Tencent Holdings and Contemporary Amperex Technology Co. Ltd. (CATL) have faced significant stock declines following their recent designation as “Chinese military companies” by the U.S. Department of Defense (DoD). This move is part of the United States’ broader strategy to limit the transfer of advanced technologies to China, impacting both companies significantly in the market.
On Wall Street, Tencent’s U.S. depository receipts fell nearly 8%, reflecting investor concerns over the implications of this designation. In Hong Kong, shares of the tech giant tumbled by 5.4%, while CATL, a key battery manufacturer in the automotive supply chain for companies like Ford and Tesla, saw its shares decline by as much as 5.6% before settling at a 3.5% drop in Shenzhen.
The inclusion of Tencent and CATL on the list aligns with the National Defense Authorization Act of 2024, which prohibits the DoD from procuring goods or services directly from entities on this list by June 2026. Furthermore, starting in June 2027, indirect procurement from these companies will also be restricted. This escalating tension between the U.S. and Chinese technology sectors reflects ongoing concerns over national security and technological supremacy.
Tencent and CATL’s Public Refutation
In response to their new classification, both Tencent and CATL have publicly refuted the allegations. Tencent characterized its addition to the list as “clearly a mistake,” asserting that it does not engage in any military-related activities. Similarly, CATL stated that it is “not engaged in any military related activities,” emphasizing its commitment to serving the civilian market.
This designation is not an isolated incident; it follows a series of actions taken by the U.S. against Chinese technology firms. In May 2022, the U.S. revoked specific licenses allowing Huawei to purchase chips, further tightening restrictions on technology exports. Additionally, sweeping export controls on critical technologies—including quantum computing and semiconductor goods—were unveiled in September 2022.
The U.S. Department of Commerce’s Bureau of Industry and Security mandates that companies seeking to sell advanced computing semiconductors or related manufacturing equipment to China must apply for a license. This regulatory landscape complicates the operations of companies like Tencent and CATL in international markets, particularly as they navigate increasing scrutiny from U.S. authorities.
Author’s Opinion
The U.S. government’s ongoing strategy to limit the influence of Chinese companies in critical sectors is understandable from a national security perspective, but it risks deepening the technological divide between the two superpowers. The designation of Tencent and CATL highlights how geopolitical tensions can reverberate through global markets, impacting not only the companies in question but also investors and consumers. While the U.S. maintains that such measures are necessary for safeguarding its technological edge, this escalating standoff could lead to broader consequences for the global tech industry, making it more fragmented and less efficient. The refusal of companies like Tencent and CATL to align with military activities adds a layer of complexity to these policies, raising questions about the fairness and accuracy of such classifications.
Featured image credit: user6702303 via Freepik
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