US Accuses Tencent of Military Ties

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 major Chinese technology firm, has been included in a Pentagon list identifying companies with links to China's People's Liberation Army (PLA). This action stems from a 2020 executive order by former President Trump, prohibiting US investors from acquiring stakes in Chinese military companies and their affiliates, and mandating divestment from existing holdings.

The DOD maintains this list, identifying companies believed to contribute to PLA modernization through technology, expertise, or research. While the initial list contained 31 companies, it has since expanded. This executive order previously resulted in three companies being delisted from the New York Stock Exchange.

The DOD's latest update, released January 7th, included Tencent Holdings Limited. Tencent promptly issued a statement to Bloomberg, denying the allegation:

Tencent's Response to DOD Listing

We are not a military company or supplier. This listing, unlike sanctions, has no direct impact on our operations. However, we will cooperate with the Department of Defense to resolve any misunderstandings.

This year, some 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 impacted the stock prices of several named companies. Tencent's shares dropped 6% on January 6th and continued a slight downward trend, a correlation acknowledged by market analysts. Given Tencent's global prominence – the world's largest video game company by investment and a leading global corporation – its inclusion and potential removal as a US investment option carries significant financial implications.

Tencent's vast gaming empire, Tencent Games, dwarfs its closest competitor, Sony, by a market capitalization nearly four times larger. Beyond its publishing arm, Tencent holds ownership stakes in numerous successful studios, including Epic Games, Riot Games, Techland (Dying Light), Don't Nod (Life is Strange), Remedy Entertainment, and FromSoftware. It has also invested in numerous other prominent developers and related companies like Discord.