SOEs pay under attack, what next for the 90’s kids?

Saturday, 23rd August 16:30 HKT
News this week in Hong Kong revealed China government plans to slash pay at state owned enterprises (SOEs) by as much as fifty percent. This is part of the government’s long term economic strategy to reduce reliance on state driven investment, switching to a more sustainable innovation and consumption led model. Another report from the Mainland media then looked at whether this would put off the latest batch of graduates born in the nineties in working for SOEs (aka the ‘post 90’s’ generation in local media).

SCMP reported that following a meeting on Monday held by Xi Jinping, SOE bosses might in future see pay cuts of as much as fifty percent, and moved out of key operating positions. Replacing them would be talent imported from the private sector, with the overall aim of boosting efficiency. The SOE managers (aka ‘dinosaurs’) would then sit on the board of directors, ensuring the SOE met government targets, but without being close enough to cause damage or get their hands dirty in funny business.

This news follows a year long anti-graft campaign which has clamped down on government officials entertainment, travel and gift expenses. Recently Chinese media reports have criticised SOE workers for receiving similarly cushy packages, even more than government officials, whilst carrying government titles. Senior SOE managers can earn even more than the private sector, yet operate in virtual monopolies, for example oil and banking.

A popular Chines news website reported that even normal workers in the larger SOEs in Beijing have in the past received end of year bonus gifts in the form of a MacBook or iPhone, but this year have seen this downgraded to a box of chocolates, or perhaps a pen.

So would this news put off Chinese graduates, from working for SOEs?

According to a Chinese media report this week, it seems not. Rather depressingly, recent data shows that graduates still covet working for an SOE. 49% of graduates would prefer to work in the public sector, 45.3% would elect for the private sector, with the remaining 5.7% classified under ‘other’. The survey showed that the greatest aspects under consideration by Chinese graduates when choosing a career, are stability and how practical the job is. However many graduates are left ‘dissapointed’, as data also shows only 16.7% manage to land that lucrative SOE job.

This is one of the problems in the current socialist market economic model, the crowding out effect of SOEs in many areas of the economy, including the job market. The public sector in China still attracts the cream of China’s seven million graduates every year. Even for entry level positions, where monthly wages are just a few thousand yuan, workers can still enjoy overall better packages, including higher social insurance contributions, and preferential rates on mortgages.

Yet many graduates are not just attracted by the perks, but also the potential grey income opportunities still to be had in higher positions. SOEs can still have a disproportionate effect on the distribution of resources, funds and investment, which creates rent seeking opportunities for employees higher up the ladder. In fact, working for an SOE can offer the stability of an outright government post, with levels of pay competitive in the private sector.

Also in Chinese traditional society, working as for the government carries a higher social status, and guaranteed career path. Most students these days come from single child families, backed by parents and grandparents who have collectively staked their family fortune on the one child. They’re not going to jeopardise their precious investment in the competitive private sector.

Thus it’s not hard to see why Chinese graduates still chase SOE jobs, and why this is bad news for the Chinese economy. An education and work system that monopolises and wastes talent, only serves to delay the time when innovation will help China move up in value in the production chain, and pivot away from the limited investment led growth.

(Article not to be copied or reproduced without permission or citation).

降薪50%了 90后还奔央企吗?


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