Business

Layoffs at China’s Internet Giants Indicate a Deeper Dilemma

The wave of layoffs in Chinese internet companies is intensifying, with JD.com becoming the center of attention.

According to a document that has been circulating online, JD.com’s layoffs cover a wide range of business lines. The e-commerce company’s subsidiaries such as Jingxi, JD Worldwide, JD Retail, JD Logistics, and JD Technology have set layoff ratios, most of which are between 10 to 30 percent, with up to 100 percent of staff laid off at Jingxi Guangdong. Some media quoted senior insiders of JD.com as revealing that the layoffs have indeed started. JD.com has said this is just “normal optimization” of the business sector.

Notably, JD.com is not alone among Chinese internet companies in conducting major layoffs. Large-scale layoffs have been reported at Alibaba, Youzan, and other tech heavyweights as well. When a single company undergoes a large layoff, the issues at hand are arguably unique to the company. Yet, there have been centralized layoffs in several of China’s leading tech companies, suggesting industry-wide problems. Some analysts believe that the Chinese internet industry has begun to experience cyclical downward pressure, and most of these companies have seen growth slow down or even suffered losses.

Amid the unprecedented layoffs at Chinese internet giants, the pressure mainly comes from two aspects. First, in the current environment, Chinese economic growth continues to slow down and consumption has been sluggish, thereby hitting the business of tech companies. Second, there is pressure from regulatory authorities, causing some of the companies to adjust their business operations.

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However, in a broader context, this trend reflects a problem across the whole Chinese economy, not just the internet industry. In the past few years, the internet industry in China has been supported by both capital and consumer markets. The internet is a sector keenly pursued by both international and domestic capital, thanks to the huge market potential. China has a population of 1.4 billion, and such a huge market is unquestionably an important factor in supporting the development of the country’s internet industry.

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Compared with other sectors, China’s internet industry has obtained abundant resources, including diverse types of investment, financing, policies, and markets. However, the process of resource accumulation for the internet industry more often than not only generates superficial prosperity, and that comes at the cost of draining the resources of the real economy. A clear example is that while e-commerce is booming, brick-and-mortar stores are closing down one by one.

Now, it is the internet industry’s turn to encounter its own various problems. There has been less capital inflow, while more outflow has occurred. On top of that, the recovery of China’s domestic consumption has been sluggish. All these factors, coupled with the authorities’ continuous introduction of industry rectification policies, have affected the industry. The case of JD.com shows that the so-called capital flow is actually the withdrawal of capital by investors. This in turn affects listed companies and the industry as a whole, consequently hitting demand, consumption, and the market. The final result is the closure or dissolution of businesses, unemployment, and a large number of enterprises that exist in name only. When problems like this occur in different parts of the chain, the issue cannot be fixed merely through the adjustment of GDP data.

The performance of China’s tech heavyweights in the past two years is not entirely the problem of internet companies. In fact, the decline of the country’s economy started long before the outbreak of the COVID-19 pandemic. Under the backdrop of the economic downturn, internet companies with relatively concentrated resource accumulation began to be considered as the safest places to invest. Unless the market fails, internet companies would not fail. Yet this also means that the entire system could collapse if the elements that support it fail to function well.

Artmotion China

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