The news
China is clamping down on its financial sector, partly to curb alleged corruption, but analysts say the campaign could hurt the country’s already weak economy. Officials have at least three senior investment bankers arrested In recent weeks, companies have asked their workers to surrender their passports and seek permission to travel abroad, Bloomberg reported.
The arrests come just months after Chinese authorities imposed a 3 million yuan ($413,000) salary cap on top bankers at state-backed financial institutions, reversing a long-standing policy that tied income to performance to boost efficiency.
The wider crackdown also appears to have extended to the country’s once-lucrative real estate sector: the chairman of China Evergrande Group, once China’s richest man, is now reportedly being held in “special detention“in a southern city, Reuters reported.
SIGNALS
Analysts say a shake-up could be beneficial in the long run
Restrictions have hurt venture capital investment, resulting in a sharp decline in new companies being founded, according to the Financial Times — from more than 51,000 in 2018, to just 1,000 last year. But the VC shakeup could still be good for China, forcing younger and smaller companies to prioritize profitability: “It is healthy for the market in the long run,” wrote researcher Yaling Jiang. One analyst told Bloomberg that the government’s goal is to “dramatically change the distribution of the profit pie” in the financial sector, and while the current restrictions will hurt industry morale, he believes it could lead to better performance in the future.
China shifts priority to technology development amid trade barriers
Chinese leaders are putting more emphasis on building a “real” economy, namely manufacturing and technology, rather than the financial sector, which authorities describe as “illusory,” in an effort to increase self-reliance amid rising geopolitical tensions, The Diplomat reported. While salaries in artificial intelligence a bangAnalysts believe that such restructurings “driven by political mandates rather than market forces” could take a huge human toll as young professionals grapple with job insecurity and high work demands. Analysts fear that this “can drive away highly qualified talentwhile even the best graduates struggle to find jobs.