US Government Accuses Tencent of Military Links

Summary

• Tencent's inclusion on a Pentagon list of companies with ties to the Chinese military has caused a stock price decline.
• The listing stems from a 2020 executive order restricting US investment in Chinese military entities.
• Tencent denies being a military company and plans to collaborate with the Department of Defense (DOD) to clarify the situation.

The Pentagon has added Chinese tech giant Tencent to its list of companies with links to the People's Liberation Army (PLA). This action is a consequence of 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 such entities.

The DOD list identifies 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.

Tencent's inclusion in the latest DOD update, released January 7th, prompted a swift response. A Tencent spokesperson issued a statement to Bloomberg, asserting:

Tencent's Response to DOD Listing

"We are not a military company or supplier. This listing, unlike sanctions, has no operational impact. We will, however, cooperate with the Department of Defense to resolve any misunderstandings."

The DOD list has seen previous revisions, with some companies removed after demonstrating they no longer met the criteria. 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 has negatively impacted the stock prices of several listed companies. Tencent's shares experienced a 6% drop 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 major global player—its inclusion on the list and potential removal from US investment portfolios carries significant financial ramifications.

Tencent's gaming division, Tencent Games, is a dominant force, boasting a market capitalization nearly four times that of its closest competitor, Sony. Tencent Holdings Limited also holds significant stakes in numerous successful studios, including Epic Games, Riot Games, Techland (Dying Light), Don't Nod (Life is Strange), Remedy Entertainment, and FromSoftware. Furthermore, Tencent Games has invested in numerous other prominent developers and related companies like Discord.