Summary

• Tencent, due to alleged ties to the Chinese military, has been added to a Pentagon blacklist.
• This listing triggered 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.

The Pentagon has included Chinese tech giant Tencent in its list of companies linked to China's military, the People's Liberation Army (PLA). This designation stems from a 2020 executive order by former President 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 led to the delisting of three companies from the New York Stock Exchange.

Tencent's inclusion in the DOD's latest update (January 7th) prompted a swift response. A Tencent spokesperson 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."

The list has seen some companies removed this year due to no longer meeting the criteria. Bloomberg notes that at least two companies previously removed their names through collaboration with the DOD, suggesting a similar strategy for Tencent.

The publication of this list negatively impacted the stock prices of several named companies. Tencent's shares experienced a 6% drop on January 6th, with subsequent downward trends, highlighting the correlation between the listing and market reaction. Given Tencent's global prominence – the world's largest video game company by investment and a major global player – its inclusion and potential US investment restrictions carry significant financial implications.

Tencent's gaming division, Tencent Games, dominates the industry, boasting a market capitalization nearly four times that of its closest competitor, Sony. Its portfolio includes ownership stakes in renowned studios such as Epic Games, Riot Games, Techland (Dying Light), Dontnod Entertainment (Life is Strange), Remedy Entertainment, and FromSoftware. Furthermore, Tencent Games has invested in numerous other prominent developers and related entities, including Discord.