Job-hopping days are over in China’s tech sector as start-ups feel chill winds of slowing economy
- The number of venture capital deals in China dropped 25 per cent year on year to 713 in the fourth quarter
- Competition for job vacancies has intensified with an average applicants-to-jobs ratio of 32 to 1
Twenty seven-year-old marketing professional Jessamine Xue felt the world was her oyster when China’s internet sector – a sunrise industry backed by Beijing as the gateway to an innovation-driven economy – opened its doors to her in mid-November with an entry-level position.
Xue got a job with a Beijing start-up that hosts the country’s largest creative social network for artists. She was keen to make a good impression at the company, which had secured funding of US$15 million in early 2018 and was in the midst of a hiring spree, recruiting seven to eight new people each week.
But after just six weeks, matters took an unexpected turn. All of the company’ probationary employees – which she estimates at around 50 people – were suddenly fired in late December due to “an adjustment to the company’s business strategy”, according to an official letter from the company’s human resources team.
Xue was upset but not bitter, describing her experience as “unlucky” and not an isolated case given a wider industry “winter” amid a slowing economy and US-China trade war. Nevertheless, Xue said this was her first taste of job insecurity and that “being dumped felt quite different from dumping someone.”
Rumours about tighter hiring practices in China’s tech sector began to swirl at the end of 2018 amid cooling valuations for start-ups, tighter market conditions for private enterprises and a shrinking pool of venture capital funds. The number of China’s venture capital deals dropped to 713 in the fourth quarter of 2018, down 25 per cent from a year earlier, with the amount of funding shrinking 12 per cent to US$18.3 billion, according to data from market research firm Preqin.
The World Bank expects China’s economic growth to slow to 6.2 per cent in 2019 from an estimated 6.6 per cent in 2018 due to weaker exports. That compares with official GDP growth rates of between 6.5 per cent to 7.0 per cent over the last 15 quarters. Meanwhile, Beijing has been edging towards a stimulus package, including more fiscal spending and monetary easing, despite a previous effort to deleverage the indebted economy.
Which means the days of job hopping and easily getting higher pay offers in China’s tech industry look to be over as companies, both big and small, trim headcount and hunker down for tougher times. Aside from global headwinds, China’s internet sector has also had to contend with tighter domestic regulations as Beijing cracks down on content it deems vulgar, harmful or misleading across a range of sub-sectors, from gaming to news aggregators to education apps.
Wang Xiaode, a 28-year tech consultant in the southern port city of Shenzhen in China’s tech heartland, said he planned to stay in his current company for at least two years given his view that “China’s overall employment environment, especially in the tech industry, is getting worse.”
“I have worked for five companies in the past six years since graduation. Thanks to previous job-hopping, my salary has increased from an initial 5,000 yuan a month to around 22,000 yuan (US$3,250) currently,” said Wang. “I do not think I can ask for much higher pay in a new position now as many tech companies do not have deep pockets like before and many have announced lay-offs.”
Ofo is perhaps a prime example of the sudden change in fortunes some companies are experiencing.
Founded in 2014, the bike rental firm raised a total of US$2.2 billion in nine funding rounds in less than four years. Once a start-up star, Ofo has struggled with bankruptcy rumours since late 2018 amid a cooling of consumer interest in bike rentals, industry consolidation, a local authority crackdown on the number of bikes on congested city streets and a sudden rush by about 13 million users in China to get their deposits back.
Ofo, which once operated in 50 cities around the world, is also being sued by a number of suppliers for unpaid bills and its chief executive Dai Wei has been put on a government blacklist for failing to pay the company’s debts. The company said in a statement on January 9 that there had been “an ordinary business adjustment” of employee numbers, without elaborating.
William Li, a senior analyst at Beijing-based data research company Context Lab, said that “personnel adjustments” and “staff optimisation” were simply terms tech companies are using to describe lay-offs in response to worsening economic conditions.
“Some start-ups cannot survive now that the capital rush has slowed,” said Li. “They aggressively look for new people and offer attractive salaries and positions when they have new funding. Lay-offs naturally follow when companies fail to find sustainable profit models and run out of cash.”
Li Qiang, a human resources expert at Zhaopin, one of China’s largest online recruitment sites, said a decrease in job openings was the result of reduced funding. One of his clients, a star start-up in China, was hiring 1,000 people a month at one point in an aggressive attempt to capture market share.
“To compete for talent, the company offered really good salaries,” said Li. “A small team lead was being paid what a business director would get in a traditional industry, but that’s all changed now.”
According to a talent supply and demand report from Zhaopin earlier this month, competition for job vacancies in China has intensified with an average applicants-to-jobs ratio of 32 to 1. Internet and e-commerce sectors still have the most openings but even here, hiring this winter is down 15 per cent from a year earlier.
The drop was most pronounced in the online gaming sector, where openings slid 30 per cent in the final quarter of 2018.
The changing situation took 32-year old programmer Wang Hui by surprise. She quit her old job in June and despite a concerted effort, is still looking for a new one.
“I’ve met with over 40 tech companies. I thought I could quickly get a new job with 10 years’ experience in internet product management but the situation is totally different from what I imagined,” said Wang, adding that most companies seemed very conservative on hiring right now.
Ivy Wang, a recruitment expert at ManpowerGroup, said the situation was more of a return to normality than a crunch.
“There has been a lot of hype and bubbles in the tech sector in recent years, and the current situation indicates a return to healthy development,” she said. “The industry is also transitioning from the consumer internet to the industrial internet, meaning there will be new opportunities in internet of things, cloud computing and artificial intelligence.”
Jeffrey Towson, a professor of investment at Peking University Guanghua School of Management and an expert on China’s digital scene, agreed with Wang and said the moves were not a “downsizing”, but a “right sizing”.
“The human resource restructuring is good for the tech sector – now people can quickly move from a bad business idea to finding the next big thing.”
Additional reporting by Sarah Dai