Foreign banks usurped in China by local firms paying cash in hand and arbitrary bonuses

Foreign banks in China and other parts of Asia are struggling to attract candidates, due to local institutions' practice of paying additional cash in hand to their employees.

So-called 'grey income' - also known as ‘hidden benefits’ or under-the-table cash payments - is prevalent in China’s domestic financial services industry, say recruiters. This means that foreign financial services companies operating in China and other parts of Asia to attract top talent that are being seduced by off-book cash wages.

Research carried out by the China Society of Economic Reform (CSER) shows that in 2011 unidentified ‘grey income’ was a significant 12% of the country’s GDP.

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Recruiters say that hidden benefits, which have become pervasive, tend to be offered by the big local Chinese banks, most of which are majority government-owned. One recruiter, who wished to remain nameless, said that "it is public knowledge that this is the standard compensation structure."

She added that given that most of the banks indulging in this practice were partly state-owned, the government tended to turn a blind eye to the culprits.This means that employees avoid paying tax on their income, something the foreign banks, bound by international tax laws, could never do.

"It is hard to say just how big these benefits might be relative to an employee’s cash salary," the recruiter said, as it very much depended on the seniority of the employee.

The richer the household, the more likely it was to receive shadow income, according to Wang Xiaolu, who led the research for the CSER. Quoted in Caixin Online, Wang said the survey showed that the top 20% of high-income urban Chinese households commands 72% of total grey income."

Wang highlights major discrepancies between the National Bureau of Statistics (NBS) annual study of urban household income and CSER data, especially for those in the top ten% income bracket.  He said the main difference is ‘grey’ income or that which is not counted by the official survey.

An academic recruiter, who would only comment on condition of anonymity, said it had become difficult to place even newly qualified Chinese finance professionals with foreign banks in Singapore, due to lucrative hidden benefits being offered by Chinese companies posing an irresistible lure.

Another recruiter said the hidden payments had become so much the norm that no one questioned whether or not they would receive them each month. "I think the accepted culture is that 'the day I don't get this payment, I will start looking for other opportunities. But until then, I am happy with the arrangement'."

Whilst the practice of hidden payments existed across all industries in China, it is more significant in the financial services sector, said the recruiter.