China’s tech boomtown Shenzhen struggles under weight of lost jobs, dwindling profits and demand woes
- Weak consumption, lay-offs, supply-chain disruptions and other headwinds take hefty economic toll on China’s southern technology hub of Shenzhen
- ‘Everyone is frustrated about the economic outlook,’ Shenzhen worker laments as livelihoods continue to be adversely affected
Late last month, Zeng Zhao, who runs a Shenzhen tech company developing educational software and has been looking to hire a new software engineer, was surprised to find a large number of experienced but jobless engineers seeking work in China’s tech hub.
“My HR interviewed a total of 10 engineers [for the one post]. Eight of them said they left their last job either because they were fired by tech giants or because payrolls were delayed for months by other small and medium-sized tech companies,” Zeng said.
“Most of them have mortgages to repay and were in a hurry to find their next job. A software engineer with three to five years of experience is now asking for about 10,000 yuan (US$1,500) to 15,000 yuan per month. It is lower than [last year].”
More people in the southern tech and manufacturing hub, well known for its new money, technology boom and property frenzy, have been commiserating on lay-offs, pay cuts, tightening cash flows and plunging demand, according to Zeng.
Despite signs of improvement, China’s economy is still feeling the pinch of the nation’s strict coronavirus-control measures, which have disrupted economic growth, including in Shenzhen, which should soon release its gross domestic product (GDP) data for the year’s first half.
Simon Zhao, associate dean of Beijing Normal University-Hong Kong Baptist University United International College United International College’s Division of Humanities and Social Sciences, said China’s economic challenges “go without saying”.
“On the other hand, the outbreaks and related strict restrictions have also caused foreign-funded upstream companies in various supply chains, as well as talents, to leave Shenzhen and go overseas. These are all superimposed factors that affect Shenzhen’s entire manufacturing sector, and imports and exports.”
According to the municipal bureau of statistics, the value of Shenzhen’s total import and export volume was about 1.31 trillion yuan (US$195 billion) in the first five months of this year – a year-on-year decrease of 1 per cent, with exports up 4.5 per cent to about 740 billion yuan, and imports down 7.2 per cent to about 569 billion yuan.
The city’s spending power has also been getting worst, with total retail sales of consumer goods declining by 2.8 per cent from January to May, year on year.
In January and March, the city went into lockdown from time to time due to Covid-19 outbreaks. Major factories, ports and restaurants had to suspend operations.
And again in late June, Shenzhen closed wholesale markets, cinemas and gyms for three days after a dozen local infections were confirmed over a two-day period in the city’s central district, near the border with Hong Kong.
“For the past few months, people here in [Shenzhen] have been required to present negative nucleic acid test results issued within 48 or even 24 hours to take the subway or travel by taxi,” said Lisa Lu, a marketing manager in her early forties who works for a local telecoms firm. “Business activity and consumption have been extremely low.
“Everyone is frustrated about the economic outlook when seeing mass pay cuts or lay-offs spreading among the middle class – from IT engineers and civil servants to teachers – as well as the weak property market and high mortgage pressure.”
In the first half of 2022, 9,965 second-hand real estate units were sold in Shenzhen – a year-on-year decline of nearly 65 per cent – and marking the worst performance since 2007, according to the China Times newspaper.
For the first-hand property market in Shenzhen, a total of 16,126 new homes were sold in Shenzhen in the first half of 2022 – a 38.3 per cent decline, year on year.
The city’s property prices had been soaring since 2008, and it became the most difficult place in China for locals to purchase a home, with a housing price to income ratio reaching about 48:1 in 2020. By comparison, the ratio was about 31:1 in Beijing and Shanghai.
In 2016 and 2017, the so-call strategic emerging industries, such as information technology, biotechnology and new materials – the benchmarks for the development of Shenzhen’s hi-tech industry – contributed to more than 40 per cent of the local GDP.
According to Shenzhen’s guidelines for its 13th five-year plan that spanned 2016-20, the city’s strategic emerging industries were to comprise a great proportion of the city’s economy by 2020, with the target set at 42 per cent of Shenzhen’s GDP.
But that percentage has been sliding, dropping to 39.2 per cent in 2021, and further to 39.3 per cent in the first quarter of this year.
Poor domestic demand has also taken a hefty toll on many of Shenzhen’s tech start-ups, according to industry insiders.
“The supply-chain disruptions caused by the outbreaks can be solved. As long as there is effective demand, we can resume production soon. Now the market shows that the biggest problem is that there is not enough demand,” said Jiao Yang, who just this week lost his job as a sales manager at a Shenzhen-based robotics company.
The three-year-old robotics firm had just raised 1 billion yuan in financing last year, and its staff ballooned to about 3,000 employees, but downsizing was announced earlier this week by Pudu’s founder, Zhang Tao. And there have been reports that the lay-offs could reach several hundred employees.
“The economic situation is too bad … It’s too hard to survive,” Zhang said in a letter to his employees. “The capital market has entered a bitter winter.”
Speaking to Pudu’s predicament, as an industry expert who knows the market well, Jiao explained how the company has sold catering robots for only 10,000 yuan, but noted that it is “impossible to make a profit” at that rate.
“Even at such low prices, hotels, restaurants and government customers don’t have the demand for them. The hotel occupancy rate is only 15 per cent,” he said. “This year, many hi-tech companies are finding it difficult to keep going.”
And Jiao now counts himself among the army of jobseekers in Shenzhen.
For their part, Jiao and Zhao both agreed that confidence in China’s economic future is crucial in the face of headwinds, and they are both calling for the central government to adjust economic policies as soon as possible to improve exchanges with the rest of the world.
And Zeng, who continues to look for engineers, lamented that “so far, not enough [technological] breakthroughs are happening to pull Shenzhen’s supply chain out of the shadow of technical constraints imposed by the US”. And as a result, Shenzhen has adopted a technology-replacement strategy.