China’s tech start-up scene is facing a slow down. News this week has begun to show that China’s tech scene isn’t all that hot anymore.
“Winter is coming”, according to Lin Liu, a 29 year old in the tech sector. Growth in some of China’s biggest tech companies, such as Alibaba, Tencent and Baidu, has begun to slow down. They are hiring less people, and are demanding more from current employees. Overall, 1 in 5 tech companies are planning to cut recruitment in the future, according to Liepin.com.
On top of this, Amazon has announced it will be closing its Chinese e-commerce market place due to fierce competition. Amazon was one of the first e-commerce services to operate in China starting in 2004. But as domestic firms such as Alibaba and JD.com have grown expansively, they have compromised Amazon’s market share from a 15.4% high to just 0.8%.
Industrial robots, electric vehicles and microchip production have all decreased recently. It is predicted that all this slowing down will continue, as China’s market becomes increasingly saturated, especially amongst the digitally savvy.
China’s economy has enjoyed double digit growth for 6 out of the past 15 years. However, the IMF has predicted that economic growth will slow down to 6.3% in 2019. This may still be double the average of global economic growth, but it’s China’s slowest growth outlook since 1990.
What’s going on?
The economy is beginning to cool down and with that, so is the tech sector. As a result, tech firms and “unicorns” – start ups with over $1bn – are demanding to be restructured to suit the economic climate.
Originally, there was a big push from the government which provided large funding for start ups to push economic growth. “What drove things completely insane was too much money,” Chinaccelerator CEO William Bao Bean said. This has since cooled off as funding becomes more difficult to access.
“Before, you could get $3m with two people knocking and a smile. Now you can get $3m with two people knocking and a smile and six weeks of meetings,” he added.
The US-China Trade War has instigated a slow down in growth, as both countries have imposed tariffs against each other since 2018. In addition, the Chinese digital market has become saturated.
Only 56% of China’s population is on the internet, which includes most of people who buy online. This saturation means it’s more expensive for firms to get customers due to the denser competition. Start ups can’t afford it anymore, especially with less investment.
What will happen to China’s tech sector?
It’s not good news for the tech sector, but it’s a good opportunity to increase efficiency and improve specialisation.
Chinese firms are known for dabbling in a wide range of markets and lacking focus. Take Meituan for example. Meituan is an online food platform, but they have acquired a bike share platform and also a low budget hotel chain. These non-core businesses are dragging down profit margins and making businesses suffer.
Also, it means that the best firms will survive and it will improve market efficiency. With so much money going around, it’s hard to figure out which company is actually the best. It gives a chance for the good companies to shine.
However, as a result of companies tightening their belts and reducing employment, it means that employees are being pushed to work 996. 996 stands for working 9am-9pm, 6 days a week. The 996 work week has been a source of controversy but will is most likely going to increase in popularly amongst the tech sector.
Interested in knowing more about China’s 996 work week? Click here to see what Alibaba co-founder Jack Ma says about it.