China's Tech Industry Losing Jobs and Hope As Gov't Crackdown Intensifies

The Chinese government appears to have decided that exerting control and reducing independence for China's skilled tech workforce is worth the short term loss of initiative and innovation. 

The question is whether the government assessment of risk reward is correct - and, if they are wrong, to what degree this may be an opportunity for US, Asian and European tech companies. JL

Li Yuan reports in the New York Times:

The ranks of unemployed technology workers are swelling, as China’s once vibrant internet industry is hit by a harsh and capricious regulatory crackdown. Under the direction of China’s leader, Xi Jinping, the government’s unbridled hand is meddling in big ways and small, leaving companies second-guessing their strategies and praying to not become the next targets for crackdown. In place of the pride and ambition that dominated a few years ago, fear and gloom now rule as many tech companies lower their growth targets and lay off young, well-educated workers.

Like many ambitious young Chinese, Zhao Junfeng studied hard in college and graduate school so he could land a coveted job as a programmer at a big Chinese internet company.

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

Then barely a month into his new job, he was let go when iQiyi laid off more than 20 percent of its staff.

The ranks of the unemployed technology workers are swelling, as China’s once vibrant internet industry is hit by a harsh and capricious regulatory crackdown. Under the direction of China’s top leader, Xi Jinping, the government’s unbridled hand is meddling in big ways and small, leaving companies second-guessing their strategies and praying to not become the next targets for crackdown. In place of the pride and ambition that dominated a few years ago, fear and gloom now rule as many tech companies lower their growth targets and lay off young, well-educated workers.

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

The crackdown is killing the innovation, creativity and entrepreneurial spirit that made China a tech power in the past decade. It is destroying companies, profits and jobs that used to attract China’s best and brightest.

Even people within the system are alarmed by the heavy-handed approach. The former head of China’s sovereign wealth fund urged restrictions on the power of regulators. Hu Xijin, the newly retired editor of the official newspaper Global Times and an infamous propagandist, said he hoped that regulatory actions should help make most companies healthier instead of leaving them “dying on the operating table.”

The damage has been done. Some internet companies have been forced to shut down, while others are suffering from huge losses or disappointing earnings. Many publicly listed companies have seen their share prices fall by half, if not more.

In the third quarter of last year, China’s biggest internet company, Tencent, posted its slowest revenue growth since its public listing in 2004. The e-commerce giant Alibaba’s profitability declined 38 percent from a year earlier.

Didi, once the most valuable start-up in the country, reported an operating loss of $6.3 billion for the first nine months of 2021. In July, the authorities stopped Didi from signing up new users and ordered app stores to remove its services pending a cybersecurity investigation.

The online-education and tutoring sector has nearly been eliminated after Beijing decided that the businesses created unnecessary burdens for parents and children, hindering a push to bolster the country’s low birthrates. Hundreds of thousands of people, if not millions, have lost their jobs.

Online social media and entertainment platforms are pulling popular content and influencers, wary of repeated government warnings that their products and stars aren’t ideologically appropriate for the young.

The video platform that laid off Mr. Zhao, iQiyi, had an abysmal quarter, losing about $268 million. Its share prices fell 85 percent from their high in 2021, reflecting investors’ concerns that the company, once aspiring to be China’s Netflix, will be short of shows that can attract more subscribers and advertisers.

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

(Mr. Zhao confirmed the details in his social media account, but declined to comment further.)

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

Lilian Li, a writer in Beijing, said Tencent and a studio working with iQiyi approached her last year about creating a streaming series based on one of her history novels. A few weeks later, both companies told her that they had decided not to proceed because there was little hope of getting the censors’ approval for a history series. She said she received far fewer collaboration requests from content providers in 2021.

Chinese content creators always joke that they dance with shackles on, meaning they try to satisfy the censors while appealing to their audiences. By now it’s clear that no matter the creative concessions, there’s no guarantee that their projects can see the light of the day.

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

 

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

Beijing wants its cyberspace to become a tool of governance and national rejuvenation. And it will penalize anyone who fails to serve the goal.

In mid-December, the country’s internet regulator said it had ordered platforms to shut down more than 20,000 accounts of top influencers in 2021, including people who spoke ill of the country’s martyrs, entertainers involved in scandals and major livestreaming stars.

Alibaba was slapped with a record $2.8 billion antitrust fine in September. That was followed by a $530 million fine of Meituan, the food-delivery giant, a month later.

Weibo, China’s Twitter-like platform, was fined 44 times between January and November. Douban, the popular film- and book-reviewing site, was fined 20 times.

In December, Huang Wei, a top influencer known as Viya, who sells about everything under the sun on Alibaba’s Taobao platform — from Kim Kardashian’s fragrance (hawking 6,000 bottles in the first 30 seconds) to a rocket launch service (for $5.6 million) — was fined $210 million for tax evasion. She lost more than 100 million followers after all her social media accounts were shut down.

To prove their loyalty, many tech firms are positioning themselves to help build key technologies that will help the country break free from what Mr. Xi described as “stranglehold” weaknesses that the United States can exploit. That includes semiconductors, new energy and other advanced technologies.

A Beijing-based venture capitalist said his firm had given up on investing in consumer tech completely and had been busy persuading scientists and semiconductor engineers to start businesses. It hasn’t been easy because not many scientists have the entrepreneurial drive, said the venture capitalist, who spoke on the condition of anonymity given the political environment.

Li Chengdong, an e-commerce consultant who invests in start-ups, said some consumer internet companies he owned were struggling with higher compliance costs. “To stay on the safe side, they have to be stricter in compliance than what the government requires,” he said.

The crackdowns are having a chilling effect on the job market. Many young Chinese are looking to the public sector for more stable positions, even though they pay less.

There will be 10 million college graduates in China in 2022, according to the Education Ministry. About 4.5 million have applied to graduate schools, up 800,000 from 2021. More than two million people have applied to take civil servant examinations, up half a million, according to the Chinese state media.

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

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

Now she works 9 to 5 at the bank and has more time with her family. But nobody chats in the office, and no personal items are allowed in cubicles. The pay is lower.

Under her post titled “Escaping the internet layoff wave,” many comments praised her “prescience.”

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