HONG KONG (Reuters) - Disillusioned Chinese bankers and fund managers are giving up careers in a finance sector where government campaigns and regulation have coloured prospects to the extent that areas as varied as education and even stand-up comedy seem preferable.

Tightening scrutiny of trading, financing and dealmaking as well as a slump in stock turnover in a sluggish economy has dried up private equity and venture capital and decimated the market for stock market listings, bringing pay and job cuts.

After three years in a directionless capital market, Xu Yuhe, partner of Deep Water Fund Management, switched to the more predictable business of helping students study overseas.

Economic stimulus pledges may have sent the stock market surging recently but investors are fickle so the bullishness is likely to be ephemeral, said the former hedge fund professional.

"Educational services is a stickier business," said Xu, who aims to tap into "a growing trend for people to study or migrate to Hong Kong or Singapore" for an international experience in an affluent, nearby and culturally similar location.

The $67 trillion financial sector has borne the brunt of various initiatives, in particular the "common prosperity" campaign launched in 2021 aimed at closing the wealth gap, with measures including caps on salaries and clawing back of bonuses.

At present, the hedge fund industry, for instance, is the target of a clamp down on computer-driven quant trading which regulators said could treat retail investors unfairly.

A campaign to identify weak hedge fund operators contributed to thousands folding over the past year, official data showed.

Many hedge funds could not even benefit from the record-breaking stock market rally as data-based strategies failed to predict surprise policy shifts, leaving short positions in loss.

The market-supporting stimulus is "a very short-term measure to win the hearts of the retail investors," said Jason Tan, Shanghai-based director at headhunter REForce Group.

"I have spoken to enough bankers... They know 'common prosperity' is here for good and the days of high-paying banking jobs are over. Banking talent has started to seek roles overseas or transition to less regulated industries."

SALARY CAPS

The $4.4 trillion mutual fund industry has also seen "significant turnover" among fund executives and portfolio managers as companies focus on compensation reviews and cost control, fund consultancy Z-Ben Advisors said.

China Merchants Fund Management, one of the 10 biggest in terms of assets under management, has asked senior executives to return pay received over the last five years that exceeds a new "common prosperity" cap, Reuters reported last month.

"The breadth of the compensation caps being implemented will dictate whether intra-industry moves increase or whether key staff leave the fund management industry completely," Z-Ben said in a report published early September.

The arrest and detention of bankers also represents an increased risk of doing business just as compensation is effectively falling, said a former investment banker who quit his job last year and moved abroad.

Many state bank staff have constraints on travelling abroad, just in case one day the authorities want to launch a probe into certain businesses, the former investment banker said.

BANKER SURPLUS

Opportunities for dealmakers have also been curbed by regulators drastically tightening the vetting process for listing hopefuls, partly to ensure money flows where the government wants, namely strategic areas such as semiconductors.

Onshore listings have nearly halted as a result - first-half fundraising for initial public offering deals tumbled 75% from the same period a year prior, KPMG data showed. Meanwhile, geopolitical tension particularly between China and the U.S. has added to reasons against listing offshore.

Reflecting the surplus of bankers, nearly half of more than 8,000 registered IPO sponsors have not completed a single deal this year, Securities Association of China records showed.

Given the prospects, veteran banker Gu Zaifeng formerly of Zheshang Securities volunteered to become a village secretary in rural Shandong province this year.

"From an IPO sponsor to a village secretary, alumni Gu has given up high pay in Shanghai and settled down at grassroots level," Nanjing University alumni association said in a statement. Gu could not be reached for comment.

In the broader securities sector, staff numbers have shrunk by nearly 15,000 since the end of 2022, a trend set to continue as regulators push for consolidation in a fragmented industry.

With consolidation of major securities brokers likely following the sector's largest merger in history last week, more investment banking jobs are set to be eliminated, analysts said.

"Nowadays, everywhere in this industry, you come across deadbeat investors and entrepreneurs on the verge of life and death," venture capitalist Wu Shichun said during a stand-up comedy show in June broadcast via his WeChat account.

"I feel grateful for such a difficult time. It's a source of fodder for my performance," said Wu, a founding partner of Plum Ventures and now better known as a comedian.