CAPITALI$M WITH CHINESE CHARACTERISTICS
Layoffs in China’s Tech Sector Stoke Larger Unemployment FearsBy Raquel Leslie, Brian Liu
Friday, April 1, 2022
JD.com headquarters. (N509FZ, https://tinyurl.com/2eutadzk;
JD.com headquarters. (N509FZ, https://tinyurl.com/2eutadzk;
CC BY-SA 4.0, https://creativecommons.org/licenses/by-sa/4.0/deed.en)
China’s 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 mass layoffs as tech giants grapple with regulatory crackdowns and a cooling economy. Chinese e-commerce giant JD.com has reportedly begun laying off at least 400 employees, primarily out of its group-buying unit Jingxi, while Alibaba, another e-commerce giant, is said to be considering axing at least 15 percent of its staff this year or around 39,000 people. Tencent, which has around 86,000 employees and owns the popular messaging platform WeChat, is also considering cutting 10 to 15 percent of its staff from its cloud and smart sectors as well as its platform and content business groups.
Though job cuts in the tech sector are not uncommon, this round of layoffs is the first major one since Beijing’s crackdown on tech giants. The crackdown has been criticized for killing the entrepreneurial spirit that made China a tech power over the past decade and the companies and profits that used to attract China’s best and brightest. Even though the country reported 8.1 percent growth in gross domestic product (GDP) last year, its fourth-quarter growth was only 4 percent from a year before, a marked slowdown from 4.9 percent in the third quarter and 7.9 percent in the second.
As a result, China’s tech giants have been posting disappointing results in recent earnings reports. JD.com reported its worst revenue growth in six quarters, while Alibaba marked its slowest increase in revenue since listing in the three months ending in December 2021. And Tencent’s sales grew at their slowest pace in 18 years during the third quarter of 2021.
Desperate for a way to put a positive spin on mass layoffs for an increasingly skeptical young workforce, some of China’s Big Tech firms are said to be sending congratulation notes for “graduating” to employees they’re axing. Social media users have started sharing images of a cheery note titled “Graduation notice” allegedly issued by JD.com’s human resources department. The note, generically addressed to an unnamed employee or “JDer,” reads: “Happy graduation! Congratulations for having graduated from JD.com! Thank you for the companionship!”
Despite these damage control efforts, the destruction of tech-related jobs from content creation to private tutoring is translating into larger fears of an unemployment wave in China that could rival the 2008 global financial crisis or the state sector reforms of the late 1990s. While there are no accurate state-published statistics available to measure the true extent of job losses in recent months, an earlier report by Chinese recruitment site Zhaopin.com found that half of the people surveyed said their company had laid off staff in 2021 while a quarter said they were directly affected.
Headcounts have also frozen at companies such as Alibaba, whose total workforce doubled in 2020 but remained barely changed in 2021. ByteDance, one of China’s prized unicorns, experienced rapid growth over the past decade, but the company closed education services and retreated on multiple fronts in the past year in the face of tougher regulation.
With 200 million people—roughly one in every four workers—in a status of “flexible employment” from ride-hailing to food delivery, China’s gig economy is particularly vulnerable to volatility in the job market. Additionally, there is early evidence that the reduction in private tech sector jobs is pushing young people back toward job security in the state sector. At Tsinghua University, nearly 70 percent of students graduating last summer took a job in government agencies, publicly funded institutions or state-owned enterprises.
China’s year-long tech crackdown has not just taken a heavy toll on the employment market. It is now driving away global investors, a development at odds with the government’s goal of creating economic prosperity. President Xi Jinping’s campaign to curb the “disorderly expansion of capital” resulted in punishing losses for shareholders whose trust the government must now regain. Capital flight and general wariness toward Chinese assets have only increased since Russia invaded Ukraine in late February.
The Chinese government was able to briefly halt a rout in Chinese stocks listed on overseas exchanges by vowing to ensure stability in capital markets, support overseas listings, resolve risks around property developers and complete the crackdown on Big Tech “as soon as possible.” But Xi’s pledge to reduce the economic damage of his “zero-Covid” strategy is looking increasingly challenging as lockdowns in cities like Shenzhen and Shanghai cost the country an estimated $46 billion a month, or 3.1 percent of GDP, in lost economic output. Such volatility poses a risk to Xi ahead of a key party meeting later this year at which he is set to claim a third five-year term.
China’s 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 mass layoffs as tech giants grapple with regulatory crackdowns and a cooling economy. Chinese e-commerce giant JD.com has reportedly begun laying off at least 400 employees, primarily out of its group-buying unit Jingxi, while Alibaba, another e-commerce giant, is said to be considering axing at least 15 percent of its staff this year or around 39,000 people. Tencent, which has around 86,000 employees and owns the popular messaging platform WeChat, is also considering cutting 10 to 15 percent of its staff from its cloud and smart sectors as well as its platform and content business groups.
Though job cuts in the tech sector are not uncommon, this round of layoffs is the first major one since Beijing’s crackdown on tech giants. The crackdown has been criticized for killing the entrepreneurial spirit that made China a tech power over the past decade and the companies and profits that used to attract China’s best and brightest. Even though the country reported 8.1 percent growth in gross domestic product (GDP) last year, its fourth-quarter growth was only 4 percent from a year before, a marked slowdown from 4.9 percent in the third quarter and 7.9 percent in the second.
As a result, China’s tech giants have been posting disappointing results in recent earnings reports. JD.com reported its worst revenue growth in six quarters, while Alibaba marked its slowest increase in revenue since listing in the three months ending in December 2021. And Tencent’s sales grew at their slowest pace in 18 years during the third quarter of 2021.
Desperate for a way to put a positive spin on mass layoffs for an increasingly skeptical young workforce, some of China’s Big Tech firms are said to be sending congratulation notes for “graduating” to employees they’re axing. Social media users have started sharing images of a cheery note titled “Graduation notice” allegedly issued by JD.com’s human resources department. The note, generically addressed to an unnamed employee or “JDer,” reads: “Happy graduation! Congratulations for having graduated from JD.com! Thank you for the companionship!”
Despite these damage control efforts, the destruction of tech-related jobs from content creation to private tutoring is translating into larger fears of an unemployment wave in China that could rival the 2008 global financial crisis or the state sector reforms of the late 1990s. While there are no accurate state-published statistics available to measure the true extent of job losses in recent months, an earlier report by Chinese recruitment site Zhaopin.com found that half of the people surveyed said their company had laid off staff in 2021 while a quarter said they were directly affected.
Headcounts have also frozen at companies such as Alibaba, whose total workforce doubled in 2020 but remained barely changed in 2021. ByteDance, one of China’s prized unicorns, experienced rapid growth over the past decade, but the company closed education services and retreated on multiple fronts in the past year in the face of tougher regulation.
With 200 million people—roughly one in every four workers—in a status of “flexible employment” from ride-hailing to food delivery, China’s gig economy is particularly vulnerable to volatility in the job market. Additionally, there is early evidence that the reduction in private tech sector jobs is pushing young people back toward job security in the state sector. At Tsinghua University, nearly 70 percent of students graduating last summer took a job in government agencies, publicly funded institutions or state-owned enterprises.
China’s year-long tech crackdown has not just taken a heavy toll on the employment market. It is now driving away global investors, a development at odds with the government’s goal of creating economic prosperity. President Xi Jinping’s campaign to curb the “disorderly expansion of capital” resulted in punishing losses for shareholders whose trust the government must now regain. Capital flight and general wariness toward Chinese assets have only increased since Russia invaded Ukraine in late February.
The Chinese government was able to briefly halt a rout in Chinese stocks listed on overseas exchanges by vowing to ensure stability in capital markets, support overseas listings, resolve risks around property developers and complete the crackdown on Big Tech “as soon as possible.” But Xi’s pledge to reduce the economic damage of his “zero-Covid” strategy is looking increasingly challenging as lockdowns in cities like Shenzhen and Shanghai cost the country an estimated $46 billion a month, or 3.1 percent of GDP, in lost economic output. Such volatility poses a risk to Xi ahead of a key party meeting later this year at which he is set to claim a third five-year term.
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