Alibaba and China’s property collapse

CHINA ADVISORY - Report 08 Dec 2023 by Andrew Collier

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How will China’s property crisis end? With a whimper or a bang?

One advantage China has is geographical and financial diversity. China’s 22 provinces each have distinct economic attributes and are economically quite diverse, mainly because they raise and spend the majority of their own revenue. In a time of economic downturn, this diversity gives the country a big advantage—not all provinces will be treated equally. Each province can devise its own manner of handling the downturn.

For example, let’s look at another sector—tech. Take one case—the large (although less large now) tech firm, Alibaba.

Since the technology crackdown in 2020, Alibaba has reduced the size of its business. According to Caixin Magazine, the company’s employment totaled 228,700 as of June 30, 2023, more than 30,000 fewer than at the end of 2021. The workforce reduction was in tandem with Alibaba’s slower business growth. This decline in growth, coupled with a decision backed by Beijing to cut the company into six smaller firms, convinced management to reduce corporate overhead by 90 percent, or roughly 9,000 people. However, two subsdistricts of Hangzhou, where Alibaba is headquartered, protested due to the economic impact of the loss of high-level jobs. The local governments were able to force a halt to the job cuts. However, the new six-part structure allowed management to push the corporate jobs down two levels, and “bury” the job cuts into various, geographically diverse, sub-units.

A similar process is likely to occur in the property industry. Layoffs will be widespread but will be distributed, unequally, throughout various parts of the country. The diverse unemployment geographically will reduce visible signs of a systemic crisis and help to prevent any national protests. Each province will have to find a way to “bury” the job cuts in different ways. This will allow China to “deleverage” while reducing the chances of a national crisis similar to that of the United States in 2009.