BEIJING (BLOOMBERG) – When China president Xi Jinping tightened the screws on his country’s technology industry last year, he escalated a jobs crisis for the youngest and brightest minds needed to power the nation’s economy.
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 to Tencent Holdings and Xiaomi 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 labour 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 per cent 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 Mr 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 per cent 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 Ms Liu Peiqian, chief China economist at NatWest Group.
Tech companies have long soaked up aspiring job-seekers and if that stops, it could destabilise 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 pummelled 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-19 era and there were hopes the government would eventually let up.