Pentagon List Includes Tencent, Causing Stock Dip; Company Disputes Designation
Tencent, a prominent Chinese technology conglomerate, has been added to the U.S. Department of Defense's (DOD) list of companies with ties to the Chinese military, specifically the People's Liberation Army (PLA). This inclusion stems from a 2020 executive order by former President Trump restricting U.S. investment in Chinese military entities and their affiliates. The order mandates divestment from such companies by U.S. investors.
The DOD list identifies 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 appearance on 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, the DOD removed some companies no longer meeting the criteria for designation. Precedents exist of companies successfully collaborating with the DOD to have their names removed, suggesting Tencent may pursue a similar strategy.
The publication of the list correlated with a decline in the stock value of several listed companies. Tencent experienced a 6% drop on January 6th, with subsequent downward trends attributed to its inclusion. Given Tencent's global standing as the world's largest video game company by investment and a major global player overall, its presence on the list and potential removal as a U.S. investment option carry significant financial implications.
Tencent's vast gaming empire, Tencent Games, dwarfs its closest competitor, Sony, by a market capitalization of nearly four times. Beyond its publishing arm, Tencent 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 numerous other developers and related companies such as Discord.
