Chinese authorities are doubling down on pressure to get the nation’s biggest state-owned financial groups to reduce salaries in a bid to boost returns as the virus-hit economy faces its slowest expansion in four decades.

Plans for limiting pay have gone out to entities including China’s massive sovereign wealth fund, its biggest bank and investment conglomerate, according to people familiar with the move. The reductions will vary among firms based on a formula, but could reach an average of 30 per cent at some companies, the people said.

Financial firms were first notified of the need to reduce pay last year and given details on how to make those cuts in early 2020, according to the people. Implementation, however, hasn’t been uniform with some institutions acting more quickly than others, the people said. More recently, the ministry has begun pushing laggards to act, they said.

The decision could mean more money in government coffers for stimulus and marks another step in forcing its $41 trillion banking system to support the economic recovery even as the pandemic eases. Lenders including Industrial & Commercial Bank of China Ltd had earlier been asked to cap profit growth to single digits, forgoing 1.5 trillion yuan ($200 billion) in earnings this year by offering cheap loans and cutting fees. They have also been told to roll over and defer payments on trillions of yuan in troubled loans to small- and medium-sized businesses.

Among institutions being instructed to adjust salaries are China Investment Corp, the $940 billion sovereign wealth fund, China Development Bank, ICBC, China’s biggest bank, as well as Citic Group, which controls the biggest brokerage, Citic Securities Co, the people said.

Performance indicators

The Finance Ministry has devised a formula tied to a number of performance indicators to cut the total amount entities pay to employees, the people said. Those that don’t meet government return expectations would need make deeper cuts to salaries. It would affect employees at all levels to varying degrees, with the firms in charge of devising the cuts to achieve an overall average reduction, they said.

The firms though are being encouraged to continue hiring while keeping the compensation pool unchanged, one of the people said.

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