Key Takeaways
- Tencent's inclusion on a Pentagon list of companies with ties to the Chinese military has caused a stock price decline.
- This listing stems from a 2020 executive order restricting US investment in Chinese military entities.
- Tencent denies being a military company and plans to engage with the Department of Defense (DOD) to clarify the situation.
Tencent Holdings Limited, a leading Chinese technology conglomerate, has been added to the US Department of Defense's (DOD) list of companies linked to the People's Liberation Army (PLA). This designation is a consequence of a 2020 executive order by former President Trump, prohibiting US investors from engaging with Chinese military companies and their subsidiaries. The order mandates divestment from any 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 several companies from the New York Stock Exchange.
Tencent's appearance on the updated January 7th list prompted an immediate response. A Tencent spokesperson issued a statement to Bloomberg, asserting:
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.
The DOD list is dynamic; companies previously designated but no longer meeting the criteria have been removed. Bloomberg notes that several companies have successfully collaborated with the DOD to have their names removed, suggesting a similar strategy for Tencent.
The publication of the list negatively impacted the stock prices of many listed companies. Tencent experienced a 6% share drop on January 6th, with subsequent downward trends attributed to this listing. Given Tencent's global prominence—the world's largest video game company by investment and a major global player—its inclusion carries significant financial implications.
Tencent's gaming operations are managed through Tencent Games, a publishing division. However, Tencent Holdings also holds substantial stakes in numerous successful game studios, including Epic Games, Riot Games, Techland (Dying Light), Dontnod Entertainment (Life is Strange), Remedy Entertainment, and FromSoftware. Tencent Games has also invested in numerous other prominent developers and related companies like Discord.
