Pentagon List Includes Tencent, Impacting Stock Value
Tencent, a Chinese technology giant, has been added to the Pentagon's list of companies with ties to the Chinese military, specifically the People's Liberation Army (PLA). This designation stems from a 2020 executive order by former President Trump, restricting US investment in Chinese military entities and their affiliates. The order mandates divestment from any listed companies.
The Department of Defense (DOD) maintains this list, identifying 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 inclusion in the latest DOD update, 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."
This year, some companies previously listed were removed due to no longer meeting the criteria. Precedents exist of companies successfully collaborating with the DOD to achieve removal from the list, suggesting a similar strategy for Tencent.
The list's publication correlated with a decline in stock values for several named companies. Tencent experienced a 6% drop on January 6th, with subsequent downward trends attributed to its inclusion. Given Tencent's global prominence—the world's largest video game company by investment and a leading global corporation—this listing and potential US investment restrictions carry significant financial implications.
Tencent's gaming operations are managed through Tencent Games, its publishing arm. However, Tencent Holdings also holds substantial 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 companies such as Discord. Its market capitalization dwarfs that of its closest competitor, Sony, by a factor of nearly four.
