The News
China is piling pressure on its finance sector, in part to curb alleged corruption, but analysts say the campaign risks harming the country’s already languid economy. Officials have arrested at least three senior investment bankers in recent weeks while firms have required staff to hand in their passports and seek approval for foreign travel, Bloomberg reported.
The arrests come just months after Chinese authorities instated a salary cap of 3 million yuan ($413,000) on top bankers at state-backed financial institutions, reversing a long-standing policy that tied income to performance to incentivize efficiency.
The broader crackdown has also seemingly spread to the country’s once-lucrative property industry: The chairman of China Evergrande Group, once the richest man in China, is now reportedly being held in “special detention” in a southern city, according to Reuters.
SIGNALS
Shakeup may prove beneficial in the long run, analysts say
Restrictions have hurt venture capital investment, resulting in a sharp fall in new businesses being founded, according to the Financial Times — from over 51,000 in 2018, to barely 1,000 last year. But the VC shakeup may yet be good for China, forcing younger and smaller companies to prioritize profitability: “It’s healthy for the market in the long term,” the researcher Yaling Jiang wrote. An analyst told Bloomberg that the government’s goal is “to profoundly change the distribution of the profit pie” in the financial sector, and even though the current restrictions will hurt industry morale, he believes it could spur better performance in the future.
China shifts priority to building up tech amid trade barriers
China’s leadership is placing more emphasis on building up a “real” economy, namely manufacturing and technology, instead of the financial industry, which authorities describe as “illusory,” in a bid to increase self sufficiency under mounting geopolitical tensions, according to The Diplomat. While salaries in artificial intelligence saw a boom, analysts believe such restructuring “driven by political mandates rather than market forces” could come at profound human costs, as young professionals grapple with job insecurity and high work demands. Analysts fear this “may push high-skilled talent away,” as even top graduates struggle to find jobs.
