Chinese Companies Use 'Quiet Layoffs' to Deploy AI Without Unrest

Chinese companies are implementing AI systems at breakneck speed while simultaneously conducting small-scale, incremental layoffs designed to stay below the radar of government regulators and avoid triggering social stability concerns.

A 26-year-old contractor at a Hangzhou internet company told Reuters her employer began quietly terminating contractors in March after mandating staff use AI tools including OpenClaw, an AI agent that saw rapid adoption across China this year. Her company has also reduced graduate hiring as it races to implement AI systems.

"The tasks most people do can be completely replaced by OpenClaw," she said, speaking on condition of anonymity. "After a person writes all their workflows into OpenClaw, they can basically be fired."

Nine workers across technology, entertainment, and advertising sectors described similar patterns to Reuters, revealing how Chinese enterprises are navigating a unique constraint: Beijing wants aggressive AI adoption to drive productivity gains, but not so visibly that displaced workers threaten social stability.

Why it matters

China's approach to AI-driven workforce transformation differs fundamentally from Western markets. While companies globally grapple with automation, Chinese firms face explicit political pressure to balance technological advancement against employment stability. This tension is creating a new playbook for AI deployment—one that prioritizes gradual attrition over transparent restructuring and could shape how the world's second-largest economy manages its AI transition over the next decade.

Legal and Political Constraints

Chinese labor law requires government approval for job cuts exceeding 10% of a workforce. Courts have ruled against companies in at least three cases where workers were dismissed specifically to be replaced by AI systems.

"Private companies will need to make room for some level of inefficiency in order to avoid mass layoffs that would prompt 'social instability' and could have political ramifications," a senior manager at a major Chinese fintech firm told Reuters.

An engineer at Alibaba's cloud division confirmed that AI-driven headcount reductions have begun and will likely unfold through gradual cuts and attrition rather than single mass layoffs.

Measuring AI Adoption as Performance

Some companies are tracking employee use of "tokens"—units of AI compute consumption—to measure efficiency and link it to performance reviews. A data engineer at a Chinese tech giant said his manager began ranking employees by token usage in March, with the metric tied to promotion prospects.

"It is relatively forced. One should not use AI for the sake of it," the engineer said. "I still can't shake the feeling that I'm getting closer to being replaced."

The entertainment industry shows the starkest disruption. A 22-year-old micro drama producer named Ayase said her production department shrank from 30-40 people to about 10 after transitioning to AI-generated actors and sets, with only two staff remaining for live-action filming.

The Jobs Gap

Beijing's "AI Plus" initiative targets 70% AI adoption across key sectors by 2027 and 90% by 2030. While AI-related job postings surged 74% in 2025, this growth masks a struggling broader market where 12.7 million university graduates face declining entry-level pay.

Citibank estimates 9.6% of all Chinese jobs—roughly 70 million positions—face high risk of AI-driven displacement. That risk climbs to 13.6% for workers in their twenties.

The hashtag "AI anxiety" has accumulated over 7.8 million views on Chinese social media platform RedNote, where users debate whether AI will render them obsolete.

Some AI tools are explicitly marketed as department replacements. Alibaba's Wukong multi-agent platform features pre-set "one-person company" capabilities designed to automate e-commerce sales, livestreaming, and software development roles.

Chinese state media has attempted to reassure workers that AI isn't "stealing people's rice bowls," and officials are studying AI's employment impact, but no detailed policy response has emerged.

These details were first reported by Reuters correspondents Laurie Chen, Casey Hall, and Eduardo Baptista.