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

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 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% 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 US counterparts, China’s
biggest tech companies are regulated to limit abuses of power and to mitigate
systemic risks. But Beijing’s hyperpolitical approach shows that it is more
about the Communist Party taking control of the industry than about levelling
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.

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

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

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 are not ideologically
appropriate for the young.

The video platform that laid off Zhao,
iQiyi, had an abysmal quarter, losing about $268 million. Its share prices fell
by 85% from its 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 CEO, Gong Yu, told analysts in
November. He blamed, in part, censors’ slow approval. IQiyi did not respond to
requests for comment.

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

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

Lilian Li, a writer in Beijing, said
that 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 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.

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Chinese content creators joke that they
dance with shackles on, meaning they try to satisfy the censors while appealing
to their audiences. By now it is clear that no matter the creative concessions,
there is no guarantee that their projects can see the light of 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 penalise anyone who
fails to serve the goal.

In mid-December, the country’s internet
regulator said that 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

Alibaba was slapped with a record $2.8
billion antitrust fine last 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 Xi described as “stranglehold” weaknesses that the
United States can exploit. That includes semiconductors, new energy and other
advanced technologies.

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A Beijing-based venture capitalist said
his firm has given up on investing in consumer tech completely and has been
busy persuading scientists and semiconductor engineers to start businesses. It
has not 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 startups, said some consumer internet companies he owns are
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 by 800,000 from 2021. More than 2
million people have applied to take civil servant examinations, up by 500,000,
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 went 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.



© 2022 The New York Times Company

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