As Recruitment Declines, China’s Internet Giants Learn to Slow Down

This article is authorized to be translated from the original article of LatePost. Original title: 招聘大收缩：互联网大厂学会慢一点 Author: Xiaolei Li. Editor: Junjie Huang and Yinmi Yao. Copy editor: Peter Catterall

“There are two 18-year-olds, one in China, the other in the United States, both poor and short on prospects. You have to pick the one with the better chance at upward mobility. Which would you choose?”

The New York Times raised the above question in a late 2018 article entitled “The American Dream is Alive. In China.” The answer given was China. The authors believed that in the 30 years of economic reform, hundreds of millions of Chinese people have made great effort in exchange for a better a better life, making young people here more optimistic about the future.

In the 1990s, this optimistic spirit was embodied by the Chinese female laborers at Guangdong factories, some of whom met with sociologists documenting their experiences. They came from the poorest villages to factories with poor working conditions, working overtime day and night just to save a bit of money to escape their original life trajectory and see the wider world before marrying and having children. (Pan Yi, “Chinese Women”)

Before and after the 2008 Beijing Olympics, they were white-collar workers at foreign companies that American fashion reporters met in Shanghai. They tried their best to integrate into an unfamiliar environment and were willing to spend two months of their salary to buy package deals because they believed that they would always make more in the future. (Dana Thomas, “Deluxe: How Luxury Lost Its Luster”)

Throughout the past ten years, they have been the survivors of the college entrance examination screening system – the “new generation of migrant workers,” according to statistics from the Ministry of Human Resources and Social Security, and protagonists in the brand story of Beijing-based internet giant ByteDance. These young people have handed over the primes of their lives to internet companies, striving to make a class leap.

From generation to generation, people who have neither the desire nor opportunity to achieve the good life through profiteering, instead striving for a better life than their parents through hard work and sheer luck, have always passed on the spirit of optimism.

Optimism is an important economic indicator. Optimists are more willing to create and spend money. Multiple studies have shown that optimism not only helps individuals work harder, but also empowers entire regions to emerge from economic recession faster and move closer to prosperity.

However, optimism is never distributed evenly, and it is now less and less even. The winner-takes-all competition within the internet industry has caused wealth to be highly concentrated. A 2017 paper entitled “Digital Innovation and the Distribution of Income” published by American economic research institute NBER shows that throughout the past 40 years, countries that have enjoyed greater success in digital innovation also have seen the top 1% of people take up a higher proportion of wealth within society.

Asymmetry also exists within the internet giants themselves. Such companies require high-intensity work, comprehensive monitoring and compulsory competition agreements. “Involution [ 内卷 ]” and “laborers [ 打工人 ]” have become industry buzzwords, indicating that more and more people have begun to wonder whether their tireless efforts have been worth it.

Now, amid a shifting economic and regulatory environment, the internet giants have in recent months slowed their pace.

LatePost learned from Chinese recruitment platforms that seven leading firms in the industry – Alibaba, Pinduoduo, Baidu, Meituan, Tencent, ByteDance and Kuaishou – have all posted fewer jobs this year than expected when compared with last year’s salary growth, less than half of the industry’s overall growth rate. Among them, Alibaba and Kuaishou saw the lowest gains.

What has stopped is not only the boundless desire of internet companies to expand, but also the ambition and pride of tens of thousands of young people.

Feng Lijuan, chief human resource expert at a recruitment platform 51job.com, recalls that ever since 2015, each time fresh graduates were asked about their future career prospects, “internet” was the most common response blurted out. Alibaba had gone public the previous year, leaving behind countless legends of wealth in its home city of Hangzhou.

This year has seen more graduates respond “state-owned enterprise,” on the grounds that they offer more stability.

A Summer of Cooling

After four rounds of interviews lasting a month, the job seeker finally received an email from Alibaba confirming that he had passed his interview. The human resources department requested that he upload the salary records from his previous job – generally speaking, these developments indicate that a candidate is very near to filling the position. After this supplementary information was provided, he waited for the email confirming his new employment. What he actually received, however, was news that the company had locked its total headcount.

Hiring was terminated.

Similar messages citing recruitment freezes have been presented to applicants for a range of reasons. One individual passed all interviews for a position and had even submitted a medical examination report, only to read nine days later that “the company has locked the headcount.” Another heard from Didi HR on the day before an interview: “The interviewer is busy and temporarily cannot conduct interviews.”

In the end, “temporarily” became “forever.”

Originally, summer and autumn was the time of year Chinese internet giants enthusiastically seek new recruits, but starting from this year, everything has changed.

New regulation on education, community group buying and gaming have caused internet companies to exercise more caution – these were the areas that once offered the most promise for the firms’ future growth. Meanwhile, anti-monopoly policies and penalties have impacted competition, preventing companies from squeezing and controlling entire markets. Finally, the gradual implementation of privacy policy has directly affected advertising revenue, representing a key lifeline to many internet firms.

More importantly, the step-by-step tightening of policy means that industry leaders no longer find themselves in an environment of “barbaric growth.” Investors and practitioners’ enthusiasm for this once-emerging industry has also begun to cool, and pessimism has grown.

As endless expansion is no longer an option, pulling back on investment has now become a must.

Campus recruitment has also adjusted to the new terrain. According to data from 51job.com, the total number of jobs offered by internet firms for the 2022 session has declined by 15%-20% compared to last year, even as salaries have not significantly increased. By contrast, the fast-moving consumer and automotive industries are still experiencing a 10%-15% growth rate.

At one time, major internet companies represented the starting point of schoolkids’ dream careers. When the industry was booming, ByteDance interns had a positive work experience: after joining, she would use the same email address as full-fledged employees, generate real value for the company, and enjoy higher internship remuneration than at other firms.

It is precisely because of such experiences that people have pined for a spot at one of the top internet giants. Behind the once fashionable ByteDance name card was the sincere recognition of others.

But now, multitudes of young people have no chance to enter this yearned-for company.

ByteDance’s interview score features a five-point scale. Multiple HR workers at the firm told LatePost that while three points would clearly pass a candidate previously, it is no longer enough to guarantee an offer.

As the scale of recruitment has shrunk, the responsibilities of HR workers within the firms have also changed. For instance, one HR employee at a top internet company has recently begun to study the status of various industry competitors, writing analysis reports with the results.

Times are different.

In the wake of major industry shocks caused by the COVID-19 pandemic and associated economic crisis, small- and medium-sized enterprises were thrown into crisis, carrying out layoffs and even closing operations. Large firms with the best prospects and access to additional capital, on the other hand, chose to accelerate their expansion.

China’s internet giants are indeed making plans to scale up. LatePost leanred that last year the number of ByteDance employees was expanded from 60,000 to 100,000, with a total of 160,000 now employed. Meituan formulated a plan to expand its recruitment of 60,000 people in early 2021, becoming the fifth internet company to enter the 100,000 club after Alibaba, Tencent, ByteDance and JD.com. Tencent, ByteDance and Baidu have referred to 2022 campus recruitment as the “largest campus recruitment in history.”

The firms have made full preparations for these developments. According to LatePost’s incomplete statistics, the top ten Chinese internet and tech companies with the most financing in overseas secondary markets have since 2018 raised nearly 150 billion yuan ($23.5 billion) through additional stock issuances, convertible bond issuances and secondary listings.

“Almost no industry leader achieves their position by controlling labor costs,” said ByteDance founder Zhang Yiming in 2016, when the firm had fewer than 10,000 employees. The most successful companies believe that large investment yielding large growth can increase input-output ratios.

ByteDance’s current management and recruitment principles can be distilled into the following tagline: “get rid of fat and become skinnier.”

In late 2018, an employee who had just joined the firm’s TikTok team attended a meeting in which he discovered that his colleagues were “all saying ‘get rid of fat and become skinner’.” The worker was confused, so he asked for an explanation, hearing in response: there is no more money, so spending money isn’t allowed. Accordingly, the company would require the reduction of ineffective marketing investments.

In early 2019, ByteDance officially responded to speculation about related layoffs within gogokid, an online tutoring platform operated by the firm.

Two months ago, an applicant was prevented from undergoing an HR interview on the grounds of “getting rid of fat and becoming skinny.” Nowadays, the “fat” that the company has removed is not just excess funds but also people. The firm now represents the only protagonist. When business stops growing, employees become the “fat” that the organism seeks to shed.

No Income Increases, No Personnel Increases

At a ByteDance company-wide meeting in June of this year, Zhang Yiming and the firm’s newly appointed CEO Liang Rubo explained the reasons for the firm’s slowing down of recruitment.

“DAUs [daily active users] are in a flat state, but our headcount is increasing at the relatively fixed rate of tens of percent each year. This is certainly problematic,” Liang said.

As the world’s most valuable non-listed company, ByteDance’s staff size has grown by about 60% annually for the past three years. Its revenue increased by more than 200% year-on-year in 2018, and it can still nearly double each year in the next two years. However, a person close to Bytedance’s commercialization team told LatePost they predict that the growth rate of advertising revenue in the third and fourth quarters of this year will slow to about 30%-40%, less than half of the same period last year.

Many of ByteDance’s products hit the ceiling this year. According to QuestMobile data, in September this year, 670 million people used Douyin, and another 190 million people used the extremely fast version of the platform. Douyin’s user growth is also gradually approaching its population ceiling. Today’s headline users have declined, and the daily active users of Watermelon Video halved.

Mature businesses have entered a bottleneck, and new businesses that have been heavily invested have encountered policy restrictions. Education is the new business that ByteDance invests in the most.

A former ByteDance HR worker believes that the shrinking education business is the company’s most extreme example. It took more than two years to recruit nearly 20,000 people, but more than half of them were laid off within a month or two. He sees this as the fuse of ByteDance shrinking. “But even if it doesn’t, I will find that many businesses have developed less than expected this year. What should I do? Should I invest?” His answer is that he will invest, but he will no longer be aggressive.

At one time, education was the main force in the recruitment market. The July “double reduction” policy shattered the main business model of the existing online education company’s business. In the fourth quarter of 2020, the statistics on a single recruitment platform alone, including part-time jobs, saw nearly 1 million recruitments in the education and training industry. But now the demand for recruitment in the education and training industry is almost zero, and all companies have been affected. According to the internal calculations of a first-line education institution, online and offline education and training institutions once provided tens of millions of jobs, and most of them are now affected.

Similar slowdowns have occurred across other internet industries.

In September this year, the NetEase game team temporarily held a research project review meeting. After the report, a number of research projects were cut off, and some project teams were downsized. In the game industry, termination of research projects is a common occurrence, but it rarely happens in such a concentrated manner.

A person close to NetEase games said that the youth anti-addiction policy and game version number limit the growth rate of the game business, and the rapid growth of NetEase games does not bring sufficient returns.

In 2017, NetEase Games had only 7,764 employees. By the end of 2020, its staff size has doubled to 15,010 people, but the net income of the game business has only increased by half during the same period.

Meituan had a 60,000-worker plan at the beginning of the year, which is equivalent to doubling its number of employees. This group of people would be used to expand the community group buying business, Meituan Optimal, and B2B catering supply chain business Kuailu, to help the firm transform into a retail company.

But soon, new policy prohibited large platforms from inverting money to squeeze small- and medium-sized merchants, and the order volume of group buying platforms in all major communities has declined to varying degrees. A few months later, community group buying businesses such as Meituan Optimal and Duoduomai slowed down their expansion.

LatePost learned that Meituan’s goal of enrollment expansion to the tune of 60,000, set at the beginning of the year, is more than halfway to completion. But next year, the firm plans to return to the normal growth rate.

Didi, which is still in a state uncertainty, has stopped recruiting new personnel as a whole, most of which are just to make up for existing positions.

Orange Heart Optimal Group used to be Didi’s fastest-growing business. In the first half of last year, this newly formed team expanded from 0 to 16,000, with business covering 31 provinces across the country. After the large-scale contraction of Orange Heart Optimization in September this year, only nine provinces with business coverage remained. A person close to Orange Heart said that due to continuous layoffs, the current number of employees is less than 5,000.

Alibaba, JD.com and Tencent, the three older generation internet companies, are also slowing down their employee growth. LatePost has learned from multiple channels that, except for the expanding business of Maimai, Taobao Special Edition and Tmall, “Ali Mama (advertisement), Alibaba Cloud, and CTO lines have basically not recruited people. Some departments go out one by one, and some just go out but not in.”

When big companies predict that future growth will not be so fast, they will not spend much money and hire many people. The more severe time has not yet come.

A mid-level ByteDance employee told LatePost that this year, the firm internally produced a picture, mainly saying that “the national consumption index is going down, but the cost of enterprises is rising. If business owners run out of money, who will be advertising? Whose money does the traffic platform make?”

A Hard Time for HR Workers Seeking Employment

“Chunjiang plumbing HR prophet,” one HR person in charge of a first-line Internet company told LatePost, continuing: “Basically, all major internet companies don’t hire people who are responsible for recruitment.”

Beginning in August this year, a freshman submitted his resume to more than 50 companies before and after his lifetime to apply for HR positions. He graduated from a “985” and “211” university in Beijing and worked as an HR intern at ByteDance and Xiaomi. From the beginning, he only selected large companies, and later he also invested in real estate and manufacturing. In the end, he received very few interview invitations.

Haitou has yet to receive a response, and the applicant started an internship at a second-tier internet company. But from his first day of employment, he has already known that there is no hope for a positive change in the company, which is in a state of business contraction. Previously, 100-200 HR interns at ByteDance would stay on as full employees, which is more than 10% of the total number of interns.

HR job opportunities have been drastically reduced. This is true for fresh graduates, and the same is true for HR workers with many years of professional experience.

The usual feeling of one founder of a headhunting crowdsourcing platform is that HR workers usually need to be with the business for a long time, with lower liquidity, and most of them will resign after finding their next home. But this year has changed. The epidemic and major industry changes have caused many companies to close down and lay off employees. Some of these businesses have shrunk. Under the dual influence, “more HRs want to find jobs, but there are fewer positions available.”

She told LatePost that on her platform, with precise screening of candidates, there are almost 20 “good” candidates for an HR position. “Not bad” refers to a person who has a good academic background and work experience, and is willing to accept offers when young at an internet company.

The aforementioned founder mentioned that, normally, September and October should be the second peak of recruitment in a year. However, comparing the demand for employment now with those obtained in July and August, she said: “Except for those that were not fully recruited before, almost no new ones have been added.”

During the period of great expansion, internet giants paid much more attention to HR than traditional enterprises.

According to one ByteDance employee, the firm alone is responsible for recruiting HR with more than 3,000 people (including interns), which does not include thousands of people responsible for employer branding, performance compensation, and recruitment system research and development. This huge team collects resumes from various channels every day and calls all potential candidates in the system repeatedly, akin to a sales team.

ByteDance’s recruitment system will also display the interview pass rate of each link, and the interviewer will be asked about the reason for the lower pass rate, so that the human recruitment system can have a higher operating efficiency. Many headhunters have expressed that they do not like to recommend candidates to ByteDance. During the recheck, they will find that the personnel are often already in the firm’s system.

An HR person who is responsible for the recruitment of new employees in this huge machine told LatePost that in the past two months, he can clearly feel that the recruitment of new employees is decreasing. Last year, there was a slogan – “accelerate expansion and double staff.”

The most direct change felt by the HR director of another large company is that the total number of people in each department is no longer determined by the team. In his company, the HC quantity was originally submitted by various teams and business departments, and then quantified after level-by-level approval. But starting this year, they are faced with a unified allocation; a higher level specifies the number and allocates it to various business departments. “Without a team with a sufficient quota, it will be difficult to apply for an extra quota.”

When the demand for employment declines, HR will also be eliminated. A ByteDance HR worker said that the usual goal of recruiting KPIs is to stabilize the completion rate. If one department does not recruit, it will support other departments. When the entire business line is cut off, it will go to the business-related support department (R&D/Test/Design/Finance/Human). “If you can absorb it, then you can absorb it, and if you can’t absorb it, you will break up peacefully.”

Shrinkage: Not Just in Hiring, But Also Spending

In the period of frenzied expansion, the HR of internet giants often recruit unlimitedly for some positions, as long as the candidates meet the criteria. In addition to actual business needs, there are also some personnel who serve as reserves to combat competitors.

Such recruitment often occurs in marketing, business development and sales departments, with low thresholds and low technical needs; correspondingly, the substitutability is also high.

Big factories are still eager to recruit technical personnel, and experts in R&D, algorithms, artificial intelligence, and chip-related positions are still being “snatched” by large and small companies. Meituan’s unmanned vehicles, drone delivery, ByteDance’s live-streaming R&D and algorithms… Even Baidu, which is the most cautious in terms of personnel expansion, and has negative growth in the number of employees almost every other year, is also increasing its salary and benefits. Such postings aim to attract talent across the fields of intelligent transportation, autonomous driving, intelligent assistants and AI chips.

However, other positions have been significantly reduced, and the recruitment threshold has been significantly increased.

A Kuaishou employee who participated in departmental interviews said that this year’s enrollment basically requires holding a “211”, “985” undergraduate degree, and the school’s top 10 graduate students are interviewing and operating positions. Many people with similar qualifications even apply for content review positions. These positions are close to physical work and have little room for promotion. Earlier, they were often filled by ordinary undergraduate schools or even junior college students with lower rankings.

People within the company can spend less money now.

When ByteDance launched its education business in 2018, synchronization has been tried in almost all segments. “Regardless of cost, unlimited headcount,” said a ByteDance source. But now the situation has changed. Its educational hardware project needs to ensure that “ROI is greater than one” (income is not less than investment) – it cannot burn money.

If the reduction in education business investment is due to market shrinkage, community group buying is directly restricted by policies.

The community group buying “nine must not” policy requires that platforms are prohibited from dumping at a price below cost in order to compete for the market. This kind of commodity below the market price is the most effective and fast way for the community group buying platform to attract users.

Under the “New Deal,” Pinduoduo made a profit for the first time in the second quarter. Among them, marketing expenses were only 10 billion yuan, a quarter of a quarter reduction compared to the previous quarter. CITIC Securities predicts that Pinduoduo‘s main website marketing expenses will continue to shrink in the next quarter.

Although Meituan Optimal did not make a statement about the changes in marketing expenses, in the second quarter earnings call, Meituan founder Wang Xing made it clear that community group buying business’s “further expansion and penetration will take a long time.”

The inability to burn money means that internet companies cannot use their capital advantages to expand in a short period of time. A person close to the management of Orange Heart Optimal Management believes that if they can continue to burn money, they can make up for the weak links and at least replicate the success of Prosperity Optimal in some markets.

There are also companies’ business lines that actively reduce capital investment. Watermelon Video is gradually conservative in its copyright purchases. A person from Watermelon Video said that in the past I bought the latest and popular resources, but now I buy the old and cheap ones. Although it is not unusual to spend 630 million yuan to purchase the copyright of “囧Mom,” the strategy of Watermelon Video has indeed changed in terms of enriching copyright content.

Without seeing the possibility of future growth, the goal of the company has become to increase ROI, instead of continuing to invest wildly for unknown returns.

SEE ALSO: Tencent-backed Recruitment App Boss Zhipin Files for US IPO

Since the beginning of this year, Alibaba has fully implemented the “promotion of business responsibility system.” The person in charge of the business group became the CEO and began to calculate profits and losses independently, “for example, the rent, technology, web traffic and other areas must be clear.” This is then used to judge whether the business is burning or making money, and let each department be responsible for its own profits and losses, so that the business has a higher ROI.

In the past, companies with solid profits like Alibaba tended to invest heavily in new businesses to ensure long-term growth in the future.

In May of this year, after Alibaba released its financial report, it announced that it would invest extra money it earned in the future into various strategic areas. A JPMorgan Chase analyst then asked the management on the phone to clarify whether this meant zero profit growth for Alibaba in the new fiscal year. The firm’s CFO Wu Wei responded that it would be stupid if Alibaba continues to ensure its profit level, because “everybody can see that so many competitors are making huge investments.”

Now every internet giant is reducing its speed of spending money.

“There will no longer be companies that do things by leaps and bounds or recruit people by leaps and bounds,” affirmed a large company’s HR chief with 10 years of recruitment experience. At least the Internet industry is like this.

About LatePost

LatePost (www.latepost.com) is a business news outlet, cofounded by Caijing Magazine, one of the most influential financial news publications in China.

LatePost’s official WeChat account reaches an audience of 1 million readers per month who seek the news and information critical to their business. Another 15 million readers read our stories on other Chinese social platforms.

Our original editorial insight was that Internet companies had migrated to the absolute center of China’s economic operation. Now, they have become the most vital infrastructure of China, wielding enormous power but also attracting scrutiny from the public and the authority.

The LatePost strives to seek the truth in this sector, regularly publishes hard-hitting investigations and high profile interviews. We have interviewed most founders of big tech companies in China, Including Zhang Yiming of Bytedance, Colin Huang of PDD, Wang Xing of Meituan, and Lei Jun of Xiaomi.