Subtle... On Tuesday, Chinese state media called video games “spiritual opium” and an “electronic drug.” The harsh labels sent shares of Chinese company Tencent, the world’s second-largest video game maker, down 10%. Then, Tencent limited kids’ playing time to just an hour per weekday — even harsher.
Mounting pressure… China’s regulation of tech companies has intensified over the past year. In November, China canceled fintech giant Ant's $34B IPO — and made it pay a record $2.8B fine for “monopolistic acts.” In June, China banned ride-hailer Didi from adding new users — the stock has plunged 40% since. Now, China’s tech interference has expanded even further:
- Food: China is now requiring food delivery companies to pay local minimum wages. China’s #1 food deliverer Meituan lost $60B in market cap in two days in July.
- Education: China banned private tutoring companies from: making profits, raising money from foreign investors, and going public.
- TLDR: China's moves have rattled investors, sending the country's tech index down as much as 9% last week. Meanwhile, Goldman just slashed its 12-month forecast for Chinese stocks by 20%.
China’s willing to stifle tech growth… to retain control. In a speech last year, Chinese President Xi laid out why China's willing to clamp down on some companies — but not others. Apps that provide services like ride-sharing and group chats are nice-to-have. But China's national greatness depends on manufacturing. For Xi, that means chip-makers, car-makers, and telecoms need to thrive.