On Monday (January 6th), Chinese social media and gaming company Tencent was added to a list of companies collaborating with the Chinese military by the US Department of Defense. Subsequently, its stock price plummeted by nearly 10%.
The US Department of Defense released an updated list of “Chinese Military Companies” that operate directly or indirectly in the United States, in accordance with the statutory requirements of Section 1260H of the Fiscal Year 2021 National Defense Authorization Act.
According to the US Department of Defense, the update to the list of “Chinese Military Companies” under Section 1260H emphasizes and counters the continuous efforts of China’s military-civil fusion strategy. The Chinese military-civil fusion strategy supports the modernization goals of the People’s Liberation Army (PLA) by ensuring access to advanced technology and expertise developed by Chinese companies, universities, and research projects, which seemingly operate as civilian entities. Section 1260H directs the US Department of Defense to identify contributors to military-civil fusion operating directly or indirectly in the US.
Tencent is one of the several Chinese companies newly added to the list by the US military. Battery manufacturer Contemporary Amperex Technology (CATL) and drone company Autel Robotics Co. also made the list.
Inclusion on such a blacklist itself does not come with specific sanctions, but it often prevents US companies from doing business with the designated entities.
In a statement, Tencent stated that its inclusion on the list by the US was “evidently a mistake.”
“We are not a military company or supplier,” a company spokesperson said. “Unlike sanctions or export controls, this list has no impact on our business. Nevertheless, we will still work with the Department of Defense to address any misunderstandings.”
CATL also expressed that its inclusion on the Department of Defense list was “a mistake.” The company stated in a release that it is not involved in any military-related activities.
Subsequently, Tencent’s American depositary receipts fell by 9.8% to $47.94, marking the largest intraday decline in nearly three months. Prosus NV, which holds about a quarter of Tencent shares, dropped by 9.6% in US trading.
Some Chinese companies have successfully petitioned for removal from the US Department of Defense blacklist, including the Chinese smartphone giant Xiaomi and Semiconductor Manufacturing International Corporation (SMIC).