Chinese tech giants slash costs to face economic headwinds

Big internet firms in China, formerly notorious for their extravagant spending and employee perks, have recently tightened their belts as economic headwinds have stiffened and capital support has dried up.

China's Big Tech has made a spectacular retreat in the second quarter of 2022 as businesses cut costs in the face of weaker consumer spending, regulatory scrutiny, and an increasingly tense US-China relationship. 

Alibaba Group Holding and JD.com, the top two e-commerce platforms, reported their slowest revenue growth on record amid weakened consumer spending last quarter, while Pinduduo, known for rock-bottom online prices, reported a surprisingly good performance, as per the South China Morning Post.

Li Chengdong, Founder of Dolphin, a Beijing-based consultancy, said no Chinese tech firm can escape the impact of the economic slowdown.  "The days of rapid expansion are over, even for Pinduoduo."

Tech firms forced to choose downsizing 

Alongside e-commerce platforms, other tech firms have been forced to downsize as well. 

Chinese streaming site iQiyi has reported payroll cuts by almost half over the last two years, which aided in reporting profits for two quarters in a row – the first time since its listing in 2018.

Alibaba downsized its manpower by 9,241 workers while Tencent dismissed more than 5,500 people in the second quarter. 

Xiaomi cut around 900 jobs over the same period. 

Baidu laid off hundreds after cutting businesses of video games and live streaming.

Meanwhile, income prospects, bonuses, and office perks are shrinking for those who survived the downsizing.

Marketing budgets shrinking 

Weibo, Kuaishou, and Tencent dropped their marketing budgets by 25%, 23%, and 20%, respectively, from a year earlier, while the other top nine Chinese tech giants have already announced their June quarter results.

Cost cutting has become the new normal replacing reckless expansion.

Behind the unprecedented change is a reflection of how insecurity has taken hold at China Big Tech amid a faltering economy compounded by regulatory uncertainties.

Gaming revenues have suffered, prompting some more recent entrants, like ByteDance, owner of TikTok, to close their pricey gaming studios.

Advertising, another key source of revenue for internet platforms, is also shrinking as the country's economic growth stagnates.