Summary
- The Pentagon has included Tencent on a list of companies with ties to the Chinese military.
- This listing 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 leading Chinese technology firm, has been added to a Pentagon list identifying companies with links to China's People's Liberation Army (PLA). This designation stems from a 2020 executive order by former President Trump, prohibiting US investors from acquiring or investing in Chinese military companies and their subsidiaries, and mandating divestment from existing holdings.
The DOD maintains this list, which comprises companies believed to contribute to PLA modernization through technology, expertise, or research. While initially featuring 31 companies, the list has since expanded. The executive order's immediate impact included the delisting of three companies from the New York Stock Exchange.
The DOD's latest update, released January 7th, included Tencent Holdings Limited. Tencent swiftly responded via a spokesperson, issuing a statement 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 list has seen the removal of several companies 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 this list has negatively impacted the stock prices of many named companies. Tencent shares experienced a 6% drop on January 6th, with subsequent downward trends, a correlation experts acknowledge. Given Tencent's global prominence – the world's largest video game company by investment and a major global player – its inclusion and potential removal as a US investment option carries significant financial implications.
A gaming industry giant, boasting a market capitalization nearly four times that of its closest competitor, Sony, Tencent Holdings Limited operates its gaming arm, Tencent Games, as a publishing division. However, Tencent Holdings also 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. Tencent Games has also invested in numerous other prominent developers and related companies such as Discord.
