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 designation 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 such entities.

The list, managed by the U.S. Department of Defense, initially included 31 companies, with more added over time. These companies are seen as contributing to the PLA's modernization through advanced technology, expertise, and research. The executive order led to the delisting of three companies from the New York Stock Exchange.

On January 7, the latest version of the list was released, and Tencent Holdings Limited was among the companies named. Tencent swiftly responded through a spokesperson in 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 being designated as military companies. Bloomberg notes that at least two companies have successfully worked with the DOD to have their names removed in recent years, a path Tencent is expected to pursue.

The announcement of the list led to a significant drop in stock values for the named companies. Tencent's shares fell by 6% on January 6 and have continued to trend slightly downward, a decline 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 presence on the list and potential exclusion from U.S. investment options could have substantial financial repercussions.

Tencent, with a market cap 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 (famous for Life is Strange), Remedy Entertainment, and FromSoftware. Additionally, Tencent Games has invested in dozens of other well-known developers and related companies, such as Discord.