China's job-first policy risks blunting AI gains

Alibaba Holding

Today 13:00

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Ka Sing Chan

    HONG KONG, June 17 (Reuters Breakingviews) - Beijing's urge to protect workers from AI looks well-intentioned but risks backfiring. Authorities want companies to invest in new technologies and innovate. At the same time, the government has signalled it won't tolerate the mass layoffs and sweeping restructurings that are gaining pace across Western firms like Meta META.O and Oracle ORCL.N. That leaves China's private-sector giants at a disadvantage.
President Xi Jinping’s administration is no stranger to pursuing contradictory policy goals, such as setting ambitious electric-vehicle sales targets and cracking down on automakers for excessive competition. AI is no exception. Beijing wants 70% adoption across key sectors by next year and is also calling for firms to "reduce impacts on employment".
Indeed, the country's tech titans from Alibaba 9988.HK to Tencent 0700.HK are leading the charge. But executives have also gone out of their way to appear committed to protecting jobs. E-retailer JD.com's 9618.HK founder and Chair Richard Liu recently vowed to “do everything possible to safeguard" the company's 900,000 workforce from automation.
The problem is, his company's sprawling and labour-intensive logistics and delivery operations stand to benefit enormously from AI and robotics. Just last year, Liu boasted at a conference that robots have replaced 90% of humans at his company's Beijing sorting centre. JD.com's overall headcount has more than doubled over the past five years, but its revenue per employee since 2021 has steadily declined.
Other firms walk a similar tightrope. The $266 billion Alibaba, which saw its EBITDA in the last quarter plunge 84% year-on-year due to investments in AI, has quietly begun headcount reductions through gradual cuts and attrition, Reuters reported on Wednesday, citing an engineer at the company. Many firms are also doing the same, per the report.
For Beijing, the stakes are high. Citibank estimates 9.6% of jobs, roughly 70 million roles, are highly exposed to AI-driven displacement at a time when youth unemployment stands at around 17%. That figure may rise too as a record 12.7 million graduates enter the workforce this summer. Keeping employment stable is critical to sustaining domestic consumption, also a top policy priority. Official data released Tuesday showed retail sales in China declined  for the first time in three years.
Against this backdrop, it's unlikely JD.com and peers can unlock the gains of AI in the same way that Western rivals can. China's conflicting goals risk slowing innovation down the road.  
     
     
CONTEXT NEWS
China's youth unemployment rate, which measures joblessness among those between 16 and 24 but excludes students, stood at 16.3% in April. A record 12.7 million university graduates will enter the job market starting in June, the official Xinhua news agency reported. 
China's Ministry of Human Resources and Social Security told employers, particularly tech companies with younger workforces, to refrain from firing employees as they embrace AI, the Wall Street Journal reported on May 28, citing people familiar with the matter.

(Editing by Robyn Mak; Production by Ujjaini Dutta)
((For previous columns by the author, Reuters customers can click on CHAN/ KaSing.Chan@thomsonreuters.com))