INSIGHTS | Chinese tech giants are still slashing headcounts

Chinese tech companies are still laying off large numbers of employees in the aftermath of a year of regulatory crackdowns. While annual team adjustments are common in tech industries, investors and market watchers are alarmed by the scale of the recent job cuts and what they indicate about the underlying regulatory upheaval.  

Over the past year, 35 companies scaled back their teams according to a rough count made by one local media outlet. The cuts affect nearly every major vertical, from education and short video, to gaming and e-commerce, with thousands of people losing their jobs. In some cases, whole business departments were dissolved. Deep-pocketed tech titans such as Alibaba, ByteDance, and Baidu, which are generally less vulnerable to small market fluctuations compared to startups, were not immune to these cuts.

The current wave of layoffs, still ongoing in the lead up to the Chinese New Year, stands in stark contrast to the hefty incentives distributed by Chinese tech heavyweights in their heydays around the mid-2010s. At that time, an employee might enjoy a bonus in the form of pay equivalent to 100 months of salary or even a Tesla car. The incentives were intended both to show the tech giants’ muscle and to lure talent.

The most obvious difference in the Chinese tech industry today is a tightened regulatory environment. China offered extensive support to tech innovation and entrepreneurship from the beginning of 2010, with initiatives such as the launch of a state-backed entrepreneurship and innovation program in 2014. In the years after the launch of the program, China witnessed the rise of some of the most prominent tech names in the country such as Didi, Pinduoduo, and Xiaohongshu. Even though regulations, such as those on anti-monopolistic practices, existed back then, the government often failed to enforce them, helping boost the growth of budding companies.

Government attitudes shifted sharply in 2020 when Beijing launched the first industry-wide regulatory crackdowns as the authorities tried to exert greater control over tech companies, particularly those with large platforms. State actors still say they support tech innovation, but the support increasingly only applies to hard tech industries like semiconductors, new energy vehicles, and biotech.

The elimination of practices and services that no longer comply with the raft of new regulations has been a major source of these slashed headcounts, but leaders of tech giants are also being driven to urgently reduce loss-making units and improve operational efficiency.

Job cuts in headlines

News of mass layoffs has dominated China’s tech headlines in recent months.

• TikTok owner ByteDance reportedly laid off more than 1,000 staff from its edtech business in November following the deeper cuts made in the sector in August. The tech titan, known for its sprawling business lines, cut its talent development center and scaled back its Human Resources department in December. The company reportedly dissolved its investment unit in January by laying off 100 employees as authorities stepped up antitrust scrutiny of the country’s tech giants.
• Douyin rival Kuaishou laid off mid-level managers and low-performing employees in December and cut jobs across key units such as e-commerce, globalization, and algorithm recommendation in January. Employee benefits were slashed in December.
• Chinese search giant Baidu has started layoffs at its mobile business arm, which oversees its search and mobile businesses, several Chinese media outlets reported in December.
• IQiyi, a Baidu-backed video streaming affiliate, laid off 20% to 40% of its workforce in December as the Netflix-like firm tries to reduce costs amid increasing losses. That means the layoff could wipe out some 1,500 to 3,000 positions based on the company’s nearly 7,800 headcount in 2020.
• Perfect World, a Chinese game developer, plans to cut up to 1,000 staff, local media reported on January 25.
• Giant tech firms including ByteDance and Alibaba adjusted their organizational structures, while also making business adjustments and job cuts.

Worst-hit sectors

Online education companies targeting after-school tutoring of students up to the ninth grade were among the worst-hit verticals as China’s crackdown on the sector essentially banned companies from offering services related to core curriculum subjects.

All major players in the field, including New Oriental, TAL, and Gaotu, terminated their after-school tutoring services in the wake of the crackdown on the private education sector. In one of the largest edtech layoffs, New Oriental founder Yu Minhong confirmed in his WeChat Moments feed last month that the company dismissed 60,000 workers and saw revenue fall by 80% in 2021.

READ MORE: Edtech will survive China’s crackdown, but it won’t be the same

E-commerce, another highly-regulated area, is also experiencing downsizing. Fresh produce delivery giants that survived a 2021 market consolidation are trimming operations to save costs. Online grocer Dingdong Maicai reportedly planned to cut from 20% to 50% of the workforce at its core business units in January, while Meicai, a Chinese app that supplies farm-to-table produce for restaurants, laid off around 40% of its remaining workforce after halving headcounts in September.

Youzan, one of China’s largest e-commerce service companies, is reportedly planning to lay off 1,500 people, or nearly 30% of its employees in early 2022.

Downshifting for years

Chinese tech companies have been gradually reducing headcounts over the past few years as the country’s economy felt strain long before the pandemic hit. However, a combo of regulatory curbs on everything from technology to education and a renewed virus-induced public health crisis is creating further headwinds for local big tech firms. They are being forced to drastically cut costs to keep themselves afloat as more challenges await in 2022.

This wave of layoffs is the result of multiple events, such as Beijing’s education crackdown and the cyclical economic downturn, Chinese media outlet Leiphone wrote in a Jan. 21 article. Chief among them was Beijing’s draft amendment to its Anti-Monopoly Law, released in October and dropped a hammer on the country’s internet giants. 

With scant regulation and China’s population producing massive numbers of customers, the country’s large tech companies enjoyed supercharged growth rates over the past two decades. Tech giants therefore are used to attracting and retaining large numbers of workers with huge salaries and comprehensive benefits. The result was many redundant positions and overall inefficient use of human resources. Now, the heavyweights are beginning to realize that they must stretch their budgets in an environment where it is no longer so easy to reap huge profits, the Leiphone report said.

By slashing headcounts from loss-making business units or units now facing stringent regulation, tech companies are phasing out less profitable activities  in order to achieve efficiency and bigger profit margins, experts told local media Shenran Caijing in December.

Fearing a looming recession, executives from Chinese big tech firms have vowed to focus on core businesses and value creation. In November, Tencent Chairman Pony Ma said the company will ramp up efforts around its main sources of revenue, such as cloud services and gaming, while Alibaba and Kuaishou have set their sights on the overseas market as a major growth driver. And yet, as companies are taking more steps to reduce costs, the only thing that seems certain is that industry will face slower development, the report said.

“Do I look like a loser?”

Under the weight of repeated COVID-19 outbreaks, a further economic slowdown, and a string of regulatory crackdown across industries, it has become fairly standard for Chinese tech firms to let go of tens of thousands of employees at a time. While mass layoffs like these are usually discussed as an indicator of a company’s struggles and changing strategies, they are also life-changing decisions for a vast number of talented and dedicated individuals who have spent their youth with these companies.

Wu Jing, a former employee at iQiyi, still vividly remembers the moment she lost her job in December. In an interview with Chinese media outlet Jiemian, she said it only took five minutes for her and her supervisor to finish their conversation. When she went back to her cubicle and checked her phone, rumors that the Baidu-backed video platform planned its largest-ever layoff sweep had begun spreading on Chinese social media.

Wu joined iQiyi four years ago when the Chinese Netflix-like firm was thriving. Two of the company’s variety shows, “The Rap of China” and “Idol Producer,” were huge successes and kicked off fierce competition among idol-focused variety shows in the domestic video streaming market. IQiyi went public in March 2018 at $18 a share, but since then, the share price has fallen by more than two-thirds.

Aware of the company’s anemic pace of growth, Wu had made plans to jump ship in 2022, but the layoff was quick and came as a surprise. Haunted by the feeling of abandonment, she now asks herself, “Do I look like a loser?”

Fresh graduates are not immune to these cuts either. Chen Yi, a former engineer at ByteDance’s gaming unit Ohayoo, lost his job late last year, just months after passing a strict selection process, according to a Jan. 25 report by media outlet 21st Century Business Herald. The report said that nearly all of Chen’s peers were let go by ByteDance’s gaming studio, among waves of layoffs as the TikTok owner sought to lower costs as it faced a potential growth bottleneck.

“The layoff just happened so suddenly that I wasn’t prepared,” said Chen.