The recent easing of restrictions against Chinese digital players will not be enough to avoid the economic consequences of this policy. Several companies, in particular that of online entertainment, such as Tencent and ByteDance, are the first affected. Both companies will cut many jobs, even in their core business sectors. They seek at all costs to reduce costs in order to maintain their profitability.
Video games, a particularly vulnerable sector in China
Chinese leaders thought they could thwart the economic slowdown affecting China by lifting some restrictions, but that decision may have been taken too late. Several tech companies are stepping up layoffs. Chinese internet giant Tencent, whose revenues stagnated in the first quarter compared to the previous year, is in a difficult situation.
According to current and former employees interviewed by the Wall Street Journal, the company will part with more than a dozen people working on its WeChat messenger. The employees concerned were working on the distribution of short videos via the application in the manner of TikTok. This is a branch located at the heart of Tencent’s activity, alongside video games.
Precisely, in the division dedicated to games, a dozen other employees, who were responsible for managing the communities of online players, will be dismissed. Development studios will also face such a reduction in staff in the coming months. A strategy that corresponds to the policy of control exercised by Beijing on the sector. Play time for minors is very limited and few games are approved by the government, which has direct consequences for the Chinese video game industry. In all, Tencent could part with more than a hundred people.
Thousands of layoffs at ByteDance
On the side of ByteDance, the owner of Tiktok, the layoffs will also affect its video game branch. Since 2019, the company has wanted to make it a new sector of its activity, but it is no match for competition from Tencent and NetEase, the two behemoths in the middle. ambitions that were also slowed down by Beijing’s restrictive policy. The company therefore closed its entire Shanghai-based studio and laid off around 100 people.
Even more dramatically, ByteDance cut 3,000 jobs in its branch dedicated to EdTech. The sector has also been strongly restricted by new laws in China. Demand has fallen dramatically, pushing the Chinese giant to part with it almost entirely. Thousands of employees who worked for the company’s online course service had already been laid off last year in Beijing. The live streaming platform Bilibili, the Chinese Twitch, will also cut jobs in video games and streaming, its two main activities.
Despite this economic slowdown and these layoffs, companies are recruiting in new, buoyant sectors. Among them, the development of virtual reality (VR) and augmented reality technologies finds an important place with the arrival of the metaverse. ByteDance has acquired several studios working on VR applications, including pico and PoliQ.
Recently, Tencent has reoriented its strategy in video games and is opening more and more studios abroad, such as in Montreal in 2021. The objective is to target more players and no longer depend solely on the Chinese market. This decision could inspire other companies, now limited by China’s authoritarian digital policy.