(Bloomberg) -- When Xi Jinping tightened the screws on China’s technology industry last year, he escalated a jobs crisis for the youngest and brightest minds needed to power the nation’s economy.
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Rocked by a series of punishing regulations that froze deal-making and wiped out the once-swaggering industry’s growth, sector leaders from Alibaba Group Holding Ltd. to Tencent Holdings Ltd. and Xiaomi Corp. this year began firing people by the thousands.
Those cutbacks foreshadow a more fundamental shift in the giant industry’s traditional role as the largest and most sought-after employer, with potentially grave consequences. A record of almost 11 million new graduates are expected to flood the labor market this year. With the tech sector no longer offering them as lucrative and exciting a career path as it once did, many will join the jobless ranks in an economy where one in five people between the ages of 16 and 24 are already out of work.
25-year-old Yu Mingyue, a media studies student in Beijing, knows that struggle well, having spent 300 days trying to find work -- an experience she says was “really beyond my expectations.”
“Before 2019, people were very eager about working for internet giants,” she says. Now her parents don’t want her to go near a private company given the myriad problems they face.
“Another good friend of mine is also finishing a graduate school considered quite good, and we thought we’d definitely be able to find a job,” she said. “But who knew the job market is so bad.”
The 20% record youth unemployment rate -- almost four times the national urban rate -- is a scar on the economy and a setback for the Communist Party before a major congress that’s set to usher Xi into a precedent-defying third term. Millions of young people out of work and disillusioned over their prospects could have lingering implications for China’s productivity and long-term growth.
There’s no short-term relief on the horizon either, given the government’s hard-line Covid Zero policies and tech companies struggling to keep losses in check. China’s two largest internet firms, Alibaba and Tencent, let go of more than 14,000 people from April to June -- almost 40% of the layoffs across the entire tech sector, according to layoffs.fyi.
High unemployment “may linger in the second half as more college graduates enter the workforce while zero-Covid policies are still in place,” said Liu Peiqian, chief China economist at NatWest Group Plc. Tech companies have long soaked up aspiring job-seekers and if that stops, it could destabilize the economy, she added. “If the unemployment rate remains high for a longer period of time, it may further weigh on social and economic stability.”
Tech giants were pummeled during the 2021 crackdown, which handcuffed money-making in sectors like online education, froze IPOs and deals, and forced Alibaba and its peers to pull out of promising businesses.
Many firms by and large avoided mass layoffs last year, in part because business boomed during the Covid era and there were hopes the government would eventually let up. While authorities did indeed ease up in early 2022, that was also when the global downturn hit and Covid fatigue set in across China, extinguishing many companies’ mid-term growth prospects.
While official data is hard to come by, stories of young tech workers ejected from cushy jobs abound. 27-year-old mobile game developer Amanda was one of the unlucky 5,000 or so that ran afoul of Tencent’s first staff reduction in nearly a decade.
China’s most valuable company -- once the most promising candidate to become the nation’s first trillion-dollar corporation -- hasn’t had a new game approved in about a year. More than 20 people or about a third of her team were abruptly fired before their Shenzhen-based employer reported its first decline in revenue.
Tencent is scaling back even teams at reliable money-spinners such as Peacekeeper Elite and Honor of Kings, according to Amanda, who wanted to be identified only by her first name to avoid getting blacklisted by employers.
“If even Tencent cannot navigate such a weak economy, how can other companies keep afloat for long?” she said. “What am I going to do next, where can I go?”
Tencent declined to comment when contacted by Bloomberg News. The company’s president, Martin Lau, said on a recent earnings call that job cuts were part of measures to reduce costs and stabilize earnings.
The accelerated downsizing is exacerbating the “lying flat” phenomenon that’s turned a generation of youngsters off the rat race. Even before Beijing’s regulatory assault laid waste to tech giants’ expansion plans, a growing number of people had quit in revolt at the increasing pressures that come with aggressive growth.
To address the issue, China’s central government is pushing plans from helping younger workers start their own businesses to strengthening vocational training and expanding headcounts at public institutions.
As tech fades into the background, government-backed firms are expected to take the lead in snapping up fresh graduates, said Iris Pang, chief economist for Greater China at ING Groep NV. Yet whether these positions are attractive to more highly educated job-seekers is an open question.
One young worker named Hattie handled event planning for just such a state-run company -- a stable job dubbed an “iron rice bowl.” But she quit to do a Master’s in education at the University of Glasgow, hoping to get into a then-flourishing online education sector. Then regulators effectively obliterated the sector.
After graduating in October, she joined internet celebrity-driven e-commerce company Mogu Inc. in Hangzhou -- a stepping stone to far greater prospects, she thought. Hattie was fired within 10 months, along with 10 others she knew of.
“I should have cried a lot, but in the end there were no tears but silence,” she wrote in a post on social media platform Xiaohongshu. “I’m really anxious. But anxiety is an only too-normal emotion in China’s society now,” she told Bloomberg News later, withholding her full name for fear of clouding her future prospects.
Amanda, the developer, considered pivoting to other industries given the sharp downturn in gaming globally, but has struggled to find a job given how depressed the economy is. Promising opportunities from short video platform Kuaishou Technology and Perfect World Game Co. fell through after they failed to proceed with verbal offers.
She finally scored a similar job at Bytedance Ltd.’s gaming platform Nuverse in July. Things could be worse, she surmised.
“I’m really worried about being laid off again,” Amanda said. “But the cruel reality is that the internet industry might be the last sector with high-paid jobs. Though it’s slowing down and laying off staff, other industries are even worse.”
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