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Chinese leader Xi Jinping said in a recent meeting that
executives at state firms will face big pay cuts.
Rumors say that the cuts could be of up to 70%.

Scholars say that Xi intends to win citizens' support
in this way, but, because it may damage princelings'
vital interests, he will likely face some obstacles.

Whether or not this move will be successful,
only time can tell.

On Aug. 18, central reform team led by Xi Jinping reviewed
the pay cut reform plan for top executives of state businesses.
The new plan aims at top executives' welfare benefits
and company expenses.

Caijing magazine cited insiders that the plan says
top executives face pay cuts of up to 70%,
their annual income will not be in
excess of 600,000 yuan ($97,500) after that.

Actually, state-own company executives' income is currently
very high.

For example, annual income of each top executive
at the five state-owned banks is over 1 million yuan.
Jiang Jianqing, Chairman of Industrial and Commercial Bank
of China, his income was about 2 million yuan last year.
Fu Chengyu, current Chairman of Sinopec, in his tenure at
China National Offshore Oil Corporation,
his annual income was 13.3 million yuan.

Former Premier Li Peng's daughter, Li Xiaolin,
CEO of China Power International Development,
her salary has reached 3.12 million yuan in the past.

Sources show that seven monopolistic state enterprises
such as oil, electricity, telecommunications sectors,
although their employees make up less than 8% of national
employees, their total wages take up 55% of the national,
five to 10 times higher than the average in the market.

In addition, from 2001 to 2008, state-owned enterprises and
holding companies had 6.48 trillion yuan from fiscal subsidies.
It has caused great social discontent in China.

Yang Jianli, Ph.D of Harvard University, says that
state-owned enterprise is unreasonable.
If the company loses money, they rely on taxpayers' money.
When they make a profit, taxpayers don't get a penny.

Yang Jianli: “When a company makes money,
they keep it for themselves,
if they lose money, they won't take the burden themselves.

State-owned firms are the main channels
of governmental corruption.
So it is common that Xi starts from enterprises first
during the anti-corruption fight.”

Yang Jianli also suggests that from the economic point of view,
the market should decide a person's wages,
not the government.

Zhang Lifan, Beijing independent scholar told Hong Kong's
Apple Daily that China's wealth is of two kinds:
One is new sectors controlled
by second generation officials;
Another is Red second generation
that controls state-owned firms.

Zhang Lifan says that Xi wants to win
the support of Chinese people.
This certainly will cause resistance from
princelings and Red second generation.
It is too early to say if Xi can win.

In early Dec. 2012, Bloomberg reported that from
a survey of 103 princelings,
at least 26 control top state-owned businesses.

Amongst them, Wang Zhen's son Wang Jun,
Deng Xiaoping's son-in-law He Ping and
Chen Yun's son Chen Guang controlled
$1.6 trillion of assets in 2011.

Gong Shengli, Chief researcher of Beijing National Conditions
Inside Reference says that these Red second generation
have quite certain power.

Now that Xi Jinping wants to cut their interests,
the resistance will be huge.

Gong Shengli: “Li Peng's son is a legal representative
of the country's energy or electricity sectors.
I think Xi's taking a considerable risk.”

Yang Jianli: “They control the country's industrial lifeline,
If they resist the national economy
will be greatly affected.

If the changes to the economy are great,
his power will not stable.”

Yang Jianli observes that conflict between Xi and
second generation officials will shake Communist party rule.
Xi likely will make a concession in the end.

Actually, top executives at state-owned firms are very corrupt.

From Jan. 1 to June 23, 44 executives reportedly were
dismissed because of corruption.
It had involved huge amounts of cash.



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