Chinese Tech Industry Shifts Into Lower Gear as Layoff Rumors Swirl
Substantial buzz has been generated across the Chinese tech world in recent months by a jumbled stream of announcements and gossip concerning major staff reductions at some of the industry’s leading firms. Following two decades of breakneck growth in the sector – a period that has witnessed the emergence of Tencent’s “super app” WeChat, Alibaba’s e-commerce juggernaut Taobao, and ByteDance’s social media phenomenon TikTok – the news of confirmed or potential mass layoffs within these companies has been somewhat jarring.
Earlier this month, an employee of Hangzhou-based Alibaba predicted that internal personnel cuts could reach as high as 15% overall. Around the same time, speculation emerged that similar reductions at Shenzhen-based Tencent may amount to 30%, following a subpar financial performance in 2021.
The chatter hasn’t been restricted to the industry’s top few companies. China’s leading ride-hailing company Didi was reported in February to be planning 20% cuts across most departments, including up to half of its freight division. A major real estate services platform, KE Holdings, has undergone varying waves of cuts since October of last year. E-commerce giant JD.com came under fire for its euphemistically named “graduation notices,” sent to relieve swathes of employees of their posts earlier this week.
Such trends – coupled with over a year of unpredictable and sweeping new regulation of the sector – have led some to wonder if the once seemingly unstoppable Chinese tech industry has encountered a systemic slowdown.
Downsizing or “Rightsizing”?
The various figures tossed around in recent discussions of layoffs have often become a point of contention. One algorithm engineer at Ant Group, a key Alibaba subsidiary formerly known as Alipay, claimed in a conversation with Pandaily that online rumors of potential staff cuts within the firm amounting to 30% were “undoubtedly fake,” and that he “had never heard anything about this number.”
Nonetheless, the source did acknowledge that Alibaba’s efforts at campus recruitment would likely be significantly reduced this year. This particular method for attracting fresh talent has become a core industry strategy in the country throughout the past decade. The scale can be remarkable, with local life services platform Meituan having set a target of acquiring 10,000 new team members in last year’s hiring spree.
Similar tales have emanated from ByteDance, the operator of international social media sensation TikTok. A source from inside the firm who spoke with Pandaily on the condition of anonymity said that the Beijing-based tech giant would be drastically scaling back its campus recruitment drive in 2022. The number of internships granted to university students – one of the most promising paths for obtaining a full-time position – could drop from about 7,000 last year to just 1,000 this year, the source said.
For China’s younger generations, which have grown up revering the country’s burgeoning tech industry, the trends are worrying. But from an investment perspective, the contracting growth isn’t necessarily unwarranted.
“It depends on the layoffs. If they’re mainly at unproductive, unproven, or unprofitable new business units, many investors are happy to see this kind of disciplined ‘rightsizing’,” said Rui Ma, an analyst and creator of Tech Buzz China, in a statement to Pandaily. “If they’re very extensive, however, then that absolutely does raise concerns about the future prospects of core business units. So far, I think many are treating it like the former.”
The need to trim excess fat and run a tighter ship can increasingly be felt inside the companies as well. The ByteDance employee told Pandaily that her company seems to have simply acquired too many employees. “At some small firms, one app may only need five employees, but at ByteDance they might have 100 or even more,” she said.
The role of a ByteDance employee these days can be compared with that of a screw (螺丝钉 luǒsīdīng), the source opined. This buzzword (link in Chinese) refers to a phenomenon within large Chinese internet firms whereby individual talent and ingenuity is effectively wasted as alienated workers learn to maintain narrow lanes within a vast corporate bureaucracy. According to the ByteDance insider, “people only do specific or very small parts of the overall work.”
Significant layoffs, therefore, could be seen as a necessary evil for sprawling tech giants seeking to shore up their operational efficiency during a period beset with unprecedented challenges.
Slower, Smoother Sailing Ahead
Even before the recent round of layoffs and slowed recruitment became evident, the market had been spooked by another major trend in the past year or so that has given industry leaders pause. Frequently referred to as the regulatory ‘crackdown’, Chinese authorities have sought to bring the vast domestic technology industry to heel with a series of new policy approaches, often unpredictable and sometimes with devastating effect.
For example, the digital tutoring industry in China – which was flourishing not long ago – has now been almost entirely gutted, with top firms forced into bankruptcy or a complete overhaul of their business model. Even ByteDance has run afoul. “Actually, one of the major businesses at ByteDance was online education, but it has been cut off from the whole industry,” said a source at the company. “Now, I think the core industry is advertisement and e-commerce.”
While the regulatory environment may be causing firms to think twice before embarking on innovative adventures in unfamiliar business arenas, there is reason to believe smoother sailing lies ahead.
In a closely watched speech by Vice Premier Liu He two weeks ago, the official expressed support for capital markets and addressed market concerns regarding the erratic regulation of China’s digital platform economy.
Rui Ma, the Tech Buzz China analyst, anticipates continued intervention in areas such as antitrust and digital content, she also asserts that “the Liu He speech signaled that there needs to be more coordination amongst ministries and a more careful assessment of impact to the financial markets.”
Combined with the recent layoffs and slowed recruitment, the next stage of the Chinese technology industry’s development is likely to marked by slower growth, albeit more stable operations. Says Ma, “I think…there will be a lot less surprises going forward.”
Author: Peter Catterall, Pandaily