This special report has been prepared by Nguyen Ha Linh, Zhao Mingjun, Charmaine Magbuhos, Raphael Perri, Shen Chen and Erdenenyam.P., reporters in the Global Business Journalism program's In-depth Reporting and News Writing course.
By CHARMAINE MAGBUHOS
Global Business Journalism reporter
A few years ago, Chinese tech companies and their investors were putting their cash into experimental start-up businesses, all trying to get a piece of the rapidly booming industry. Their ultimate goal was to build a one-stop platform that encompassed everything from e-commerce to social media, gaming, health, education, and entertainment.
This expansion led to aggressive hiring. Alibaba’s employee count ballooned from about 13,000 employees in 2011 to more than 250,000 in March 2022. Tencent’s staff increased by 800% in the past decade to 112,000. ByteDance, founded in 2012, hired more than 100,000 employees in its first 10 years in business.
And for more than a decade, many of China’s young, well-educated workers have set their eyes on working for these flourishing internet companies.
Cao Yawen, an undergraduate student from Chengdu University of Technology, said he changed his major from engineering to software engineering because of the career options.
“After consulting my supervisor, he advised me to switch my major because he foresees a better career for me in the future,” he said. “I hope to work for DJI or any big company, as robots, drones, autonomous driving, and even unmanned supermarkets are the future.”
China’s educational system has been churning out highly qualified employees for the nation’s tech titans. The country’s top university, Tsinghua University, reported in 2018 that 23.1% of graduates landed a job in the tech industry, as opposed to 15.9% for the once-dominant finance sector.
Four of the five favorite job destinations of newly minted Tsinghua graduates were in the tech industry: Huawei, Tencent, NetEase, and Alibaba.
High salaries, large bonuses, social prestige, and stock options that could potentially turn employees into millionaires are perks that have come with the job.
And then the bubble burst. The U.S.-China trade war, the COVID-19 pandemic, bans on some Chinese tech companies in the United States, India and Europe, a regulatory crackdown at home, and tepid consumer confidence combined to squeeze profits and prompt layoffs.
Twenty technology-related companies announced 29 rounds of layoffs since mid-2021, according to data collected by TechNode. {Insert hyperlink here.} The cutbacks ranged from 10% of total staff to complete liquidation. Hundreds of thousands of jobs were lost, according to government officials, and new hiring was curtailed by many of China’s largest private-sector employers.
These cuts are a part of the broader layoff trend that has emerged in China in recent months. While China’s official unemployment rate stood at 5.2%, virtually unchanged since the end of 2021, the jobless rate for those between the ages of 16 and 24 soared to 20.4% in April. That’s a sharp increase from 19.6% a month earlier and 14.3% at the end of 2021. In the tech sector, New Media companies, online education, e-commerce, and the digital content and entertainment industries have been particularly hard hit.
Government Regulations, Crackdowns, and the Pandemic
After a rapid rise in the 2010s, the tech titans ran into trouble in the early years of this decade. Growing resistance to Chinese technology advances by some Western countries and India, and increased oversight from Chinese economic and political regulators have altered the upward trajectory of these nascent global giants.
This massive growth in the tech sector attracted scrutiny from the Chinese government, kicking off what is known today as Beijing’s “regulatory crackdown.” Since late 2020, the government, under the orders of President Xi Jinping, has waged a fierce crackdown against the nation’s most powerful private corporations, stepping up oversight on everything from antitrust to data security and wealth distribution.
Despite being called a “tech crackdown,” China policy experts argue that the term is inaccurate and overly broad, as the goal of the regulations never targeted the tech sector specifically or any particular companies. Dr. Liang Zheng, vice dean of the Institute for AI International Governance at Tsinghua University, explains that the “crackdown” is all about bringing “comprehensive management to punish crimes, maintain social order, and to ensure socialist modernization.” Li Wei, director of the Internet law research center, added that the tech regulations are connected to Xi Jinping’s goal of transforming China’s cyberspace into a “spiritual home” without “pollution,” making sure China’s cyberspace is safe for minors.
At first glance, it may seem that China's “tech crackdown” is simply a collision between the government's authority, which is held by the Chinese Communist Party, and what is commonly referred to as the “tech sector.” However, the situation is far from simple and much more complex than it appears.
And while President Xi Jinping’s government has not explained what led to the crackdown, a guide published in 2021 by The China Project provides a timeline of which regulatory events and other developments happened since the anti-monopoly law took effect in 2008.
The China Project categorized all the events into three categories: antitrust probes, a data security overhaul, and a check on capitalist “excess.”
Antitrust probes
The antitrust law has been in existence since 2008, but the government didn’t fully enforce it until late 2020 when the State Administration for Market Regulation issued new draft rules. SAMR, China’s market watchdog, was formed in 2018 and is in charge {I took out the unnecessary hyphen.} in stopping anti-competitive practices, protecting fair competition in the market, and safeguarding consumers’ interests.
At least 35 internet companies across a wide range of sectors took a beating after the new regulation was announced. Alibaba was the first and largest company to take a hit when it was fined $2.8 billion. A few days later, several firms were called in by the regulators to rectify antitrust practices. Almost every big tech firm was called to the meeting, including Tencent, Meituan, Didi, Baidu, ByteDance, JD, and New Oriental Education. All of them were fined for failing to disclose mergers, signing exclusive contracts, misleading marketing tactics, and other “irregularities.”
Data security
Data security, overseen by the Cyberspace Administration of China, was formed in 2014 after Edward Snowden, an American intelligence operative who has since become a Russian citizen, leaked information exposing the NSA surveillance program of the United States the previous year. The CAC oversees ensuring that the data of Chinese citizens collected by private entities do not make it out of the country.
One of the biggest victims of the enforcement of data security is the ride-hailing app Didi. The CAC suspended the app from the Chinese app store two days after its IPO in the U.S. for violating data security protocols. It then widened its scope to two other U.S.-listed Chinese companies: a freight-logistics app, Full Truck Alliance, and a recruiting platform Kanzhun.
“Disorderly capital expansion”
The term “disorderly capital expansion” was popularized at the Chinese Politburo meeting in December 2021, but the idea of private incentives Influencing public interest has a long history among China’s ruling class.
The IPO suspension of Ant Group is the most high-profile case of this campaign But the casualties go way back. It started in 2018 when gaming giants Tencent and NetEase were forced to implement gaming curfews for minors due to public outcry about gaming addiction. Shares of China’s largest education companies, New Oriental Education, TAL Education Group, and Gaotu Techedu, experienced something that was described by economic analysts as a “decapitation” in 2021 after being forced to become not-for-profit organizations.
The “crackdown” wiped off more than a combination of $1 trillion in stock value from the country’s biggest tech companies and forced ByteDance and the Ant Group to suspend their billion-dollar IPO plans. It also triggered a selloff that erased $1.5 trillion from Chinese stocks.
The already unsettled Chinese economy was battered by the pandemic and subsequent COVID-19 restrictions. The unemployment rate rose from 5.2% in December 2019 to a high of 6.2% in February 2020 because of the periodic zero-COVID lockdowns in major cities, including Shanghai and Shenzhen. Yet the tech industry flourished when the pandemic forced people to stay indoors and online.
Zhao Xinghui, who majored in tourism management, said that when the pandemic hit, she was working at a small travel agency and was told to “stay at home.” After weeks of not hearing from her boss, she applied for a job in the tech industry.
“At the time, it was relatively easier to get a job in the tech industry,” Zhao said. “And I think most of my friends found jobs in tech companies during the pandemic.”
However, tech’s reckoning was coming.
China’s “great layoff”
Even after the “crackdown” began, things went relatively smoothly for most of the tech giants. Some viewed the “crackdown” as a warning sign and not a drastic change in the relationship between the central government and the private sector. But then China’s ride-hailing giant Didi was put under a cybersecurity review by the Chinese authorities in July 2021, signaling a painful period of adjustment for China’s internet sector.
Since then, a stream of companies has announced layoffs as they recalibrate amid concerns about the regulatory crackdowns, COVID-19 lockdowns, and a slowing economy and consumer spending.
On April 2022, the Cyberspace Administration of China confirmed in a statement that 12 major Chinese tech companies including Tencent, Alibaba, Ant Group, ByteDance, Meituan, Pinduoduo, Kuaishou, Baidu, JD, NetEase, Weibo, and Bilibili had laid off a total of 216,800 staffers from July 2021 to March 2022.
The layoffs have slowed over the past year, but they have not yet ended. Baidu in January cut jobs and canceled bonuses for some employees in its autonomous driving unit, according to a South China Morning Post report.
The future of Chinese tech industry
There have been some signs of stabilization in the first half of 2023. Didi has been allowed to open for new user registrations, China rolled out 87 new gaming licenses, and Ant group received approval for capital expansion of its key consumer finance unit.
The “crackdown” on more than a dozen internet companies is over, said Guo Shuqing, the Communist Party boss at the People’s Bank of China, in an interview with Xinhua News Agency. Guo also said that he expects the Chinese economy to return to normal soon.
“The key to rapid economic recovery and high-quality development is to convert current total income to consumption and investment as much as possible,” Guo told Xinhua.
And university graduates still think the tech sector inevitably will rebound from three years of setbacks. Zhao, now a user operation specialist at SHAREit Group, {What does that company do?} says she applied for a technology job because of the higher salary, equality, and transparency in terms of payment and promotion process.
“Working for an internet company is relatively easier, and the salary is a little higher compared to other industries,” she said.
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