Pentagon List Includes Tencent, Causing Stock Dip; Company Disputes Designation
Tencent, a Chinese tech giant, 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. The order mandates divestment from listed companies and prohibits new investments.
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 inclusion, announced on January 7th, prompted an immediate response. A Tencent spokesperson issued a statement to Bloomberg, asserting that Tencent is "not a military company or supplier" and that the listing has no operational impact. However, the company pledged to collaborate with the DOD to clarify any misunderstandings.
This year, several companies previously listed have been removed after no longer meeting the criteria. Precedents exist of companies successfully working with the DOD to have their names removed, suggesting Tencent may pursue a similar course of action.
The list's release negatively impacted the stock prices of several named companies. Tencent's shares experienced a 6% drop on January 6th and have continued a slight downward trend, a correlation experts attribute to its DOD listing. Given Tencent's significant global presence, including its position as the world's largest video game company by investment, its inclusion carries substantial financial implications for the U.S. investment landscape.
Tencent's vast gaming portfolio, managed through its Tencent Games publishing division, includes ownership stakes in prominent studios such as Epic Games, Riot Games, Techland (Dying Light), Don't Nod (Life is Strange), Remedy Entertainment, and FromSoftware. The company has also invested in numerous other developers and related entities, including Discord. Tencent's market capitalization significantly surpasses that of its closest competitor, Sony, by nearly four times.
