Pentagon's List Impacts Tencent: A Summary
Tencent, a major Chinese technology firm, has been added to the U.S. Department of Defense's (DOD) list of companies with ties to the Chinese military. This inclusion, stemming from a 2020 executive order, triggered a decline in Tencent's stock price. Tencent denies being a military entity and plans to collaborate with the DOD to clarify the situation.
The DOD's list, compiled under a 2020 executive order prohibiting U.S. investment in Chinese military companies, identifies firms believed to contribute to the People's Liberation Army's (PLA) modernization. While initially comprising 31 companies, the list has expanded since its inception, leading to delistings 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 neither a military company nor a supplier and that the listing doesn't directly impact its operations. However, the company intends to work with the DOD to resolve the apparent misunderstanding.
Previous instances have seen companies successfully removed from the list after engaging with the DOD. This suggests a potential path for Tencent to regain its investment eligibility in the U.S. market.
The listing's impact on Tencent's stock is undeniable. A 6% drop on January 6th, followed by a continued downward trend, highlights the market's sensitivity to the designation. Given Tencent's global prominence, particularly in the video game industry (where it surpasses Sony's market capitalization by a significant margin), this development carries substantial financial ramifications.
Tencent's gaming empire, managed through Tencent Games, extends to significant ownership stakes in renowned studios such as Epic Games, Riot Games, Techland, Dontnod Entertainment, Remedy Entertainment, and FromSoftware. It also boasts investments in numerous other game developers and related businesses, including Discord.
