Key Highlights:
Shares of Tencent sank 7% in Hong Kong as the US DoD listed Chinese military companies.
Tencent’s U.S. depository receipts were hit around 8% by the U.S. listing.
Battery manufacturer CATL slipped 2.8% in Shenzhen.
Key Background:
Shares of Tencent Holdings declined 7% in Hong Kong trading on January 6, after the company appeared on a list issued by the U.S. Department of Defense of Chinese military companies. Tencent’s U.S. depository receipts decreased by nearly 8% yesterday on Wall Street.
Tencent, one of China’s leading tech companies, was added to a U.S. Department of Defense list of entities allegedly linked to the Chinese military. This move is part of ongoing efforts by the U.S. to restrict the flow of high-end technologies to China. In addition to Tencent, other notable companies, such as battery manufacturer CATL—an integral part of the supply chain for automakers like Ford and Tesla—were also added to the list. CATL saw a decline of up to 5.6% in its shares, though they later recovered slightly to a 2.8% decrease in Shenzhen.
The National Defense Authorization Act of 2024 bars the Department of Defense from procuring goods or services from companies listed here after June 2026 and indirect procurement, from June 2027. Tencent reacted swiftly to the inclusion on the list with a strongly worded denial of any relationship with the military. They simply termed the listing as an error. It said that since it is not a military firm and does not engage in such defense contracting services, this is not going to affect it either. CATL also refused its inclusion in such a list because it does not engage in anything related to war.
Analysts include Ivan Su from Morningstar saying Tencent could be deleted from the lists through legal combat. The business model of the company is based on social networking and online gaming and its operations not being closely tied to military projects. This further reflects the strategy in the US, which targets curtailing critical technologies transfer to China, starting from the banning of Huawei along with other Chinese firms a few years back.
