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 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 subsidiaries. The order also mandates divestment from any such entities.
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 since its inception, leading to the delisting of several companies from the New York Stock Exchange.
Tencent's inclusion in the latest DOD update, released January 7th, 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.
This year, several companies previously listed have been removed due to no longer meeting the criteria. Bloomberg notes that some companies have successfully collaborated with the DOD to achieve removal, suggesting a similar strategy for Tencent.
The publication of the list has negatively impacted the stock prices of the named companies. Tencent's shares experienced a 6% 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 and potential removal as a US investment option carries significant financial implications.
Tencent's gaming division, Tencent Games, is a leading force in the industry, boasting a market capitalization nearly four times that of its closest competitor, Sony. Tencent Holdings also holds stakes in numerous successful game 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 developers and related companies like Discord.
