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, now features on the Pentagon's list of companies linked to China's People's Liberation Army (PLA). This follows a 2020 executive order from then-President Trump prohibiting US investors from acquiring stakes in Chinese military companies and their affiliates, mandating existing investors divest.

The DOD maintains this list, identifying companies believed to contribute to PLA modernization through technology, expertise, or research. While initially comprising 31 companies, the list has expanded. The executive order immediately 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 responded via a spokesperson, stating to Bloomberg:

Tencent's Response to DOD Listing

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

This year, several companies previously listed were removed after no longer meeting the criteria. Bloomberg notes that at least two companies have successfully had their names removed through collaboration with the DOD, suggesting Tencent aims for a similar outcome.

The publication of the list triggered a stock price drop for many listed companies. Tencent shares fell 6% on January 6th and have continued a slight downward trend, a correlation acknowledged by experts. Given Tencent's position as the world's largest video game company by investment and a global tech giant, its inclusion and potential removal as a US investment option carries significant financial implications.

A games industry behemoth, with a market capitalization nearly four times that of its closest competitor, Sony, Tencent Holdings Limited operates its gaming business through Tencent Games. Tencent Holdings also holds ownership stakes in numerous successful studios, including Epic Games, Riot Games, Techland (Dying Light), Dontnod Entertainment (Life is Strange), Remedy Entertainment, and FromSoftware. Tencent Games has further invested in dozens of other prominent developers and related companies like Discord.