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SCMP Reporter

Rule to apply at  state finance firms
The mainland has proposed a pay ceiling for senior executives at domestic financial institutions in an effort to prevent a widening income gap amid a slowing economy.
Senior executives at state-controlled financial firms would not be paid  more than 2.8 million yuan (HK$3.18 million) a year, said bankers who received the Ministry of Finance's draft rule.
If passed, the rule will be the first pay cap on the mainland's financial industry.
'The limit meets the international trend. The US is also capping the salaries of financial institution executives,' said Guo Tianyong, a professor with the Central Economic and Financial University  in Beijing.
The United States has required financial firms that receive state aid in future to cap annual pay for top executives at US$500,000, which will be a substantial cut for most of them as their salaries exceeded US$1 million in 2007.
However,  mainland financial firms still have a way to go before their top executives  reach the proposed 2.8 million yuan mark.
According to the lenders' financial reports, Jiang Jianqing,  the  chairman of Industrial and Commercial Bank of China, the country's largest bank, received 1.79 million yuan in pre-tax salary in 2007.
China Construction Bank Corp, the country's second-largest listed bank, said  chairman Guo Shuqing received 1.78 million yuan, while Bank of China, the third-biggest, said  chairman Xiao Gang was rewarded 1.67 million yuan in salary and bonus.
Their salaries were paid when net profits in the major banks surged about 50 per cent  in 2007. But earnings at six Hong Kong-listed mainland banks are expected to fall 12 per cent this year, according to  Citibank Global Markets.
'Banks  delivered good results not only because of the contributions by executives,' Guo Tianyong said. 'Mainland financial institutions had good days when the economy was good.'
More than 60 per cent of the banks' profits came from net interest margins and they benefited from the state-controlled interest rate regime under which Beijing sets lending rates much higher than deposit rates.
'The pay limit is reasonable. Chinese bankers should not receive sensationally high salaries,' Mr Guo said.
According to the draft,  chief executives should receive between 50,000 yuan and 700,000 yuan as annual pre-tax basic salary. They may also receive a performance-linked pay of no more than three times the basic salary.
Andy Xie, an independent economist, said it was more  important to set up a sound salary appraisal mechanism.
'Performance-based salary should be decided after some period. If the bank's profit growth is achieved on blind loan expansion, which may result in soured assets years later, the executive should not receive a high salary,' said Mr Xie.
Before the  financial crisis erupted, mainland bankers had complained about their lower income compared with global counterparts.
However, Beijing has been unwilling to raise their pay and hand out more stock options on concerns of widening income gap with  average workers.
Nine state-owned enterprises in Shanghai have voluntarily cut annual salaries by 15 to 40 per cent this year to weather the crisis.
Last year, disposable income of urban residents  averaged 15,781 yuan, while that of rural residents amounted to 4,716 yuan.
Unemployment picked up last year for the first time since 2003, with the registered urban unemployment rate at 4.2 per cent at the end of December.
Additional reporting by Adam Chen and Martin Zhou
Top draw
The salary received by ICBC chairman Jiang Jianqing in 2007, in yuan: yuan1.79m



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