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, has been included on a Pentagon list identifying companies linked to China's military, the People's Liberation Army (PLA). This stems from a 2020 executive order by former President Donald Trump, prohibiting US investors from engaging with Chinese military companies and their affiliates, mandating divestment from existing holdings.

The DOD maintains this list, identifying companies believed to contribute to PLA modernization through technology, expertise, or research. While initially comprising 31 entities, the list has 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, stating to Bloomberg:

Tencent's Response to DOD Listing

We are not a military company or supplier. This listing, unlike sanctions, doesn't affect our operations. We will 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 successfully had their names removed through collaboration with the DOD, suggesting a similar strategy for Tencent.

The list's publication negatively impacted the stock prices of many listed companies. Tencent's shares dropped 6% on January 6th and have continued a slight downward trend, a correlation acknowledged by market analysts. Given Tencent's global standing—the world's largest video game company by investment and a major global player—its inclusion and potential removal as a US investment option carry significant financial implications.

A gaming industry behemoth, with a market capitalization nearly four times that of its closest competitor, Sony, Tencent Holdings Limited operates its gaming arm through Tencent Games. Tencent Holdings also holds stakes in numerous successful 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 many other prominent developers and related companies such as Discord.