Tencent Labeled as Military Organization by U.S.

Summary

• The Pentagon has added Tencent to its list of companies with ties to the Chinese military.
• This designation led to 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, a prominent Chinese technology giant, has been included in a Pentagon list identifying companies linked to China's People's Liberation Army (PLA). This action 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 a list of companies deemed to contribute to PLA modernization through technological advancements, expertise, or research. While initially featuring 31 companies, the list has since expanded. This executive order previously resulted in three companies being delisted from the New York Stock Exchange.

The DOD's recent update (January 7th) included Tencent Holdings Limited. Tencent swiftly responded via a spokesperson, stating to Bloomberg:

Tencent's Response to DOD Listing

We are not a military company or supplier. This listing, unlike sanctions or controls, doesn't affect our operations. We will, however, cooperate with the Department of Defense to resolve any misunderstandings.

The DOD list has seen some companies removed this year after no longer meeting the criteria for military designation. Bloomberg notes that at least two companies have successfully had their names removed through collaboration with the DOD, suggesting a similar strategy for Tencent.

The publication of the list triggered a stock price drop for many listed companies. Tencent experienced a 6% decline on January 6th, with subsequent downward trends, indicating a clear correlation with its inclusion on the DOD list. Given Tencent's position as the world's largest video game company by investment and a global industry leader, its presence on this list and potential removal as a US investment option could have significant financial repercussions.

Tencent's substantial gaming portfolio, managed through Tencent Games, boasts a market capitalization nearly four times that of its closest competitor, Sony. Tencent Holdings also holds ownership stakes in numerous successful game studios, including Epic Games, Riot Games, Techland (Dying Light), Dontnod Entertainment (Life is Strange), Remedy Entertainment, and FromSoftware. Furthermore, Tencent Games has invested in many other prominent developers and related companies like Discord.