US Labels Tencent as Chinese Military Company

Summary

• Tencent has been included on a Pentagon list due to alleged 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 to resolve the issue.

Chinese tech giant Tencent has been added to a list published by the Pentagon, which identifies companies with connections to China’s military, specifically the People’s Liberation Army (PLA). This action stems from an executive order issued in 2020 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 list, managed by the U.S. Department of Defense, includes companies believed to support the modernization of the PLA through advanced technology, expertise, and research. Initially featuring 31 companies, the list has since expanded. The executive order prompted the delisting of three companies from the New York Stock Exchange shortly after its issuance.

On January 7, the Department of Defense updated its list of Chinese military companies, with Tencent Holdings Limited among the additions. Tencent promptly addressed its inclusion 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 that no longer qualified as military entities were removed from the list. Bloomberg notes that at least two companies have successfully had their names removed after engaging with the DOD, a path Tencent is likely to pursue.

The announcement of the list triggered a decline in stock values for the listed companies. Tencent's shares dropped 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 and potential exclusion from U.S. investment options could have significant financial repercussions.

Tencent, with a market capitalization nearly four times that of its nearest competitor, Sony, operates its video game business through Tencent Games. The company also holds full or partial ownership in numerous successful studios, including Epic Games, Riot Games, Techland (known for Dying Light), Don’t Nod (creators of Life is Strange), Remedy Entertainment, and FromSoftware. Additionally, Tencent Games has made investments in a wide array of other prominent developers and related companies, such as Discord.