has been associated with market reform efforts in past cycles. This time, it is likely to further solidify state power, centered on Xi. The meeting was scheduled to be held in 2023, but it was delayed for unknown reasons.
The usual propaganda push surrounding the Third Plenum is already in full swing, instructing Chinese citizens about the importance of Xi. Investors are hoping for big stimulus efforts to jump-start the stalled Chinese economy. If those measures come to pass, they are likely to focus on strategic sectors and competition with the United States rather than on attempts to boost domestic consumption.
Cooking oil scandal. China is in the midst of one of its periodic food safety scandals. This time, the hubbub revolves around the use of tankers that transport both commercial oil and cooking oil. Cooking oil is a perpetual source of uncertainty in the Chinese food chain; past controversies have involved so-called gutter oil that is recycled from waste.
Food hygiene in China is a disaster thanks to a lack of effective regulation. One persistent problem is the cold storage chain. As reported in Nicola Twilley’s recent book Frostbite, less than a quarter of the country’s meat—and less than 5 percent of all vegetables—is transported or stored under refrigeration. That, in turn, is in part because of the country’s trucking crisis: The mom-and-pop truckers who haul China’s food simply can’t afford refrigerated vehicles.
FP’s Most Read This Week
A Bit of Culture
Many Chinese poems survive without any poet’s name attached to them. This Yuan dynasty lyric is one such example. Appropriately enough, it’s about time washing away the great men of history.—Brendan O’Kane, translator
Let fortune change, for good or ill—The Jade Hare of the moon will stillRise nightly from the east.Whoever lost, whoever won,It will not in the leastDetain the westering Gold Bird of the sun.
So what are wealth and glory worth?The victorious founder of the HanWho cleaved the great white snake in twoDefeated his mighty foe, Xiang Yu,Who could hoist bronze cauldrons with his bare hands—And nothing now remains but grave-mound earth.
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