Communist turned banker
Hong Kong/ Beijing - The chairperson of the world's most
valuable bank was once a good communist, learning from the peasants in a
collectivist commune in Jiangxi province and working to raise coal production
as a teenage miner in Henan during the tumult of Mao Zedong's Cultural
Today, Jiang Jianqing has a somewhat bigger job: running the
world's biggest bank, Industrial and Commercial Bank of China. ICBC has a 20%
stake in South Africa's Standard Bank Group [JSE:SBK].
But he does the work for an annual salary that might make a
hardened socialist nod with approval. He earned $150 000 in 2010, a mere 1.5%
of Bank of America CEO Brian Moynihan's estimated $10m pay last year, and half
again smaller than the $20m Jamie Dimon was paid for running JP Morgan.
Like those of his peers at other Chinese banks, Jiang's
salary has consistently fallen in the past four years, from about $240 000 in
2008, and he himself said in Hong Kong last year that he hoped his pay cheque
would stop shrinking.
"We can't be paid more than the regulators who oversee
us," Jiang explained last year when asked about the matter. "If the
regulators have to take a pay cut, we will take a pay cut as well."
China's "Big Four" lenders are back in the
spotlight as China's economy starts to absorb the impact of a global slowdown.
Last week Central Huijin, a unit of the $400m sovereign
wealth fund China Investment Corp, began buying shares in the banks - ICBC,
China Construction Bank, Agricultural Bank of China and Bank of China - to prop
up their share prices and reassure domestic investors.
As Jiang's example shows, China's top bank bosses are a
different breed to their Western counterparts. Beneath their coiffured hair and
tailored suits, the likes of CCB Chairperson Guo Shuqing and ICBC's Jiang are
first and foremost Communist Party members appointed to their jobs by the
China's biggest financial institutions fall under the
supervision of the Communist Party, so the bank heads also sit on the party's
Central Committee that is ultimately headed by the country's President Hu
As China prepares for a 2012 leadership transition that will
see the retirement of Hu and Premier Wen Jiabao from their party posts, many of
the bankers will also see themselves rotated into new jobs.
The Party connections of the Big Four executives raise
questions about who, exactly, they work for.
"Who are you trying to impress? You're not trying to
impress your shareholders, you're trying to impress party seniors," says
Patrick Chovanec, associate professor at Tsinghua University's School of
Economics and Management in Beijing.
"After you complete your tour at a bank, you will be
assigned to a new tour of duty, usually in a government posting."
That bureaucratic outlook has been fully apparent in the
banks' actions over the years. Directed by the state to funnel money into
government-linked companies, banks were saddled with non-performing loan ratios
exceeding 20% by the early 2000s.
Beijing bought out most of those bad loans as the banks
prepared for their public listings. They have kept a fairly clean record since,
but many, including Credit Suisse and Fitch Ratings, warn that bad loans may
soon start creeping up again.
Credit Suisse analyst Sanjay Jain said in a report on
Wednesday he now thinks that up to 12% of all of China's outstanding loans may
go bad and non-performing loans may likely account for all of the banks'
equity. Current NPL ratios hover at around 1% for the top Chinese banks.
This comes after banks went on a lending spree during the
global financial crisis in 2008 and 2009, spurred on by Beijing's 4 trillion
yuan ($627bn) call to boost the economy.
Much of that money went to the railway ministry, local
governments that set up financing vehicles to fund their pet projects and real
All three are in potential trouble now, with the China's
railway ministry under public pressure after a high profile train crash, local
governments largely barred from borrowing from banks and property prices in
danger of collapsing.
Despite all that, banks have reported strong earnings in the
past year that often beat expectations. This may be a result of them putting
less cash into the kitty to prepare for loans that may go sour.
"This is unlike the late 1990s when the government
forced the banks to admit to a huge amount of non-performing loans. This time
round, the strategy is just to not admit to NPLs," said Victor Shih, a
professor at Northwestern University in Chicago who has written a book on
China's financial system.
Many of the executives running China's banks may have
accepted salaries their Western counterparts would disdain in return for the
future political appointments that may further their influence, said
For example, the current governor of the Chinese central
bank, Zhou Xiaochuan, and Vice Premier Wang Qishan were both previously head of
CCB, the country's No.2 lender.
ICBC's Jiang is rumoured to be in the running to head
China's bank regulatory commission, while CCB's Guo is tipped as possibly the
next head of the central bank, of which he was previously a vice governor.
"Many of them are aspiring politicians, and being a
bank CEO is merely a stepping stone in their careers," Shih said.
"Thus, they are willing to accept lower pay."
Guo Shuqing, chairperson of the world's No.2 lender China
Construction Bank, is a philosophy graduate who completed his Master's degree
in the 1980s in one of the more fashionable areas of study at that time:
Marxist and Leninist theory.
His career path typifies the circuitous route of the senior
Chinese bureaucrat/businessman - he was previously vice-governor of Guizhou
province, head of Central Huijin, director of the State Administration on
Foreign Exchange and a deputy governor of the central bank before being named
head of CCB.
Many of these executives were given their jobs after
political appointments - Guo in Guizhou and Bank of China Vice Chairperson Li
Lihui who was vice-governor of the southern island province of Hainan.
Others also had regulatory roles, with AgBank's low-profile
Chairperson Xiang Junbo having once worked at the National Audit Office and
Bank of China's Li at a local branch of the country's central bank.
The irony is not lost on China-watchers, some of whom say
that for all of China's claims of being a market-oriented economy, many of its
biggest companies retain strong relationships with the government.
"It's all decided by the personnel department of the
Communist Party," said Tsinghua's Chovanec.
"These postings should be seen as precisely that, they
are postings to give them experience and put them in management roles," he
said. "These are not traditional banking paths."
And unlike most other executives where job-hopping between
companies is common, few top Chinese executives have ever made the jump from
the world of state-backed lending to foreign-run banks or financial services
companies, despite the promise of higher salaries.
"It could make a lot of sense if knows the American
system," said a former senior Chinese banker who knows CCB's Guo
"But I think when you're that high in the system and
then have to work for a foreigner - I don't think China's ready for that kind
of switch yet."