Tencent added to DoD’s list of Chinese military companies, shares take a hit

What just happened? Tencent, a tech giant that has investments and stakes in firms ranging from Riot and Epic to Activision Blizzard and Reddit, has been added to the Defense Department’s list of Chinese military companies. The move will not lead to any immediate sanctions or export controls, but it has caused reputational damage and could make it difficult for Tencent to continue investing in American businesses.

This week Tencent appeared in an updated version of the 1260H section listing. The Department of Defense list contains the names of companies that the agency believes are part of China’s “Civil-Military Fusion Strategy,” the Chinese Communist Party’s (CCP) national strategy to transform the People’s Liberation Army (PLA) into a “world-class military.” “by 2049 through collaboration with local firms and citizen researchers.

Tencent is the sole owner of League of Legends producer Riot Games, a minority shareholder in Epic Games with approximately 29% of fully diluted shares, has stakes in Snap and Activision Blizzard, Larian Studios and FromSoftware, and has investments in Reddit and Discord. .

The reason for Tencent’s inclusion on the list was not given. The company said its inclusion was a “clear mistake” and would appeal. Tencent’s Danny Marty told The Verge that the appointment “will not impact our business.”

“However, we will work with the Department of Defense to clear up any misunderstandings,” Marty added.

The consequences of being on the 1260H list are not as severe as those on the entity list, which includes Huawei, because those on it cannot do business with US companies unless Washington issues a license. However, some organizations have chosen to stop working with companies after they were added to the 1260H list.

Tencent owns WeChat, a messaging platform and payment service that is incredibly popular in China. WeChat was prohibited from Canadian government devices in 2023 due to “an unacceptable level of privacy and security risk.”

Joining Tencent on the 1260H list is CATL, the world’s largest electric vehicle battery maker whose clients include Tesla. CATL also said its inclusion was a “mistake.”

Ford said it will invest $2 billion to build a battery plant in Michigan. The American automaker said it plans to license the technology from CATL.

Tencent’s US-listed shares fell 7.8% on the news.

This was announced by the press secretary of the Chinese Embassy in Washington, Liu Pengyu. BBC“The U.S. actions violate the principles of market competition and the international economic and trade rules that it has always upheld, and undermine the confidence of foreign companies to invest and operate in the United States.”

Drone maker DJI and lidar maker Hesai Technologies sued the Pentagon last year for their inclusion on the list, where they remain today.

There may still be hope for Tencent and CATL. Xiaomi was added to the list in 2021, but removed just a few months later.