China’s tech sector faces ‘hangover after the party’, with trade war and economic slowdown hitting employment
- Tech sector demand for new hires down 25 per cent in first quarter from a year earlier, while jobs seekers up 37 per cent, meaning demand outpaces supply
- Baidu, Tencent and JD.com are all ‘optimising’ their workforces, as analysts point to a sector in decline after years of expanding at an unrealistic pace
He Huifeng
Published: 7:45pm, 5 Jul, 2019
Once a booming industry that offered dream jobs to China’s young talents, China’s tech sector is now waking up to the sobering reality. Experts say it is time to focus on profitability, rather than the wild expansion of previous years, as China’s economic growth slows and
the trade war
with the United States hits sentiment and investment.
Since late last year, the tech sector has seen many lay-offs, reports of cancelled bonuses, and most tellingly of all, a sharp decline in demand for new hires. It is a far cry from the years between 2015 and 2017, when the online and e-commerce sectors were the top industries in the China Labour Market Index, an indicator of job market activity co-developed by the Renmin University of China and job site Zhaopin.
But from the start of 2018, the index has fallen for five consecutive quarters. In the first quarter of this year, the latest available report, tech’s recruitment demand was down 25 per cent from the previous quarter, while the number of jobseekers rose by 37 per cent.
In Shenzhen, home to
tech giants like Huawei and drone manufacturer DJI, Yang has seen demand for new hires among his tech clients drop by 30 to 40 per cent this year. And in an industry where job hopping to get a better position and salary was common, workers are now content to hold onto their current positions.
A Beijing-based headhunter, focused on internet firms, said tech companies, including major ones like Kuaishou, one of China’s leading video sharing platforms, had stopped recruiting through her firm since the end of 2018.
Companies like Baidu have been ‘optimising’ their workforces, a sign that hiring may be slowing further in China’s tech sector. Photo: Reuters
As well as freezing headcounts, big tech firms have opted to “restructure” operations to improve efficiency, which means shutting down loss-making departments and trimming back those that were expanding too fast. This has led to a series of lay-offs. Baidu, Tencent and JD.com have all announced staff “optimisation” measures and culls of expensive senior managers in favour of “younger talent”.
Earlier this year, New York-listed NetEase,a Chinese tech giant operating across multiple verticals, slashed headcount at its e-commerce unit Yanxuan, its agriculture arm Weiyang, and its education technology unit, according to Chinese financial magazine
Caijing.
In February, ride-hailing giant Didi Chuxing decided to cut 2,000 jobs. But the latest big lay-off came when Beijing-based second-hand car start-up Renrenche announced last month that it planned to cut up to 60 per cent of its staff, its second round of lay-offs this year alone.
The employment situation is exacerbated by the lack of financing options for small tech firms and start-ups. Erstwhile generous investors have tightened their belts, meaning that in the first half of this year, there was 37.2 billion yuan (US$5.4 billion) in successful financing, half the amount of the same period last year, according to a report from consultancy EO Intelligence.
China’s weakening tech job market, stems from a number of factors, including a slowing economy and the ongoing trade war.Brock Silvers, Kaiyun Capital
In June, a survey by 36Kr, a website tracking start-up fundraising, found that one-third of entrepreneurs said they had to approach more than 100 investors before they obtained sufficient financing.
“China’s weakening tech job market stems from a number of factors, including a slowing economy and the ongoing
trade war. But small business financing costs are also rising,” said Brock Silvers, managing director of Kaiyuan Capital, a Shanghai-based private equity fund.
“Investors are also increasingly confronted by poor performance from prior investment rounds. An excessive exuberance had allowed many Chinese tech firms to focus less on profitability, and investment performance suffered. Now, in a slowing economy and with less friendly financing options, China’s tech sector may be forced into a bit of belt-tightening.”
The case of Shenzhen Costar Smart Tech, once a star of China’s network and communication sector, is instructive. Founded in 2004, Costar, with a 1,000-strong workforce and 20,000 square metre (215,278 square feet) plant in Shenzhen’s Baoan district, was once listed on the New Third Board, a Chinese equities exchange.
China’s tech sector is dealing with a “hangover” from an over-exuberant period of growth, analysts said. Photo:
However, local suppliers have been protesting at its factory gates since Thursday, after the company ran up debts of up to 80 million yuan (US$11.6 million).
On Friday, Costar posted a notice to its 1,000 employees saying the factory would officially shut down due to declining profits. The staff would lose their jobs, and while the company is legally obliged to pay its workers compensation, the amount has yet to be confirmed.
Suppliers, however, have no such access to compensation. “Costar shut down the factory suddenly. It’s an absolute swindle of more than 200 mainland suppliers,” said Simon Song, a supplier who said suppliers are owed debts ranging from hundreds of thousands of yuan to several million.
“All the founders ran away. Our mainland suppliers have no way to contact the company. If the local authorities do not help us to reach Costar over the undischarged debts, many of us will also face capital failure and have to back-pay our workers,” Song said.
https://www.scmp.com/economy/china-...ctor-faces-hangover-after-party-trade-war-and