Summary
- Tencent has been included on a Pentagon list due to alleged ties to the Chinese military.
- The inclusion led to a significant drop in Tencent's stock value.
- Tencent denies being a military company and plans to collaborate with the Department of Defense (DOD) to resolve the issue.
Tencent, a leading Chinese technology conglomerate, has been added to a list compiled by the Pentagon that identifies companies with connections to the Chinese military, known as the People's Liberation Army (PLA). This inclusion stems from an executive order issued in 2020 by former President Donald Trump, which bans U.S. investors from buying or investing in securities of Chinese military companies and their subsidiaries, and mandates the divestment of any existing investments.
These companies are considered vital to the PLA's modernization efforts, contributing through advanced technology, expertise, and research. The list, which originally featured 31 companies, has expanded over time. The addition of these companies to the list prompted the delisting of three from the New York Stock Exchange.
On January 7, the latest update to the DOD's list of Chinese military companies included Tencent Holdings Limited. In response, Tencent issued 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, some companies were removed from the list after no longer meeting the criteria for being classified as military companies. Bloomberg notes that at least two companies have successfully worked with the DOD to be removed from the list in recent years, suggesting Tencent might pursue a similar path.
The announcement of the list triggered a decline in the stock prices of the listed companies. Tencent's shares dropped by 6% on January 6 and have continued to trend downward, a movement attributed to its placement on the DOD's list. As the world's largest video game company by investment and one of the globe's largest companies overall, Tencent's status on the list could have significant financial repercussions, especially if it affects its availability as an investment option in the U.S.
Tencent Holdings Limited, through its division Tencent Games, is a major player in the gaming industry, boasting a market capitalization nearly four times that of its nearest competitor, Sony. Beyond its own publishing efforts, Tencent is a significant shareholder in numerous successful studios, including Epic Games, Riot Games, Techland of Dying Light fame, Don’t Nod, known for Life is Strange, Remedy Entertainment, and FromSoftware. Tencent Games also has stakes in many other well-known developers and companies, such as Discord.
