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Massive layoffs plague Chinese tech sector

In the last few weeks, Chinese media were abound with news, rumors, and leaks about layoffs in the tech sector.

Dec 8, 2018 by A. Alfaro
Massive layoffs plague Chinese tech sector

In the last few weeks, Chinese media were abound with news, rumors, and leaks about layoffs in the tech sector.

The tech sector is in a state of flux in China. The older business models have become obsolete as the market has become more complex. In the light of the paradigm shift, Tencent, Alibaba, and Meituan have adapted their strategies to the new environment by focusing on B2B services and O2O. Young companies such as Pinduoduo and Bytedance have started targeting suburban and rural populace to keep their shows on the road. The traditional internet consumer services have reached a saturation point in big cities leading to massive layoffs.

Tencent-backed live streaming platform Douyu (also known as Doyo) is downsizing. According to 36Kr, employees in Douyu’s Shenzhen office were taken aback when HR representatives from the headquarters arrived unannounced on 4 December to begin layoff negotiations. Shenzhen office is mainly focussed on global expansion of Douyu. As many as 70 employees could get the boot.

A week ago, the team was celebrating Douyu’s international success. Douyu app became a runaway hit on Google Play in a short time after the October 2018 launch. However, the victory was short-lived, and the company went sideways at the end of 2018. Douyu owes money to content creators across Vietnam, Indonesia and Thailand, according to the company insiders.

The employees who’d lose their jobs would have a hard time finding work. Some of them had even rejected offers from Alibaba and Tencent and had shifted to Shenzhen to work in Douyu.

Douyu faced a cash crunch at the end of 2017. Tencent came to its rescue in March 2018 and invested over USD 600 million in the company.

Last April, the Chinese government reined in on country’s P2P lending sector. The new regulation dictated fin-tech companies to comply with stricter capital requirements and limited the lending cap to individuals at USD 30,000. More than 200 P2P have shut shop in the wake of the new policy.

Qudian (趣店), a fintech company specialising in online micro lending and investment management, is also on the layoff path. According to the Chinese portal Jiemian, up to 200 employees could lose their jobs soon. Qudian’s subsidiary platform Dabaiqiche (大白汽车) shuttered 40 of its 179 stores in October 2018.

In September 2018, the photo-enhancement app Meitu (美图), with 455 million monthly active users, “completed an optimisation of the staff to achieve its strategic plans and improve efficiency”, according to an East Money Information (东方财富网) report. Meitu released two mobile phones at the beginning of 2018 and met with dismal sales, which in turn resulted in a few pink slips.

The layoff threat is looming large over the e-commerce sector as well. In November, local media reported JD´s plans to cut 10% of its staff. The year 2018 has been JD´s “annus horribilis”. In May 2018, a JD employee leaked the news of downsizing to media on condition of anonymity. The employee alleged JD was planning to let go of unmarried female employees first, which caused quite a stir on social media. The company later released an official statement: “JD conducts performance reviews of the staff every year, and it rewards the best performers. Those employees whose work does not meet our expectations may be subject to an adjustment and an optimization.” In September, Liu Qiangdong, the billionaire founder and CEO of JD, was arrested in the US on rape charges. On top of that, JD’s monthly active users decreased from 313 million in the second quarter of 2018 to 305 million in the third quarter.

The hardware sector is not an exception to the layoff trend. In June 2018, Terry Gou, founder of Foxconn (Taiwanese technology giant and Apple's biggest supply chain partner), said the company would exercise cost-cutting measures in 2019. He said Foxconn would replace 80% of workers with robots in 5-10 years to increase efficiency and productivity, according to media reports. Foxconn’s facility in Kunshan had 3000 workers in 2015. After automation, the staff strength has dropped to around 800.

Staff cuts have become a norm across different sectors.

To put things into perspective, The Operation of Internet Investment and Financing Report (by CAICT) showed the amount of investments dropped by more than 45% in comparison to 2017Q3.

According to the data from recruitment website zhaopin.com, the number of jobs in the IT sector decreased by 51% compared to the third quarter last year.

The picture doesn’t look good for the 8.6 million Chinese students slated to graduate in the summer of 2019.

A. Alfaro

A. Alfaro is a Beijing-based freelance reporter. He focuses on China's politics, culture and society. He can be reached at varofaro@gmail.com. 

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