Tencent Challenges US Department of Defense’s Classification as a Chinese Military Company

Tencent Challenges US Defense Department’s Listing as a Military Entity

Tencent Holdings Limited, a prominent Chinese technology conglomerate, has publicly expressed its intent to contest its recent classification as a Chinese military company by the U.S. Department of Defense. This announcement came shortly before a marked decline in the company’s stock price, which plummeted approximately 10% in response to the news.

Legal and Negotiation Strategies

In its official statement, Tencent indicated a dual approach to combat this designation. The company is seeking to negotiate a resolution with the U.S. Department of Defense but has also prepared to pursue legal action if necessary. The statement emphasized that Tencent does not engage in military functions nor contribute to China’s defense industrial base, branding this classification as an error.

As the Company is neither a Chinese military company nor a military-civil fusion contributor to the Chinese defense industrial base, it believes that its inclusion in the CMC List is a mistake. Unlike other lists maintained by the U.S. Government for sanctions or export control measures, inclusion in the CMC List relates only to U.S. defense procurement, which does not affect the business of the Group.

Clarifying the CMC List Implications

Tencent highlighted the distinction between the CMC List and the Non-SDN Chinese Military-Industrial Complex List (NS-CMIC List) handled by the U.S. Office of Foreign Assets Control. Inclusion in the CMC List does not prevent stakeholders, outside of the Department of Defense, from conducting business with Tencent—including trading its securities.

Initiatives for Reconsideration

In an effort to rectify this misclassification, Tencent announced plans to initiate a Reconsideration Process, during which discussions will be held with the U.S. Department of Defense to clear up any misunderstandings. Should these discussions prove unfruitful, Tencent stands ready to take the matter to court.

Tencent’s Global Reach in Gaming

Known primarily for its diverse range of online products and services in China—including the highly popular messaging platforms Tencent QQ and WeChat—Tencent also dominates the global gaming industry as the largest gaming publisher by revenue. It has significantly outpaced competitors like Sony and Microsoft, especially before Microsoft’s recent acquisition of Activision Blizzard narrowed the gap.

Investments in International Game Studios

Tencent’s strategy extends beyond its domestic market, with substantial investments in numerous international game studios. Notable acquisitions include ownership stakes in Riot Games, Funcom, Sharkmob, and many others. The company has also secured majority stakes in Turtle Rock Studios, Techland, and Supercell, among others, and holds minority interests in well-known studios such as Epic Games, Bloober Team, and FromSoftware.

Speculations Regarding Ubisoft

Recently, speculation regarding Tencent’s interests in acquiring Ubisoft has intensified. Following reports that Ubisoft has engaged advisors to explore potential sale options, industry insiders note that Tencent altered its mergers and acquisitions strategy to prioritize majority stakes in recent years.

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