Overview
- Tencent has been added to a Pentagon list due to alleged connections with the Chinese military.
- This classification led to a significant decline in Tencent’s stock price.
- In response, Tencent asserts that it is not a military entity and aims to clarify any misunderstandings with the U.S. Department of Defense (DOD).
The Chinese technology conglomerate Tencent recently found itself on a Pentagon list identifying companies associated with the People’s Liberation Army (PLA). This designation stems from a 2020 executive order by former President Donald Trump, which forbids U.S. investors from acquiring stock or investing in firms recognized as connected to the Chinese military. The order mandates that investors divest any holdings in these companies.
These entities are believed to assist in the modernization of the PLA by offering advanced technologies, expertise, and research capabilities. The U.S. Department of Defense maintains a list of such companies, originally comprising 31 names, but has seen the addition of further organizations over time. Notably, this move resulted in three companies being delisted from the New York Stock Exchange following the order.
On January 7, the DOD updated its list of companies considered to have military ties, which now includes Tencent Holdings Limited. In response, a Tencent spokesperson issued comments via a statement to Bloomberg.
Tencent’s Response to Pentagon’s Designation
“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, other companies have successfully been removed from the DOD’s list, having proven they no longer meet the criteria for military designation. According to Bloomberg, at least two firms in recent times have engaged with the DOD to clear their names. It is expected that Tencent will pursue a similar path.
The announcement of Tencent’s inclusion on the DOD list triggered a swift decline in its stock value, with shares dropping by 6% immediately on January 6 and continuing a slight downward trend. Market analysts recognize a direct link between this designation and the company’s stock performance. As the world’s largest video game company by investments, Tencent’s potential exclusion from U.S. investment options could have serious financial repercussions.
Tencent Games, a division under Tencent Holdings Limited, dominates the gaming industry, boasting a market capitalization nearly four times that of its primary rival, Sony. This division controls a portfolio of popular game studios, including Epic Games, Riot Games, and Techland, among others. Additionally, Tencent has invested in a wide array of renowned developers and technology firms such as Discord.
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