US Labels Tencent as Chinese Military Company

Summary

• Tencent has been named on a Pentagon list due to ties to the Chinese military.
• Inclusion on the list caused a drop in Tencent's stock value.
• Tencent claims not to be a military company and intends to work with the DOD to address the misunderstanding.

Chinese tech giant Tencent has found itself on a Pentagon list identifying companies with ties to the Chinese military, specifically the People's Liberation Army (PLA). This designation stems from a 2020 executive order by former President Donald Trump, which bans U.S. investors from buying or holding stakes in Chinese military companies and their subsidiaries, mandating divestment from these entities.

The companies on this list, maintained by the U.S. Department of Defense, are seen as contributors to the PLA's modernization efforts through advanced technology, expertise, and research. Initially, the list included 31 companies, which has since been expanded. The inclusion of these companies led to the delisting of three from the New York Stock Exchange.

On January 7, the latest update to the list was released, with Tencent Holdings Limited among the companies named. Tencent quickly responded to the news through a statement to Bloomberg:

Tencent Responds to Its Inclusion on the DOD’s List of Chinese Military Companies

We are not a military company or supplier. Unlike sanctions or controls, this listing has no impact on our business. We will nonetheless work with the Department of Defense to address any misunderstanding.

This year, several companies were removed from the list after no longer meeting the criteria for designation as military companies. Bloomberg noted that at least two companies successfully had their names removed after working with the DOD, and it is expected that Tencent will pursue a similar path.

The announcement of the list led to immediate financial repercussions, with Tencent's shares dropping by 6% on January 6 and continuing to trend slightly downward. As the world's largest video game company by investment and one of the largest companies overall, Tencent's inclusion on the list and potential exclusion from U.S. investment options could have significant financial implications.

Tencent, with a market capitalization nearly four times that of its closest competitor, Sony, operates its video game business through Tencent Games. Additionally, Tencent Holdings owns or has stakes in numerous successful studios, including Epic Games, Riot Games, Techland (known for Dying Light), Don’t Nod (famous for Life is Strange), Remedy Entertainment, and FromSoftware. Tencent Games has also invested in many other well-known developers and related companies, such as Discord.