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 linked to the People's Liberation Army (PLA). This action is a direct consequence of a 2020 executive order by President Trump, prohibiting US investors from engaging with Chinese military companies and their affiliates. The order mandates divestment from any such entities.

The DOD maintains a list of companies believed to contribute to the PLA's modernization through technology, expertise, and 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, some companies previously listed have been removed due to no longer meeting the criteria. Bloomberg notes that companies have successfully petitioned the DOD for removal in the past, suggesting Tencent may pursue a similar course of action.

The publication of the list has negatively impacted the stock prices of several named companies. Tencent's shares experienced a 6% drop on January 6th and have shown a downward trend since, a correlation acknowledged by market analysts. 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 carry significant financial ramifications.

Tencent's gaming empire, Tencent Games, operates under the parent company, Tencent Holdings Limited. This vast portfolio includes ownership stakes in numerous successful game studios, such as Epic Games, Riot Games, Techland (Dying Light), Dontnod Entertainment (Life is Strange), Remedy Entertainment, and FromSoftware. Tencent Games has also invested in various other prominent developers and related businesses, including Discord.