Summary
- The Pentagon has added Tencent to its 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 major Chinese technology firm, has been included in a Pentagon list identifying companies linked to China's People's Liberation Army (PLA). This designation stems from a 2020 executive order by former President Donald 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, which comprises companies believed to contribute to the PLA's modernization through technological advancements, expertise, and research. While initially containing 31 entities, 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 recent update, released January 7th, included Tencent Holdings Limited. Tencent promptly 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.
This year, several companies previously listed have been removed due to no longer meeting 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 this list has negatively impacted the stock values of several named companies. Tencent's shares experienced a 6% drop on January 6th, with subsequent downward trends, indicating a direct correlation with the DOD listing. Given Tencent's global prominence—the world's largest video game company by investment and a leading global corporation—this listing and potential US investment restrictions carry significant financial implications.
Tencent Holdings Limited, a gaming industry behemoth with a market capitalization dwarfing its closest competitor (Sony) by a factor of four, operates its gaming arm through Tencent Games. Beyond this, Tencent 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. Tencent Games has also invested in dozens of other prominent developers and related companies such as Discord.
