As China’s Financial Sector Opens, Acute Talent Shortage Could Hinder Growth

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In the last two years, more than 30 global asset managers have been awarded licenses to set up wholly-owned units in China as they sought a share of the country’s $1.5 trillion private fund management market.

Yet only about half a dozen of those asset managers – a group that includes the likes of Aberdeen Standard Investments, Invesco and Vanguard – have so far managed to come closer to getting their first funds off the ground.

One of the biggest problems holding the others back is an acute shortage of qualified and experienced financial sector professionals in the world’s second-largest economy, said people familiar with the matter.

Although China is gradually opening up its financial sector – from investment banking to insurance – to greater foreign participation, its rules make it hard to import many foreigners to run businesses onshore.

In the newly opened-up private fund management business for instance, China requires senior executives to undertake written tests conducted only in Mandarin, said lawyers advising foreign fund managers.

The issue is set to worsen in the years ahead because salaries in China cannot match what a Mandarin-speaking finance professional can get in New York, Singapore or Hong Kong, headhunters and industry insiders told Reuters.

“We expect to see a new wave of hiring…by international firms due to the country easing restrictions on foreign ownership in these areas,” said Simon Lance, managing director for Greater China at headhunting firm Hays.

“(But) with less than attractive salary packages on offer, many firms are, and will find it, challenging to recruit senior candidates given their high expectations on the skills and capabilities these candidates must possess.”

So far, global firms have often based their top China roles in regional centers such as Hong Kong and Singapore – in part, because restrictions on ownership mean they have not had control of onshore operations.

But any move to boost onshore operations will involve moving those jobs to China and hiring more workers there – putting more pressure on an already limited pool of trained professionals.

“There is indeed keen competition in senior leadership levels recruitment in China,” Aberdeen Standard said in a statement, adding that it was gradually building a team on the ground.

Vanguard, which launched a wholly foreign-owned enterprise in Shanghai in May this year, said it was hiring more local talent and was confident of giving Chinese investors the “best chance for investment success with a highly experienced team.”

Invesco declined to comment.

Local Hiring

Several global firms including JPMorgan, Morgan Stanley, Prudential, and UBS have said they would be keen to invest more in China to bolster their presence in the country.

But in spite of China’s 800 million-strong workforce, the gap between demand and supply of experienced executives in China has been growing as financial regulators have steadily lifted standards for professionals in the industry.

The shortage has been made more acute with the steady exodus of professionals leaving China in search of better air quality and lifestyles, said financial professionals in Hong Kong, who warn that standards, as well as wage inflation, are a concern.

“Even if you incentivize half of those people to get them to go back to the mainland, the problem will be far from resolved,” said a senior banker at one of the Wall Street banks looking to bulk up its securities business in China.

“We need to hire from the local pool, and even if you are poaching from a local house by offering a 20 to 25 percent wage hike, you are not sure whether the person will meet your global compliance and risk management standards.”

All the senior executives at global financial services firms spoke to Reuters on the condition they not be named as they were not authorized to speak to the media on the subject.

Because of the paucity of talent, financial sector wages in China are already growing at a rate of about 10 percent a year – almost double the annual salary hikes in the sector in Hong Kong and Singapore, according to two headhunting firms.

But the remuneration is still low compared with Hong Kong and Singapore: a mid-ranking vice-president at a Wall Street bank in Hong Kong can earn about HK$2 million ($255,970) a year in base salary compared to HK$1.5 million in Beijing.

The hiring challenges have not, however, deterred the global financial groups, with several firming up plans to boost their China presence.

Citigroup Inc is considering setting up an onshore cash equities business in China and expanding research coverage of Chinese stocks to boost its share of the business in Asia.

Prudential aims to have a bigger share of its life insurance business in China, where it has a 50:50 joint venture, while its Asia fund management business is working on setting up a wholly-owned unit in China to manage non-retail funds.

“As the ownership regulation eases, it does make sense for global firms to put more people on the ground (in China), to be closer to clients and key decision makers,” said John Mullally, director of financial services at headhunter Robert Walters.

“[But] it’s definitely becoming a tougher market to get good quality talent compared to Hong Kong.”

($1 = 7.8133 Hong Kong dollars) (Reporting by Sumeet Chatterjee; editing by Jennifer Hughes and Raju Gopalakrishnan)