China orders finance executives to cut pay

BEIJING: China's government said executives of its state-owned banks and insurers are paid too much and ordered them Thursday to cut their salaries to promote income fairness amid an economic slump that has wiped out millions of jobs.

Executive pay for 2008 at financial institutions, which many are still calculating, must be cut to 90 per cent of 2007 levels, with deeper reductions at those that have financial trouble, the Finance Ministry announced.

``Individual financial enterprises pay top executives too much. The gap between them and average workers and internal staff is clearly expanding,'' the ministry said. It said pay cuts were needed to ``further equalize distribution of incomes.''

China's financial institutions have avoided most of the turmoil that is battering Western banks and insurers. But communist leaders are eager to be seen as responding to public frustration at job losses because of a trade slump and the windfalls that executives at some state companies have enjoyed in recent years as the economy boomed.

The announcement gave no details of how many levels of management would be affected or how authorities will decide which institutions require bigger cuts. Phone calls to the Finance Ministry were not answered.

All of China's major banks, insurers, stock brokerages and other financial institutions are government-owned. But many have Hong Kong subsidiaries that handle a portion of their operations and function as private companies, and it was unclear how executives linked to those entities might be affected.

The ministry praised executives who already have cut their pay, especially at institutions that are financially healthy.

China's economy is forecast to grow by at least 5 per cent this year _ the fastest rate of any major country _ but the collapse in global demand for its exports has thrown at least 20 million people out of work.

Communist leaders worry that more job losses could fuel unrest in a society with a large and growing income gap between an elite that has benefited from economic reform and a poor majority that has been left behind.

Chinese executive pay is modest by Western standards but many times that of ordinary workers.

The chairman and chief executive of China's biggest insurer, China Life Insurance Co., was paid 1.7 million yuan ($248,000) last year. That was a reduction from Yang Chao's 2 million yuan in 2007 salary and bonuses.

China's second-largest insurer, Ping An Insurance Co. of China Ltd., has been the only institution to suffer a major loss because of the global crisis. It said Thursday its 2008 profit fell 98 per cent from 2007 because of losses on its stake in European bank Fortis NV, which ran into trouble with credit derivatives.

Ping An's chairman, Ma Mingzhe, announced in February he would give up his 2008 salary because of the Fortis loss.