Tencent Branded a Chinese Military Company by US Government

Summary

• The Pentagon has added Tencent to its list of companies with ties to the Chinese military.
• This designation led to a decline in Tencent's stock price.
• Tencent denies being a military entity and plans to collaborate with the Department of Defense (DOD) to clarify the situation.

Tencent, a prominent Chinese technology company, now features on the Pentagon's list of businesses linked to China's People's Liberation Army (PLA). This stems from a 2020 executive order by President Trump restricting US investment in Chinese military companies and their affiliates, mandating divestment from existing holdings.

The DOD maintains this list, identifying companies believed to contribute to PLA modernization through technology, expertise, or research. While initially comprising 31 entities, the list has since expanded. The executive order's immediate impact included the delisting of three companies from the New York Stock Exchange.

The DOD's latest update, released January 7th, included Tencent Holdings Limited. Tencent swiftly responded via a spokesperson, stating to Bloomberg:

Tencent's Response to DOD Listing

We are not a military company or supplier. This listing, unlike sanctions, has no operational impact. We will cooperate with the Department of Defense to resolve any misunderstandings.

This year, several companies previously listed were removed due to no longer meeting the criteria. Bloomberg notes that at least two companies successfully had their names removed after working with the DOD; Tencent presumably aims for a similar outcome.

The publication of the list triggered stock price drops for many listed companies. Tencent's shares fell 6% on January 6th and have continued a slight downward trend, a correlation acknowledged by financial experts. Given Tencent's position as the world's largest video game company by investment and a global giant, its inclusion on the list and potential US investment restrictions carry significant financial implications.

A gaming industry behemoth, with a market capitalization almost four times that of its closest competitor, Sony, Tencent Holdings Limited operates its gaming arm through Tencent Games. Tencent Holdings also holds ownership stakes in numerous successful studios, including Epic Games, Riot Games, Techland (Dying Light), Don't Nod (Life is Strange), Remedy Entertainment, and FromSoftware. Furthermore, Tencent Games has invested in numerous other prominent developers and related companies, such as Discord.