Tencent Woes Demonstrates the Need for Decentralization
- Tencent buckles under the weight of increasing pressure from regulators, losing over $60 billion of its market value as its share price slumps.
- Tencent shares fell by 7.9% in two days of trading after it was slammed by government fines.
- Baidu (NASDAQ:), ByteDance, Tencent and SoftBank are among companies that have been fined by Chinese regulators.
- Tencent’s recent woes underscore the need for decentralization to prevent losses based on the whims of government.
Tencent Holdings (OTC:), a Chinese multinational conglomerate, saw its share price drop by 7.9%, to trade at $80.89, in under two days after it was fined by Chinese regulations. The implication of this slip sliced off over $65 billion of the company’s market value.
In recent times, Chinese authorities have turned up the heat on technology firms by handing out fines to Baidu, ByteDance and 10 other firms for alleged rule infringements. The growing government crackdown on these firms shows the need for increasing migration to decentralization.
Why China is Launching a Crackdown on Tech Companies
After the government’s clampdown on Jack Ma’s ANT Group Co, by blocking its planned IPO and recently ordering it to sell off its media assets, it seems to have turned its crosshairs to Tencent.
China’s State Administration for Market Regulation (SAMR) said on Friday that it had slammed fines on 12 companies for violating rules and failing to seek consent for certain investments and acquisitions.
Tencent, Baidu, ByteDance, SoftBank and Chucky are among the firms fined. The effect on Tencent was immense as its shares tumbled 4.4% on the day of the announcement and fell a further 3.5% on Monday.
The move against these tech giants aligns with the plans of Li Keqiang, premier of the State Council of the People’s Republic of China, to stamp out monopolies and halt the “unregulated” expansion of capital.
Similarly President Xi Jinping, in a meeting with the Communist Party’s financial advisory community, reportedly ordered financial regulators to increase the oversight of internet companies, foster fairness and prevent monopolies.
These politicians are calling for tighter restrictions on and stricter measures against tech giants.
On the Flipside
- According to the US Securities and Exchange Commission (SEC), Ripple’s XRP is a security subject to regulation due to its decentralized nature
- However, the SEC notes that decentralized and are not securities.
- Remember, the SEC is suing Labs, the company behind XRP.
- Despite the legal woes, Ripple investors are ecstatic as XRP recently gained 9% to trade at $0.476380.
The Need for Decentralization
Recent regulatory actions and dire government warnings in China have local tech giants on edge.
The uncertainty and mounting pressure of regulatory agencies took a huge chunk ($65 billion) off of Tencent’s market capitalisation, wreaking havoc on its market value.
Fears are rife that regulators will force Tencent to restructure as a holding company to include its banking, insurance and payment services.
To avoid being subject to the caprices of both the government and regulations, tech companies should increasingly turn their attention to decentralization as they navigate these uncertainties. For instance, following SAMR’s Friday announcement, Hong Kong’s TECH Index dropped by 2.3%.
Cryptocurrencies are thriving as a result of decentralisation, and they are not subject to government oversight or constrained by borders. By taking a page from the crypto playbook, huge tech conglomerates can ensure their continued survival in the ecosystem.
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