China investment bank enforces strict measures on analysts amid regulatory crackdown

In a move indicative of China's growing scrutiny on financial institutions, China International Capital Corp. (CICC), one of the country's largest investment banks, has issued internal directives prohibiting its analysts from making bearish calls on the economy or markets.

The memo, obtained by Bloomberg News, warns analysts against revealing compensation and restricts the wearing of luxury brands. This clampdown comes in the wake of Beijing's efforts to align the financial industry with President Xi Jinping's "common prosperity" initiative and curtail ostentatious behaviour among bankers.

Analysts at CICC are now under strict guidelines to exercise caution when sharing views with clients outside China, with an emphasis on reducing national security and political risks. The bank has urged analysts to conduct due diligence on experts invited to conferences and deal pitches.

This move reflects a broader trend, with at least two other major investment banks in China providing verbal guidance to analysts, discouraging negative comments on the domestic economy or discussions about compensation. The atmosphere has made it challenging for financial conference organisers to secure speakers willing to share candid views on the Chinese economy.

CICC's internal memo goes beyond market analysis, encompassing conduct guidelines for various aspects, including client engagement, social media use, and expense reimbursement. Amid slumping profits and a leadership reshuffle, CICC has implemented cost-cutting measures.

The document strictly controls business-related expenses, including analysts being discouraged from taking taxis home after road shows and ordering drinks at business banquets. Earlier this year, the bank reduced senior bankers' compensation by over 40 per cent and scaled back travel perks.

As China's parliament signals the possibility of further profit declines in the financial industry and regulators press banks to support the stressed property sector, the challenges for bankers in China may intensify. A coalition of 19 Chinese brokerages, including JPMorgan Chase & Co. and Morgan Stanley's local ventures, recently pledged to combat corruption in their investment-bank businesses.

President Xi's ongoing anti-graft campaign has already resulted in the removal of over 100 senior financial executives and officials this year alone. While China aims to restore investor confidence in its economy and markets, its historic crackdown on information deemed harmful is likely to persist.

The memo reveals additional restrictions imposed on CICC analysts, emphasising discretion in social media commentary, avoidance of politically sensitive content, and active participation in party-building activities. Analysts are instructed to refrain from making comments inconsistent with government policies, sharing unpublished views on social media platforms like WeChat, and to ensure that family members abide by basic moral standards. Furthermore, analysts are cautioned against using their full per diem allowance on meals when working overtime.

(With inputs from Bloomberg)

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