China’s tech crackdown fans unemployment worries amid economic headwinds as Alibaba and Tencent prepare to wield the axe

  • The tech sector, which has been a prolific job-creating sector, is now awash with stories about frozen headcounts and lay-offs.
  • The destruction of tech-related jobs from content creation to private tutoring is translating into fears of a jobless tsunami.

China’s year-long campaign to clip the wings of the country’s Big Tech sector has taken a heavy toll and is now casting a long shadow over the employment market, a development at odds with the government’s goal of creating economic prosperity.

The tech sector, which has in the past decade been one of the strongest job-creating sectors in the world’s second-largest economy, is now laden with stories about frozen headcounts and lay-offs, according to industry insiders, jobseekers and local media reports.

The destruction of tech-related jobs from content creation to private tutoring is translating into fears of a jobless wave that could rival the time when millions of rural migrant workers were turfed out of jobs amid the 2008 global financial crisis or when millions of state sector positions were lost amid the reforms of the late 1990s.

Around 10 million fresh graduates will enter the job market this summer, adding to China’s growing army of young jobseekers, at a time of mounting economic headwinds amid the Ukraine crisis and another Covid-19 surge in the country. This is threatening long-term government strategies, such as “dual circulation” – the concept of driving economic growth mainly via domestic demand to offset an uncertain and potentially hostile external environment.

The massive job cuts at Big Tech companies could bring signifcant economic instability, as the digital economy has taken up a greater proportion of China’s GDP in recent years, said Wang Peng, an associate professor at the Renmin University of China.

While there are no accurate statistics to measure the exact number of job losses in recent months – the country’s official jobless rate has remained largely steady – multiple sources are now saying the picture is quite bleak. An earlier report published by Chinese recruitment site found that half of people surveyed said their company had laid off staff in 2021 while a quarter said they were directly affected.

The country’s two most-valuable Big Tech firms, Alibaba Group Holding, which had over a quarter of a million employees, and Tencent Holdings, which had 107,000 employees, are said to be in the process of slashing thousands of jobs.

Tencent’s cost-cutting will primarily impact its cloud and content business units, as cloud has failed to fend off competitors while content has been overwhelmed by tougher regulation, according to two people familiar with the situation who declined to be named as the information is not public yet.

Meanwhile, Alibaba started to let people go earlier this year at its loss-making local services unit, which runs food delivery service, restaurant review site Koubei and other services. and the job cutting has now spread to other business units, according to two separate people familiar with the situation.

Alibaba and Tencent did not immediately respond to a request for comment.

Few Chinese tech companies are willing to admit to job cuts, partly because large-scale lay-offs due to the country’s strict labour laws require the intervention of the labour authority as job losses could indicate business weakness. That is why job cuts are often papered over as a restructuring or “optimisation” exercise, with individuals let go one at a time.

But the signs are there to see.

For example, Alibaba’s total workforce more than doubled in 2020 but remained barely changed in 2021, according to publicly released data. ByteDance, China’s most valued unicorn, grew from a residential flat in Beijing a decade ago to a tech giant with over 100,000 people but the past year saw it close education services and retreat on multiple fronts amid tougher regulation.

“The internet sector is still a favourite with young people,” said Wang Yixin, a senior consultant at Zhaopin. A survey by the company last year showed that more than a quarter of fresh graduates still wanted to work for an IT company, way ahead of the second most popular industry, real estate, chosen by 10 per cent.

Over the past year, China has launched a relentless crackdown on big tech firms, with a raft of new regulations aimed at curbing consumer rights abuses, monopolistic market practices, breaches of consumer data privacy, protecting minors from gaming addiction and curbing content deemed socially harmful – among other things. Most of this has been carried out under the banner of “curbing the irrational expansion of capital”.

However, it is now clear that this campaign is wreaking havoc with the jobs market.
For example, Beijing’s decision to outlaw profit in private tutoring for primary and middle school students killed off an entire industry, which previously provided jobs for around 10 million people. The New Oriental Education & Technology Group alone fired 60,000 people in 2021, its chairman and chief executive Michael Yu Minhong said.

Chen Rui, the chief executive of youth-focused, video-streaming firm Bilibili, said this month that any headcount increase in 2022 would be “very limited”. This contrasts with a tripling of the payroll size in the three years to 2020. It has yet to publish payroll size as of the end of 2021.

Kuaishou Technology, the company which operates the second-largest short video platform in the country, said in November it has no plans to make a big increase in headcount in 2022, as it began to let go of employees who received low scores in performance reviews. This marked a big difference from 2020 when the number of its employees grew a third within six months.

The jobs impact has also fanned out across related companies.

China’s big internet platforms are at the centre of the country’s gig economy with tens of millions of jobs at stake such as ride-hailing drivers, delivery crew, live-streaming hosts and content generators. According to China’s semi-official data, the country has 200 million people – roughly one in every four workers – in a status of “flexible employment” without full-time work.

On-demand delivery giant Meituan, which was fined in an antitrust probe, provides income for about 4 million deliverymen, while ride-hailing giant Didi Chuxing, which has been investigated for data breaches since its New York listing last summer, has 13 million active drivers on its platform. The live-streaming e-commerce sector – currently under fire from authorities for consumer abuses – provides income for at least 10 million people.

These gig economy jobs, which expanded along with the growth of China’s tech sector, have become vital for China’s low income groups, with 600 million people living on an average monthly income of 1,000 yuan. China’s official statistics showed that there were 358 million jobs in the services sector in 2020, an increase of 5.3 per cent from three years ago, while manufacturing jobs decreased 1 per cent to 215 million in the same period.

There is evidence that the reduction in private tech sector jobs, from marketing to client management and programming, is pushing the country’s young people back towards job security in the state sector.

At Tsinghua University, one of the most prestigious universities in China, nearly 70 per cent of students graduating last summer took a job in government agencies, publicly-funded institutions or state-owned enterprises, according to a report released by the school in January.

Given the worsening situation, it is little surprise that some critical voices of Beijing’s tough line have emerged.

In a widely circulated note by the “Luwei Investment Research” on Chinese social media platform WeChat, the author said Beijing’s “irrational expansion of capital” concept is “fake” because “capital will always calculate cost and returns, but power always tends to expand”. As such, tech companies have had little alternative but to shed jobs and cut costs in the face of state pressure.

Concerns about the unemployment situation are visible in the government’s latest work report, in which the word “employment” is mentioned over 30 times. As an accompanying target to GDP growth of 5.5 per cent, the government said it would keep the official jobless rate, which always hovers in a narrow range from 4.9 to 6.2 per cent, below 5.5 per cent.

The Chinese government also issued a statement this week saying that the country still views economic growth as a priority and will take measures to help the capital market, which helped the Hang Seng Tech Index to gain a record 22 per cent.

But confidence remains weak on the ground.

Julia Feng, a 23-year-old accounting student who is set to graduate this June, said although she has dreamed about working at a tech company in a top-tier city, while being immersed in the “vibrant culture” of internet and social media companies, she now sees a job with a state-level authority as the best choice given the added sense of security.

Authors: Coco Feng, Ann Cao, Tracy Qu, SCMP

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