As Beijing takes control, Chinese tech companies lose jobs, hope

Like many ambitious young Chinese, Zhao Junfeng studied hard at college and university so that he could land a coveted job as a programmer at a large Chinese internet company.

After graduating from graduate school in 2019, he joined an e-commerce business in Nanjing city, east China, got married, and adopted a cat named Mango. In November 2021, he moved to Shanghai to join one of the biggest video platforms in China, iQiyi. He was on track to lead a much-desired middle-class life, documenting his rise on his social media account.

Then barely a month after his new job, he was laid off when iQiyi laid off more than 20% of its staff.

The ranks of unemployed tech workers are swelling as China’s once vibrant internet industry is hit by harsh and capricious regulatory crackdown. Under the leadership of China’s top leader, Xi Jinping, the government’s unbridled hand is intruding in large and modest ways, leaving companies to question their strategies and pray that they do not become the next targets of repression.

Instead of the pride and ambition that dominated a few years ago, fear and gloom now reign as many tech companies lower their growth targets and lay off young, well-educated workers.

Like their US counterparts, China’s largest tech companies are regulated to limit abuse of power and mitigate systemic risks. But Beijing’s hyper-political approach shows that it’s more about the Communist Party’s takeover of industry than leveling the playing field.

The crackdown is killing the innovation, creativity and entrepreneurship that have made China a technological powerhouse over the past decade. It destroys businesses, profits and jobs that attracted the best and brightest in China.

Even people within the system are alarmed by the blunt approach. The former head of China’s sovereign wealth fund has called for restrictions on the power of regulators. Hu Xijin, the newly retired editor-in-chief of the official Global Times newspaper and a famous propagandist, said he hoped the regulatory measures should help improve the health of most businesses instead of letting them “die on. the operating table “.

The damage is done. Some internet companies have been forced to shut down, while others are suffering huge losses or disappointing profits. Many publicly traded companies have seen their stock prices drop by half or more.

In the third quarter of last year, China’s largest internet company, Tencent, posted its slowest revenue growth since its IPO in 2004. The profitability of e-commerce giant Alibaba fell by 38 % compared to the previous year.

Didi, once the country’s most valuable startup, reported an operating loss of $ 6.3 billion for the first nine months of 2021. In July, authorities barred Didi from registering new users and ordered application stores to remove its services pending a cybersecurity investigation.

The online education and tutoring sector was all but wiped out after Beijing ruled companies were creating unnecessary burdens on parents and children, hampering efforts to bolster the country’s low birth rates. Hundreds of thousands of people, if not millions, have lost their jobs.

Social media and online entertainment platforms attract popular content and influencers, wary of repeated government warnings that their products and stars are not ideologically appropriate for young people.

A giant screen displays news footage of Chinese leader Xi Jinping delivering a speech on December 31 at a Beijing shopping mall. | REUTERS

The video platform that fired Zhao, iQiyi, had an abysmal quarter, losing around $ 268 million. Its stock price has fallen 85% from its 2021 high, reflecting investor concerns that the company, which once aspired to be China’s Netflix, will run out of shows that can attract more subscribers and of advertisers.

“The biggest problem for our industry is the severe shortage of content,” Gong Yu, CEO of iQiyi, told analysts in November. He blamed, in part, the slow approval of the censors. IQiyi did not respond to requests for comment.

(Zhao confirmed details on his social media account but declined to comment further.)

Many film, television and streaming projects have been canceled or killed over increasingly severe and unpredictable censorship concerns, people in the industry have said.

Beijing writer Lilian Li said Tencent and a studio working with iQiyi approached her last year to create a streaming series based on one of her story novels. Weeks later, the two companies told him they decided not to continue because there was little hope of securing censor approval for a landmark series. She said she received significantly fewer collaboration requests from content providers in 2021.

Chinese content creators joke that they dance with chains, which means they are trying to keep censors happy while gaining audiences. It is now clear that no matter what creative concessions, there is no guarantee that their projects will see the light of day.

One of the most anticipated films of the 2021 Christmas season has had to change its name to “Fire on the Plain”, from “Moses on the Plain”, possibly due to its reference to Christianity. Then four days before its release, the production team indicated that it was postponed, without giving an explanation.

“Restrict this, cancel that. Regulate this, censor that, ”Chen Jian, a stock investor, wrote on social media platform Weibo. This country “will eventually become a cultural desert”.

Beijing wants its cyberspace to become a tool of governance and national renewal. And that will penalize anyone who does not serve the purpose.

In mid-December, the country’s internet regulator said it had ordered platforms to shut down more than 20,000 prominent influencer accounts in 2021, including people who spoke badly about the country’s martyrs, artists involved in scandals and big stars of live broadcasting.

Alibaba was fined a record $ 2.8 billion antitrust fine in September. This was followed by a $ 530 million fine from Meituan, the food delivery giant, a month later.

Weibo, the Chinese platform similar to Twitter, was fined 44 between January and November. Douban, the famous film and book review site, was fined 20.

In December, Huang Wei, a leading influencer known as Viya who sells just about everything under the sun on Alibaba’s Taobao platform – Kim Kardashian perfume (6,000 bottles peddled in the top 30 seconds) to a rocket launch service (for $ 5.6 million) – was fined $ 210 million for tax evasion. She lost over 100 million followers after shutting down all of her social media accounts.

To prove their loyalty, many tech companies are positioning themselves to help create key technologies that will help the country break free from what Xi has described as “sway” weaknesses the United States can exploit. This includes semiconductors, new energies and other advanced technologies.

A Beijing-based venture capitalist said his company had given up investing in consumer tech altogether and was busy persuading semiconductor scientists and engineers to start businesses. It has not been easy because few scientists are entrepreneurial, said the venture capitalist, who spoke on condition of anonymity given the political environment.

Li Chengdong, an e-commerce consultant who invests in startups, said some mainstream internet companies he owned were struggling with higher compliance costs. “To remain cautious, they have to be stricter than what the government demands,” he said.

Repressive measures have a chilling effect on the labor market. Many young Chinese people are turning to the public sector for more stable positions, even if they pay less.

There will be 10 million university graduates in China in 2022, according to the education ministry. About 4.5 million people have enrolled in higher schools, up 800,000 from 2021. More than 2 million people have registered for civil servant exams, up 500,000, according to media reports. of Chinese state.

Olivia Fu worked for five years as a project manager at search engine giant Baidu in Beijing before leaving last fall to join a large state bank. She wrote on the social media platform Red that she went through a midlife crisis after turning 30.

“When I got home after dark and saw my daughter asleep,” she wrote, “I wondered if this was the job I wanted.”

Now she works 9 a.m. to 5 p.m. at the bank and spends more time with her family. But no one is talking in the office and no personal items are allowed in the cabins. The pay is lower.

Under his article “Escaping the Wave of Internet Layoffs”, many comments praised his “foreknowledge.”

“I feel so lucky to have left the industry,” she said in an interview.

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