Foreign banks that thought their time in China had finally come might have to wait a while longer. The securities regulator has hauled in executives including Credit Suisse’s China CEO Janice Hu to ask them to reduce lavish executive pay and stretch bonus periods, Bloomberg reported on Monday citing anonymous sources.

The cited rationale — that unreasonably high incomes sabotage President Xi Jinping’s push to shrink the wealth gap —may sound fair, but in reality will simply increase the advantage domestic players have over foreign rivals.

At the height of the China-US trade war, Beijing made a swathe of concessions to Wall Street, allowing foreign financial institutions to take control of joint ventures with local partners, with UBS being the first to win approval in 2018.

Many did so, and thanks to surging initial public offerings in Shanghai and Shenzhen, six out of the seven authorised Western investment banking ventures eked out a profit from mainland operations in 2021, the Financial Times reported last month.

Barriers to compete

They remain marginal players, however. Official data shows the combined net profit of 41 foreign lenders in China equated to 1 per cent of the total in the first quarter of 2021, and this latest move will help ensure they stay constrained. International investment banks relied on the Chinese IPO pipeline to Hong Kong and New York for much of their profit. But now those flows have evaporated, leaving onshore exchanges, dominated by local investment banks, as the only games in town.

There is no official data on how wide the pay gap is. Bloomberg estimates foreign brokerages pay 10 per cent to 20 per cent more than their local rivals on average. That is out of necessity, not generosity. It took a lot of incentives to persuade executives from other countries to relocate to China, and months of lockdown make that dramatically harder. UBS, JPMorgan, and Credit Suisse have already seen top China executives depart amid harsh Covid-19 restrictions in April.

As far as local talent is concerned, foreign employers have lost a lot of shine. A Fudan University study showed that the share of college graduates that preferred working for global names has shrunk to 14 per cent in 2020 from 36 per cent in 2015.

To fight for a bigger piece of a smaller pie will take top talent, which means offering higher salaries. Without that, Wall Street’s share of the mainland Chinese market could shrink further.