China’s Weak Economy Fuels Securities Industry Cleanup

As 2024 begins, the Chinese stock market is in declining trend. A man walks past advertisements on a window of a securities company in Beijing on Jan. 21, 2019. Greg Baker / AFP

During the first quarter of 2024, a large number of senior executives exited China’s major securities firms culminating in widespread workforce reductions and salary cuts. Notably, industry leader CITIC Securities experienced a substantial dip in compensation levels, coinciding with resignations from key positions at firms like Everbright Securities. Executives at China International Capital Corporation (CICC) also experienced a stark reduction in their annual remuneration, plummeting from 10 million yuan ($1.38 million) to less than three million yuan ($410,000). Analysts believe that although China’s economic decline has entered a recessionary phase, such a high rate of departure of financial industry executives is abnormal.

As of Feb. 21, 22 securities firms listed in the A-share market issued a total of 47 announcements regarding personnel changes. The departing personnel include compliance directors, chief risk officers, board members, and general managers. This trend reflects a continuation from 2023 when over 30 securities firms underwent similar leadership transitions.

Of the 44 listed securities firms in China, half reported a collective net brokerage income of 75.102 billion yuan (approximately $10.3 billion) in 2023, marking a 12.32 percent decrease compared to the preceding year, indicating a second consecutive year of diminished profitability.

Notably, CITIC Securities, an industry leader, recorded a net brokerage income of $1.4 billion, retaining its top position despite experiencing an 8.47 percent year-on-year decline. GuoTai JunAn Securities secured the second spot with a net brokerage income of $938 million, witnessing an 11.16 percent decrease from the previous year.

Simultaneously, several listed securities firms, having already disclosed their annual reports, are embarking on the implementation of salary reductions and staff layoffs.

On April 3, an employee at the Shenzhen branch of GuoTai JunAn Securities informed The Epoch Times, “Salary reductions and layoffs are indeed underway.” The employee elaborated, “Previously, employees enjoyed higher earnings from more fund transactions and more fees. However, with dwindling revenues in the frontline business sector, compensation packages have significantly dwindled, while those at the company’s headquarters remain relatively stable.”

Belt-Tightening at CICC and CITIC

Established in 1995, CICC once stood tall as one of China’s premier investment banks, offering a spectrum of services including stocks, IPOs, equity investments, and wealth management.

Accustomed to million-dollar salaries, CICC executives now face a stark reality as their packages undergo a significant reduction to below half a million dollars. The average annual salary per employee also dropped 15 percent to $97,000. In 2021, the average income was $161,000, falling 30 percent in 2022.

On March 26, CITIC unveiled its 2023 annual performance report, revealing consecutive two-year declines in revenue and net profit. The aggregate pre-tax compensation disbursed to senior management totaled $13 million, reflecting a year-on-year decrease of 9.04 percent.

In June of 2023, the CITIC headquarters began reducing the fixed salaries of employees below the managing director level within the investment banking segment. The reductions for certain employees ranged from $800 to $1,400.

In addition to salary reductions, CITIC’s investment banking division recently underwent substantial personnel adjustments. An insider disclosed that amidst a surplus of personnel in the current investment climate, over a hundred individuals transitioned roles, with some moving into bond positions, a small fraction transitioning to the mergers and acquisitions sector, and a minuscule portion shifting into investment roles. These moves were in stark contrast to two years ago during periods of high IPO activity when salaries and roles were necessarily enhanced to attract and retain specialized employees.

Industry Practices Scrutinized Prompting Departures

On March 25, Wanhe Securities, a state-owned holding company based in Shenzhen, made public the resignation of its CEO, Yang Qi, who had served the company for over two decades, citing personal reasons for his departure. This announcement followed the retirement of Wanhe’s chairperson in December 2022, due to reaching the statutory retirement age.

Mr. Yang’s departure occurred after Wanhe was penalized in October 2023 by China’s Securities Regulatory Commission (CSRC) for engaging in excessive performance incentive practices. Then in January 2024, the company faced accountability for recommending the Yongji Stock Convertible Bonds project, as the issuer’s operating profit fell over 50 percent compared to the previous year, on the year of its securities issuance and listing.

On March 12, China Everbright Securities announced the resignation of its business director, Li Bingtao, who previously served as executive president of Everbright Sun Hung Kai. This marked the third time in three years that its business director position had been vacated.

In February, Zhang Dawei, former compliance director, chief risk officer, and committee member of Hualin Securities announced his resignation soon after the company was issued an “Administrative Supervision Measures Decision” from the Tibet Securities Regulatory Bureau for irregularities in its private equity asset management business.

Earlier on Jan. 17, Tianfeng Securities witnessed the collective resignation of nine directors, including the former chairperson who had served for 12 years. Within the first quarter of 2024, the chairpersons from five Chinese securities firms relinquished their positions due to age or personal reasons.

Turnover

Although the wave of resignations within China’s securities industry is being labeled as voluntary due to personal reasons, observers question whether the apparent exodus is for undisclosed reasons linked to the Chinese Communist Party (CCP) regime.

On Feb. 7 Wu Qing was appointed as the new chair of China’s Securities Regulatory Commission (CSRC). Mr. Wu promptly convened several meetings, proposing strict investigations into hundreds of companies planning for IPOs, retrospectively examining those that had already been listed to resolve any financial fraud. It is widely believed this is an attempt to address the symptoms rather than the root causes that have weakened investor confidence.

Senior analyst Zhang Shengli, who previously worked at Shanghai Securities Company, told The Epoch Times in February that there are no privately owned securities companies in China as they are all tied to the CCP. “Without a relationship [with CCP authorities], you can’t get a business license, let alone open a business,” he said. “All of this is controlled by the CCP.”

Frank Xie, professor at the University of South Carolina’s Moore School of Business told The Epoch Times that it is normal for high-level executives of any large company to resign or switch jobs for assorted reasons, but it is unusual for so many resignations to occur simultaneously.

“Senior executives know everything about the company, the real operating methods, profitability, and potential risks, like the back of their hand. Perhaps they already know the ship is about to sink, that danger is imminent, and they are abandoning ship to save themselves,” he said.

“During the fervent development of China’s economy in the past twenty years, many fundamental problems may have been covered up, including financial fraud,” said Mr. Xia. “If the overall economic environment is thriving, with all stocks rising and everyone making money, these corruption and scandals may not be exposed and would be covered up. However, once the economy declines with stock and property prices falling the entire market collapses, and deeply buried crises are exposed. Some people may want to escape punishment, and for various reasons, more executives suddenly resign.”

Current affairs commentator Li Linyi believes there are two reasons for the securities industry cleanup. Foremost, he believes the CCP is using the cleanup of corruption and arrests to reshape the securities industry to their liking. Within the past few years, many officials from the securities industry have fallen from grace. Now some of the officials simply resign for personal reasons, which makes it difficult to reconstruct their misbehavior. The CCP’s anti-corruption efforts target these people, many of whom oppose the CCP’s tactics.

The second reason for the industry cleanup, says Mr. Li, is the downturn of the stock market, which has dropped significantly compared to previous years.

“Until now, the fundamentals of the economy cannot support the rise of the stock market. It can only rise a little through manipulation, but the economy has not improved, and sooner or later, it will fall,“ he said. ”In this situation, with no hope in sight, industry executives and those whose livelihoods are within the securities industry cannot make money. Especially now, IPOs are restricted, because the CCP does not want too many companies to go public and raise funds again. In combination, these several factors have led to the mass resignations in China’s securities industry.”