In Depth: China’s Securities Firms Rein In Pay Packets as Pressures Mount

Chinese securities firms, traditionally known for their high compensation packages, are dealing with industrywide pay cuts, driven by government pressure to moderate excessive remuneration and the impact of tightened regulations on IPOs amidst a struggling stock market [para. 1]. In response to losses in the first half of last year, a major securities company's research department began slashing salaries and laying off staff, reducing its workforce from over 200 to around 150 individuals [para. 2]. This reflects broader industry rumors about a government-mandated pay cap primarily affecting major financial institutions controlled by state authorities [para. 3].

The controversy surrounding substantial pay in the industry has intensified post-pandemic due to increasing unemployment and income insecurity during the nation’s shaky economic recovery. This has been exacerbated by President Xi Jinping’s “common prosperity” policy, which pushes for income equality [para. 4]. Financial reports confirm this trend. Half of the 44 listed securities firms in mainland China revealed an average annual pay of 590,000 yuan ($83,727) in 2023, marking a 3% year-on-year decrease and an 8% drop compared to 2021 [para. 5].

These reports also highlighted the financial difficulties within the industry. Total revenue of the reported firms fell by 1.8%, while net profits attributable to parent companies declined by 7.1%, for the second consecutive year of reduced profitability [para. 6]. Major firms such as Citic Securities, China International Capital Corp. (CICC), China Securities, and Huatai Securities have reported declining average salaries over the past two years. Particularly, CICC cut employee pay by almost 12% [para. 7].

Moreover, companies like China Securities, Sealand Securities, Everbright Securities, and China Merchants Securities experienced significant reductions in their employee numbers last year [para. 8]. Predictions indicate that this year's situation may worsen, especially for departments with large workforces but poor financial performance, leading to more severe pay cuts and job losses [para. 9].

The investment banking sector, in particular, has been hard hit due to a decline in IPOs and a broader stock market downturn. Securities firms aggressively recruited following the launch of the STAR Market in Shanghai in 2019, expanding the domestic IPO market temporarily. However, a slump in the stock market last year and the China Securities Regulatory Commission's suggestion to limit new listings heralded a decline in IPO registrations [para. 10][para. 11]. In 2022, the number of IPOs and the total amount raised fell by 30% and 40%, respectively [para. 12].

Consequently, the net revenue from investment banking plummeted by nearly a quarter last year compared to 2022, with CICC's revenue from this business almost halving and Citic Securities reporting a 27% decline [para. 14]. This led to personnel restructuring within investment banking departments, reallocating staff to other projects like debt financing and M&A [para. 15][para. 16]. Firms like Guotai Junan Securities took more extreme measures, downsizing their investment banking department by at least 10% [para. 17].

Regulators have continued to tighten their control on IPOs to bolster market confidence. Recently, the CSRC raised the listing requirements for companies on the STAR Market [para. 18]. State-owned firms are particularly affected, as the financial authorities have discussed implementing an annual pay cap of 3 million yuan for state-owned financial institutions [para. 19][para. 20]. While no official documents have been released yet, many senior executives and highly compensated employees are expected to face this limit [para. 21].