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 connections to China's military, the People's Liberation Army (PLA). This inclusion stems from a 2020 executive order by former President Donald Trump, which bans U.S. investors from buying or investing in Chinese military companies and their subsidiaries, and mandates divestment from these entities.

The companies on this list are thought to aid in the modernization of the PLA through advanced technology, expertise, and research. The initial list named 31 companies, with additional companies added over time, leading to the delisting of three firms from the New York Stock Exchange.

On January 7, the Department of Defense (DOD) updated its list of Chinese military companies, and Tencent Holdings Limited was among those named. Tencent promptly responded to the news through a statement to Bloomberg:

"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 military company designation. Bloomberg noted that at least two companies in recent years successfully worked with the DOD to have their names removed, suggesting Tencent may pursue a similar path.

The announcement of the list led to a significant drop in stock prices for the listed companies. Tencent's shares fell by 6% on January 6 and have continued to trend slightly downward, a movement attributed 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 status on the list could have substantial financial repercussions for U.S. investors.

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