Tencent Branded a Chinese Military Company by US Government

Summary

• Tencent, a major Chinese tech firm, has been added to a Pentagon list of companies with ties to the Chinese military (PLA).
• This listing triggered a decline in Tencent's stock price.
• Tencent denies being a military entity and plans to collaborate with the Department of Defense (DOD) to clarify the situation.

Tencent Holdings Limited, a leading Chinese technology conglomerate, has been included in a Pentagon-compiled list of companies linked to China's People's Liberation Army (PLA). This designation stems from a 2020 executive order by former President Trump, prohibiting US investors from engaging with Chinese military companies and their affiliates. The order also mandates divestment from any such entities.

The DOD maintains this list, identifying companies believed to contribute to PLA modernization through technology, expertise, or research. While initially comprising 31 companies, the list has expanded since its inception, leading to the delisting of three companies from the New York Stock Exchange.

The DOD's latest update, released January 7th, included Tencent. Tencent swiftly responded via a spokesperson, issuing a statement to Bloomberg:

Tencent's Response to DOD Listing

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

This year, several companies previously listed were removed after no longer meeting the criteria. Bloomberg notes that at least two companies successfully had their names removed through collaboration with the DOD, suggesting a similar strategy for Tencent.

The publication of this list negatively affected the stock prices of many listed companies. Tencent's shares experienced a 6% drop on January 6th, with subsequent downward trends, indicating a clear correlation with the DOD listing. Given Tencent's global prominence – it's the world's largest video game company by investment and a major global player – its inclusion on the list and potential removal as a US investment option carries significant financial implications.

A gaming industry giant, with a market capitalization nearly four times that of its closest competitor, Sony, Tencent operates its gaming division, Tencent Games, as a publisher and investor. Its portfolio includes stakes in prominent studios such as Epic Games, Riot Games, Techland (Dying Light), Don't Nod (Life is Strange), Remedy Entertainment, and FromSoftware. Tencent Games has also invested in numerous other developers and related companies, including Discord.