Massive hiring sprees, skyrocketing salaries and crippling talent shortages – just another year in the life of the foreign banks in China. A new report from PricewaterhouseCoopers, based on interviews with 42 overseas banks, shows just how colossal recruitment in China has been over the last 12 months.

The report highlights a 10,000-strong surge in staff numbers, a figure dominated by Asia-orientated heavy-hitters such as Standard Chartered and HSBC. “The larger banks have the advantage of providing a stable recognised brand...on the negative side they provide a deep pool of talent for the smaller banks to tap,” says report author Mervyn Jacob, PwC’s financial services leader for China and Hong Kong.

Shortages of both expat and local talent, coupled with the need to ramp up recruitment, are causing a “systemic rise in salaries across all functional areas”, according to the report. In particular, the banks are struggling to find senior executives, compliance officers and wealth management professionals. Salary surges of 30% are expected in these three hot job functions in 2008, while rises of 20% or more will be normal elsewhere.

Throw in average staff turnover rates of 20% and it’s no wonder the bulge bracket and the large commercial banks see recruitment and retention as major Chinese challenges.

Pan Zaixian, a financial services manager at recruiter Robert Walters, says overseas banks are poaching from their Chinese competitors. But local talent is thin on the ground, especially at a senior level, where banks demand a rare combination of specialist financial experience and English language skills. “There are enough English speakers amongst people in their 20s, but not enough in the 30-plus age group,” he says.

Conversely, most expats can’t speak Mandarin, and China’s high tax rates deter many foreigners from coming in the first place, adds Pan. Recruitment of returning offshore Chinese can only plug some of the gaps, so in the longer term training of local bankers is needed.