Jeffrey Wu

The View | How China’s move to cap salaries is redefining finance’s role in society

The measure shows the central government sees finance as a support mechanism for the real economy, not a stand-alone profit centre

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A pedestrian walks through Pudong’s Lujiazui Financial District in Shanghai in January 2023. The government has announced plans to cap the annual salaries of financial workers at around 3 million yuan as part of efforts to redistribute talent and resources to more productive parts of the economy. Photo: Bloomberg

Jeffrey Wu

Published: 8:30pm, 26 Jul 2024Updated: 9:35pm, 26 Jul 2024

After China concluded its third plenum, the key policy meeting that will shape the nation’s economic blueprint for the next decade, the central message remains clear: stay the course. No major stimulus was announced, and neither were there significant policy deviations from the steadfast pursuit of “high-quality development”. Instead, President Xi Jinping called for the party to show “unwavering faith” and commitment to the established path.

One potentially significant policy emerged before the plenum, with the government moving to cap the annual salaries of financial workers at around 3 million yuan (US$412,460). The measure, targeting state-backed financial institutions, marks a notable step in China’s pursuit of common prosperity and is emblematic of Xi’s governance ethos of strategically reallocating resources to areas deemed critical to enhancing the nation’s core strengths, with finance increasingly falling to the periphery.

The proposed cap places the highest level of earnings well above the top 1 per cent of income brackets in China. For context, the cap is larger than the median base chief financial officer salary of US$362,000 in the United States and is on a par with the salary of US presidents, albeit without the latters’ extensive benefits.

While seemingly a simple measure to limit high earnings, its implications are profound and touch on various aspects of labour productivity, economic stability and China’s strategic view of the finance industry itself.

High salaries have traditionally been a significant draw for top talent, fuelling ambition and driving performance. However, instituting a cap now and establishing clear future guidelines could shift the focus from personal financial gain to collective organisational and societal objectives.

This approach could inspire professionals to find fulfilment in contributing to the greater good. By attracting intrinsically motivated individuals aligned with these goals, the government can redirect skilled professionals to other critical industries.