Key Takeaways

• Tencent's inclusion on a Pentagon list of companies with ties to the Chinese military has caused a significant stock price decline.
• This listing stems from a 2020 executive order restricting US investment in Chinese military-linked 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 alleged ties to the People's Liberation Army (PLA). This action is a direct consequence of a 2020 executive order by former President Trump, prohibiting US investment in Chinese military companies and mandating divestment from existing holdings. The DOD maintains this list, identifying companies believed to contribute to PLA modernization through technology, expertise, or research. While the initial list contained 31 companies, it has since expanded. This executive order previously led to the delisting of three companies from the New York Stock Exchange.

Tencent's inclusion on the updated list, released January 7th, prompted a swift 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.

The DOD list is not static; companies previously designated as military-linked but no longer meeting the criteria have been removed. Bloomberg notes that at least two companies have successfully lobbied the DOD for removal in recent years, suggesting a similar strategy for Tencent.

The listing's immediate effect was a noticeable drop in Tencent's stock value. A 6% decline on January 6th, and subsequent downward trends, are attributed by experts to this development. Given Tencent's global prominence – the world's largest video game company by investment and a major player overall – its inclusion and potential removal as a US investment option carries substantial financial implications.

Tencent's gaming empire, Tencent Games, operates under its publishing division and boasts a market capitalization dwarfing its closest competitor, Sony, by a factor of four. The company holds significant 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 prominent developers and related businesses such as Discord.