US Labels Tencent as Chinese Military Company

Summary

• Tencent has been listed by the Pentagon as having ties to the Chinese military.
• The listing led to a decline in Tencent's stock value.
• Tencent denies being a military company and plans to collaborate with the Department of Defense (DOD) to resolve the issue.

Tencent, a major Chinese tech conglomerate, has been added to the Pentagon's list of companies linked to the People's Liberation Army (PLA), following an executive order by former President Donald Trump in 2020. This order prohibits U.S. investors from buying or investing in Chinese military companies and their subsidiaries, and mandates divestment from such entities.

The companies on this list are believed to aid in the modernization of the PLA by providing advanced technology, expertise, and research. The initial list included 31 companies, with additional companies added over time. As a result of the executive order, three companies were promptly delisted from the New York Stock Exchange.

On January 7, the latest version of the DOD's list was released, including Tencent Holdings Limited. In response, Tencent issued 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, some companies were removed from the list after no longer meeting the criteria for designation as a military company. Bloomberg noted that at least two companies have previously collaborated with the DOD to successfully remove their names from the list, suggesting Tencent may pursue a similar strategy.

The announcement of the list caused a significant drop in the stock values of the listed companies. Tencent's shares fell by 6% on January 6 and have continued to trend downward, with experts attributing this decline to its inclusion on the DOD's list. As the world's largest video game company by investment and one of the largest companies globally, Tencent's listing and potential exclusion from U.S. investment options could have substantial financial repercussions.

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