Xi Jinping’s vision of a modern financial system with “Chinese characteristics” increasingly means that hopes of Shanghai one day rivaling major financial centers like New York or London are drifting away.
Photographer: Qilai Shen/Bloomberg
Xi Unleashes a Crisis for Millions of China’s Best-Paid Workers
China created a professional class in record time. Now, just as swiftly, many of their dreams are being crushed.
It’s 1 a.m. and Thomas Wu is riding his bike on the empty streets of Shanghai. The 43-year-old insurance executive has had another meltdown.
Wu’s pay has been slashed by 20% in a nationwide push to lower salaries at state-owned finance companies. He frets about layoffs and wonders how he’ll find 600,000 yuan ($84,500) to keep his two children in international school — a hallmark of upper-middle-class life in China. His six-year-old is behind in math.
“What’s the point of driving our kids nuts studying so hard?” Wu said. “The top-tier graduates can’t find a job, those who come back from overseas can’t find a job.” Pay increases, he says, are no longer tied to effort. “My work is meaningless.”
Big Take Asia
China's Bankers Reel From Xi Crackdown
Wu is one of the millions of ambitious Chinese professionals who’ve had their lives upended by President Xi Jinping’s decision to reshape the world’s second-largest economy. Industries such as finance, consumer tech and property — key drivers of China's growth for much of this century — are now out of favor. Instead, the most powerful Communist Party leader since Mao Zedong is funneling resources toward endeavors such as electric vehicles and chip production. “High quality” growth is the new mantra, not “high speed.”
The shift has left many Chinese strivers adrift. Instead of getting rewarded for long hours and risk-taking, they’re facing salary cuts, redundancies and attacks from the government on what it considers their “hedonistic” lifestyles. A popular meme, denounced by state media, describes the prevailing mood: "garbage time of history."
That's a crude oversimplification, but it underscores a serious problem for China and the world. The sense of malaise among many of the country’s best-educated workers risks exacerbating the gloom enveloping China’s $18 trillion economy. The stock market is underperforming global peers, consumer spending is hovering near the weakest levels since pandemic lockdowns and deflation shows signs of spiraling. There’s also a sense of stasis within China's sprawling government bureaucracy and state-owned companies, where employees see limited upside for taking initiative and limitless downside if things go awry. At least three top investment bankers from different securities firms have been detained by Chinese authorities since August, the latest phase of a corruption crackdown that has ensnared some 4.7 million people, according to the state-run Xinhua News Agency.
Longer term, the dislocation poses an existential question: What happens to an economy when you demotivate and demoralize some of your best and brightest workers?
“This signifies a dangerous undercurrent in the nation’s workforce,” said Christopher Marquis, Sinyi professor of Chinese management at the University of Cambridge. “These individuals were key drivers of China’s economic miracle, but their disillusionment could lead to a broader societal crisis as it challenges the Communist Party’s narrative of prosperity through hard work.”
Some argue that for Xi, the pain endured by people like Wu is a necessary sacrifice. The Communist Party has often been skeptical of the finance sector, viewing it as enriching a few people at the expense of the working class. Those perceptions were reinforced by watching the US's experience with the 2008 global financial crisis and hollowing-out of the manufacturing sector, which led to growing social instability and the rise of Donald Trump. Xi's determined to turn the world's second-biggest economy into a high-end manufacturing powerhouse that can be self-sufficient as the US moves to deny China advanced technology, and military tensions rise over Taiwan. Bloomberg Economics forecasts the high-tech sector will account for 19% of gross domestic product by 2026, up from 11% in 2018.
High-Tech Sector Set to Overtake Real Estate
Percentage share contributions to China's GDP
Source: Bloomberg Economics
But the transition threatens to leave huge chunks of the economy, and the professional classes, in its wake. Property accounted for almost a quarter of the economy at its peak, before a government crackdown on developer borrowing sent the over-leveraged sector into freefall. Finance alone employed almost 8 million people as of 2022 and offered some of the highest salaries.
Interviews with more than a dozen people in financial services and other now-unpopular industries, some of whom asked to be identified only by their first names for privacy reasons, reveal a cohort struggling to cope with the upheaval of old certainties. Many highlighted the stress brought on by salary cuts, escalating scrutiny of expenses and the sting of being shamed on social media for their affluent lifestyles.
“It feels like we’re rats in the street smacked by everyone,” said Tracy, a securities firm worker in Beijing. “The country doesn’t seem to value its financial talent.”
Out of Favor
To officials in Beijing, that has a kernel of truth: Policy makers generally see inequality as a bigger political risk than poverty. Financial workers on average make almost seven times more than the typical wage, and efforts to crack down on the industry have received praise on Chinese social media. As Xi tightens his grip on the country, he’s trying to remake it into a sector that is instead “servicing the people.”
The country’s top state banks, brokerages and asset managers have been urged to slash pay and budgets. China International Capital Corp. last year cut 2022 compensation for some senior bankers by 40%, while Citic Securities Co. lowered basic salaries by 15% for some staff. Business-class travel is becoming a thing of the past, as are public displays of wealth. Analysts at CICC were told to avoid wearing luxury brands or revealing their compensation to third parties. Some companies are even clawing back pay from previous years to comply with a newly imposed salary cap of 2.9 million yuan.
The pressure extends well beyond compensation. As part of the sector crackdown, Xi has told financial regulators to “grow teeth and thorns” and weed out excess and corruption. Bao Fan, one of the nation’s most well-known dealmakers, was detained last year without any official explanation, while at least two senior financial executives have been sentenced to death over the past few years. There were at least 130 executive and government official investigations or penalizations in 2023 alone.
Xi’s vision of a modern financial system with “Chinese characteristics” increasingly means that dreams of Shanghai one day rivaling major financial centers like New York or London are drifting away. Capital outflows worsened in July, as banks sold a net $45.7 billion of foreign exchange to clients, the most in more than eight years.
Soon, “the financial sector will have only three types of players: government-run banks, government-run insurance companies and government-run wealth management companies," said Zhiwu Chen, a finance professor at the University of Hong Kong. “In a government-led command economy, there is really not that much for financial markets to do; there is especially no room for highly paid financial professionals.”
Some are leaving voluntarily, dismayed at the scale of the decline and the arbitrary nature of the salary cuts. Nathan, a 35-year-old worker at a mutual fund company in Shanghai, said he’s weighing opportunities outside China. “I’d be wasting at least three to five years of my life if I stay here.”
Others like student Kefei Tian are switching tack — in her case changing from finance to transportation engineering because it seems safer, even though it’s not her dream. Overall, competition has eased for slots in finance and economics programs at Chinese universities, while energy and math are becoming popular.
Shifting Requirements for College Majors in China
It's now easier for students to get a place on a finance program
Source: MetroDataTech
Note: Percentage point change in average admission cutoff percentiles 2017 vs 2023
That re-allocation of talent bodes well for the transition that Xi is trying to engineer. Indeed, many companies in what Beijing has dubbed the “new three” products — EVs, lithium-ion batteries and solar panels — are growing rapidly. BYD Co., the electric vehicle maker backed by Warren Buffett, has tripled staff to more than 700,000 in the four years through the end of 2023. Chip industry sales meanwhile have risen 38% in the same period.
“Pessimism on China’s prospects is understandable but also overdone,” said Chang Shu and Eric Zhu, economists with Bloomberg Economics. “The government might just be about to pull off a great rebalancing.”
But for those too old to go back to school and retrain in the STEM skills now in high demand, there aren’t many options for other jobs. Wall Street firms, which pumped billions of dollars into China in the hopes of striking investment-banking gold, are also retrenching. Vanguard Group Inc. planned to close its operations, while Van Eck Associates Corp. has retreated. Others, including Goldman Sachs Group Inc. and JPMorgan Chase & Co., have made several rounds of job cuts in Asia as stock sales and mergers tumble in mainland China and Hong Kong.
Pay Checks Under Pressure
Average compensation at four top Chinese finance firms, vs Goldman Sachs and Morgan Stanley
Source: Company filings analyzed by Bloomberg
Note: Compensation per employee indexed to 2020 level as 100 for each firm
Finance isn’t the only industry feeling the squeeze. The consumer tech sector has been comprehensively humbled. China’s once-famous BAT internet platforms — Baidu Inc., Alibaba Group Holding Ltd. and Tencent Holdings Ltd. — shed more than 63,000 jobs combined since the crackdowns, according to data compiled by Bloomberg. The government’s spiking of Ant Group Co.’s initial public offering at the 11th hour four years ago halted what would have been the world’s biggest IPO, marking the start of a regulatory campaign to rein in the sector that had grown perhaps too large and powerful for comfort. The main players today are a shadow of their former size and swagger.
Real estate remains in deep trouble, as Beijing’s modest efforts at stimulus have done little to reverse a devastating slump that’s triggered liquidation threats for dozens of firms and prompted $130 billion in US dollar debt defaults by China Evergrande Group and others. While economists had long urged China’s authorities to address the real estate bubble, its abrupt puncture has tossed some 500,000 people out of work in the three years through 2023, according to data from consultancy firm Ke Yan Zhi Ku.
They include people like Ivy Zhang. In the go-go years, she often worked until 11 p.m., selling more than $100 million in real estate for Country Garden Holdings Co. She once made the annual equivalent of $83,000. Now she’s peddling health supplements on social media.
“If you still want to live like before, you’re basically dreaming,” Zhang said in an interview earlier this year. She’s postponed having a baby, cooks her own meals to avoid takeout and minimizes socializing to cut expenses.
Cast Adrift
It’s not the first time a generation has been cast adrift in China. Just as young people were sent to the countryside in the 1960-70s under Chairman Mao, and factory workers got laid off in the 1990s, this clutch of professionals is finding itself crunched in an intense clash of values. A generation shaped in an era of reform that lauded individual ambition and wealth accumulation is now trying to find their way through a system that’s reverted to its more rigid roots under Xi.
“Hopes raised and dashed are a recurring pattern” in China, said Anne Stevenson-Yang, co-founder of J Capital Research Ltd.
To be sure, not everyone is unhappy about the crackdown. On social media, some have applauded the move to curb salaries and rein in the financial sector. The $39 million purchase last year of a Shanghai villa by a quantitative hedge fund manager — with the housing market in freefall — only added to the sense of fury about ostentatious displays of wealth.
Even though China has made great strides to reduce poverty in recent decades, the nation’s rising wealth hasn’t been shared equally. Research from Stanford University’s Center on China’s Economy and Institutions found that the share of income earned by the top 10% of the population jumped to 41% in 2015, from 27% in 1978. By contrast, the share earned by the bottom half — a group that includes 536 million adults — has dropped to just 15%. The country’s Gini coefficient, which measures inequality, was 37 as of 2020, in line with the US at almost 40, based on World Bank data.
“No one ever shed tears for financial sector staff and their comp schemes,” said George Magnus, an associate at the University of Oxford China Centre.
China's Finance Industry Still Offers Some of the Highest-Paying Jobs
Top 10 sectors by average monthly hiring salary in yuan
Source: Zhaopin, Bloomberg
Note: Data as of 2Q of 2024.
Yet there’s the longer-term risk that such punitive measures could inflict harm beyond the affected sector. Some 200 million people have white-collar jobs in China, almost equal to the population of Brazil. While high-flying finance and consumer tech roles are a relatively small proportion of that, the humbling of their ambitions has been very public.
Former US Federal Reserve governor Frederic Mishkin once called financial systems the brains of an economy, notes Todd Knoop, a professor of economics and business at Cornell College in Iowa who leads a China program. “You could argue that the Chinese economy has a form of brain damage,” Knoop said. “Younger people and middle-aged people are more pessimistic — as they get more pessimistic, their consumer spending slows and the economy slows.”
Consumer confidence is hovering at a record low and spending is exceptionally weak. There’s been a steady drumbeat of global brands once favored by the aspirational classes — including Starbucks Corp., L’Oréal SA and Gucci-owner Kering SA — who’ve reported slowing demand. Not even Temu-owner PDD Holdings Inc. has been immune. The online retailer, which had been a market darling for its low-priced goods, suffered its biggest single-day stock decline on record last month after releasing a gloomy outlook. During a post-earnings briefing, Chief Executive Officer Chen Lei mentioned at least eight times that revenue and profits must “inevitably” decline as growth slows.
The spending pullback is exacerbating a prolonged economic slowdown as a crushing housing slump extends into its fourth year. Growth in the second quarter fell to the slowest in five quarters, continuing the steady march down that’s seen expansion slow every year for most of the past two decades. UBS Group AG last month cut its growth forecast to 4.6% for this year, putting China’s roughly 5% target out of reach. The International Monetary Fund expects that number to decelerate to just 3.3% by 2029. The days of double-digit jumps are long gone.
Economists are now becoming increasingly concerned that China might be entering a deflationary spiral, where households cut back on spending or delay purchases because they expect prices to fall further, adding to downward pressure on corporate revenue, stifling investment and leading to more salary cuts and layoffs.
China’s Slowing Economy
Pace of GDP growth is expected to decelerate further
Source: Bloomberg
This economic uncertainty is weighing on those even personally unaffected by the crackdowns. Over 1.2 million people have left the country since 2021 according to United Nations data, including entrepreneurs and some of the more affluent. And the outlook is giving families little motivation to have children, with the birthrate hovering close to a record low. Beijing announced last week it plans to increase the retirement age to stem the labor force decline.
The frustration runs so deep it’s spawning vernaculars. Buzzwords have cropped up like “tang ping,” or “lying flat,” meaning to avoid excess work and ambition. “Nei juan” depicts the fierce competition for just about everything.
It’s particularly bad in the cast-off sectors. A recent poll found anxiety and depression were the top concerns for people in China. Students and workers in tech and finance were major sources of clients seeking mental health support, according to the survey of 60,000 respondents by consulting firm Jiandanxinli.
The recent, sudden death of a female worker at CICC helped crystalize these concerns, sparking widespread social media discussions about mental health. The details of the incident weren’t disclosed by the company.
When workers’ values clash with an organization, it’s natural they sense distress and displacement, said Michael D. Yapko, a clinical psychologist in California who specializes in depression. “What keeps people going is that vision of purpose, and as soon as you take that away,” problems appear, said Yapko, the author of Depression is Contagious.
The downbeat mood is starting to pervade the sector, according to workers like Sharon Cao, who says Stilnox sleeping pills are her “best friend.”
“There’s no hope,” said Cao, an executive at a mutual fund firm who recently sold her Porsche. She avoids dining out, as she expects a further pay cut this year. “Your fate and capability have no correlation.”
Still, many are resigned to the new reality and plan to stay in their jobs, in part because they have few options. Some are still avid supporters of the Communist Party.
Malcolm Ma, an analyst in his early 30s at a Beijing securities firm, said his faith in the Party is unwavering, despite a recent 50% pay cut. He doesn’t blame the government, even though he’s been losing sleep and is so stressed his hair is turning gray.
With China’s iron-clad grip on security, widespread demonstrations by the squeezed middle classes are unlikely, even though protests are on the rise, mostly over stalled housing projects and jobs. The economic downturn is unlikely to dent Xi’s grip on power, said Patricia Kim, a fellow at the John L. Thornton China Center.
“A protest on the streets?” said Steve Huang, a portfolio manager at a mutual fund company in Beijing. “None of those complaining now would actually dare to do it.”
Still, the Communist Party is clamping down on the lingering unrest. State-run newspapers are denouncing the “garbage time of history” phrase, which describes a society where “laws of economics are violated, individuals have no power to make changes and failure is guaranteed.” Government censors have tried to scrub it from the internet.
Back in Shanghai, Wu, the insurer, grabs his Decathlon bike — his preferred mode of transport after he sold his BMW — and he rides. Every night.
He’s found a new group of friends who share the same passion and concerns. He’s decided to take his younger child out of international school to save money. The way he sees it, his only option is to lie low and try to live long enough so his kids might enjoy more normal times.
“All we can do during garbage time is pretend to work hard, avoid unemployment and stay healthy,” Wu said.
