As China faces its slowest economic growth in a quarter of a century, technology companies are showing considerable — and uncharacteristic — restraint in how they celebrate the Chinese New Year, an indication that the Year of the Monkey could be tough for the country's formerly red-hot tech sector.
Last year, in the Year of the Goat, Chinese gadget makers and internet companies held stadium-size parties and doled out bonuses such as luxury cars and ski trips, as well as the traditional cash-filled red envelopes. As the Year of the Monkey approaches, the lavish and extravagant public displays of wealth are still conspicuous — but mainly through their absence.
The situation recalls Silicon Valley in the early 2000s, when chastened dot-coms were forced to rein in spending on over-the-top parties and other luxuries after the original internet bubble burst.
China of late has been in the headlines for all the wrong reasons. The rapid economic growth it experienced over the past couple of decades has slowed dramatically, crimping demand and roiling stock markets around the globe. Chinese government data show 2015 saw the slowest growth in 25 years, with gross domestic product up just 6.9 percent, down from 7.4 percent in 2014.
The outlook for 2016 is no better, with experts predicting a growth rate of 6.7 percent and the downturn expected to hit all sectors. However, companies like e-commerce giant Alibaba and smartphone makers Xiaomi and Huawei will all be looking to kick-start their 2016 efforts with the festivities surrounding the Chinese New Year, which falls on Monday.
Typically, Chinese tech companies have been upfront and open about their extravagant New Year's celebrations as well as the lavish gifts bestowed on their employees. It's a way to generate buzz and boost recruitment. Last year Baidu rented out the 18,000-seat Capital Stadium in Beijing for its annual party, with top execs taking the stage to perform in sequined jumpsuits for their screaming employees — an event that was live-streamed on Chinese social network Weibo.
Cheetah Mobile, a comparatively small player, handed out shiny new BMWs to its top 10 employees, an act Cheetah CEO Sheng Fu told the Wall Street Journal was about “showing the strength of our company and making our employees proud.” Traditionally the Chinese give gifts of cash in red envelopes — or hongbao — as part of the Lunar New Year celebrations. Top executives will typically try to outdo one another in generosity.
While all this may still be happening this year to some extent, the companies are keeping much quieter about it. There are no boasts of excessive bashes and lavish indulgences to celebrate the Year of the Monkey. This trend is backed up by a study by Zhaopin, a Beijing-based recruitment website, which said two-thirds of those it surveyed either hadn’t received or didn’t expect to receive a bonus from their employers this year, significantly up from 2014 when less than 60 percent gave the same answer.
Huawei, the world’s No. 3 smartphone maker, which saw revenue grow by 35 percent in 2015, told International Business Times that it was not planning any major celebrations this year, reflecting a sense that things have cooled in China in the past 12 months.
The apparent slowdown in extravagant spending by companies is at odds, however, with what consumers are doing. “We haven’t seen sales slow down for devices in China,” Imran Choudhary, consumer insights analyst with WorldPanel ComTech, told IBT. “There certainly is a lot of speculation from outside of China of a potential slowdown given their stock market drops and currency devaluations of late, but consumers in China are still spending on devices.”
One company that would benefit from this continued splurge on gadgets is Xiaomi, the Chinese handset maker that 12 months ago was the world’s most valuable startup, with a valuation of $45 billion. It however missed smartphone sales and revenue targets in 2015 and is seeking to recapture its dynamism in 2016.
Singles' Day Boost
Xiaomi is currently running a New Year sale but views Singles' Day (the Chinese equivalent of Black Friday) and its own Mi Fan Festival as bigger sales drivers than these celebrations. One employee at the company said that while Chinese consumers are more likely to give gifts of clothes, expensive food and new furniture, the trend of giving tech gifts is becoming a more important part of the Lunar New Year festival.
“I don’t think it is unfair to assume that more and more people might be gifting these kinds of devices, even if at the moment it is only a small proportion,” Choudhary said, though pointing out that concrete figures are not available.
One Chinese technology company looking to cash in on the New Year's celebrations is Alibaba, which, despite seeing revenue rise by 32 percent in the final quarter of 2015, has been hit by the slowing Chinese economy. Its stock is now trading about one-third below its opening-day price of over $93. Alibaba went public on the New York Stock Exchange in September 2014 in one of the market's most widely hyped initial public offerings.
It is hoping to use the Lunar New Year celebrations as a springboard for growth in 2016 and to that end launched the first Ali Chinese New Year Shopping Festival. It aims to make international goods more accessible to rural Chinese shoppers while promoting the sale of agricultural products in the country’s big cities.
Alibaba is one of the tech companies in China that shied away from the extravagance shown by Baidu and Cheetah Mobile in 2015, with CEO Jack Ma announcing that the red envelopes for employees would not be handed out. "Aside from going public, objectively speaking we are not so satisfied with our performance in 2014 that we should give out red envelopes,” he said.
The company has yet to make a statement about whether hongbao will return in the Year of the Monkey.