January 6, 2025

Major gaming and social media conglomerate Tencent saw a significant drop in trading on Monday after the United States Department of Defense (DoD) classified Tencent as a Chinese military entity.

The filing does not impose direct sanctions but may discourage U.S. corporations from engaging in business with the Chinese based company. Tencent retains full or partial ownership of some of the following video game studios—Riot Games, Grinding Gear Games, Turtle Rock Studios, Epic Games, FromSoft, Remedy Entertainment, Ubisoft, and more.

The immediate impact on the stock market was palpable. Tencent’s stock price plunged as much as 9.8%, the largest decline in recent months. Prosus NV, which owns approximately a quarter of Tencent, also fell by up to 9.6% in U.S. markets.

Tencent swiftly issued a statement categorizing the listing as “clearly a mistake.” Danny Marti, Tencent’s spokesperson, stated, “We are not a military company or supplier. Unlike sanctions or export controls, this listing has no impact on our business. We will nonetheless work with the Department of Defense to address any misunderstanding.”

Implications for Tencent

Being placed on the DoD’s list could have far-reaching implications for Tencent’s operations in the United States as partners may be wary of associating with a company labeled as a military entity, with or without public evidence to back the claim. For the moment, no immediate impact has been reported for gamers and users of Tencent’s various media companies and time remains to tell if and what may be the result.

Another Chinese company, TikTok, is slated to be banned within the U.S. on Jan. 19^th.

Background and Historical Context

Tencent is known for its ownership of the popular messaging app WeChat and significant investments in major gaming companies. Chinese corporation involvement in western game studios has long been point of contention for some gamers, resulting in the boycott of Epic Games in recent years. Much of the controversy stems from the use and harvesting of player data, and the potential for this data to be handed off to the Chinese government.

The DoD’s blacklist initiative is part of ongoing western tensions with the Chinese government, particularly in the technology and business sectors. In 2021, Xiaomi Corp., a leading Chinese smartphone manufacturer, successfully contested its designation and was removed from the list after reaching an agreement with the U.S. government, so a path forward may yet remain for Tencent to eke out an arranged with the DoD.