China’s tech sector gets dragged off hamster wheel

4 minute read

A man holding a phone walks past a sign of Chinese company ByteDance's app TikTok, known locally as Douyin, at the International Artificial Products Expo in Hangzhou, Zhejiang province, China October 18, 2019. Picture taken October 18, 2019. REUTERS/Stringer

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HONG KONG, Sept 3 (Reuters Breakingviews) - ByteDance, owner of the popular TikTok short-form video app, in August ended a near decade-long tradition of requiring that employees work an extra weekend day every other week. Some cheered, others mourned; one employee complained to Breakingviews her first pay slip following the change was smaller by one fifth without the overtime pay. “Everyone is moaning,” she said. “My colleagues are updating their résumé.”

In addition to employees worried about their pay cheques, some investors and executives believe long working weeks, however brutal, have enabled break-neck growth in the technology sector, helping less sophisticated Chinese firms compete with Silicon Valley by throwing programmers at problems like cannon fodder. “To be able to work 996 is a huge bliss,” said Jack Ma in 2019, founder of e-commerce giant Alibaba (9988.HK), referring to the practice of working from 9 a.m. to 9 p.m. six days a week.

That attitude is now out of official favour, as is Ma himself. The central government has grown concerned that the social and economic costs of the Chinese daily grind outweigh the business benefits. Gruelling hours leave employees little time for shopping and dating, thereby hobbling consumption and holding down the birth rate – and worse. In December a 23-year-old employee at e-commerce giant Pinduoduo collapsed and died after working past midnight. Chinese office culture has begun to mimic Japan, to the extent that both languages have coined phrases for death by overwork. In August China’s supreme court followed up, saying that excessive overtime violates Chinese labour law.

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There has been a psychological cost to China’s youth, as evidenced by the wildly popular "lying-flat" meme that sprang up this year, which refers to adopting a passive attitude and opting out of cut-throat competition and endless work. Officials hate that too.

Technology giants, already embroiled in antitrust and data probes, have little choice but to comply with President Xi Jinping’s edicts, and his push to deliver “common prosperity” entails more than reducing overtime. Food delivery giant Meituan (3690.HK), for example, has vowed to improve benefits for its large fleet of contractors. JD.com (9618.HK), whose boss Richard Liu had endorsed 996, recently hiked salaries for all staff despite the industry’s slowing growth. In the short term, ending 996 could mean higher costs and lower output. In the long run, there could be a silver productivity lining.

Most of today’s players emerged from university campuses or cramped home offices. Given distrust of IP courts, plus a surplus of venture capital sloshing around, many entrepreneurs relied on scale alone to compete. That caused them to go on massive hiring sprees, constantly expand into new lines of business, and start vicious price wars. As rivals tried to outwork each other, 996 became a perverse point of pride at some firms.

Yet today those Chinese companies have matured, and overall revenue growth is moderating. ByteDance’s sales growth, for example, has halved from about 212% in 2018 to 111% last year. In this context overwork is gradually starting to look more like a knee-jerk managerial reflex that could prove counterproductive. For example, some managers give employees fixed weekly targets to come up with new features - an expensive recipe for overloading products with widgets nobody uses, while swamping programmers and quality control teams. Over-staffed business units often end up duplicating efforts or competing pointlessly with each other.

There is no precise way to measure the influence of work schedules on the bottom line. But the Japanese economy suggests overwork has no direct relationship with competitiveness. A Breakingviews comparison, using Refinitiv data, of 20 major internet giants in the United States and China found top Chinese brands did well in terms of revenue per employee; at $1.6 million per employee, Xiaomi (1810.HK) ranked second last year to Netflix (NFLX.O), and Pinduoduo (PDD.O) was fifth. They did slightly less well on profitability: Of the top ten firms with the highest net income per worker, three are Chinese.

There’s a Chinese saying: “Don’t use industriousness to compensate for strategic laziness.” That rings especially true for a sector seen as better at generating perspiration than inspiration. Bidding farewell to 996 should improve real competitiveness.

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CONTEXT NEWS

- The Supreme People's Court and Ministry of Human Resources and Social Security jointly published a statement on Aug. 26 outlining 10 court cases in which employees were forced to work extra hours. They said that unreasonable overtime is against Chinese labour laws.

- ByteDance, the TikTok parent, in August ended a company-wide overtime arrangement where employees were required to work six days a week every fortnight.

- Kuaishou Technologies, which had adopted a similar policy, also ended such arrangements in July.

- JD.com said in a statement in July that it will hike employees' yearly salary to the equivalent of 16-month pay by 2023 from the present 14-month model.

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Editing by Pete Sweeney and Katrina Hamlin

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Beijing, crunching economic data, interviewing high-level officials, and travelling to far-flung provinces to visit factory floors and talk to local shopkeepers. Before that, she spent nearly three years in Santiago, Chile, where she built a trade news website reporting on the produce industry – and developed Spanish as a third language alongside Mandarin Chinese and English.