Tencent, the world’s largest video game company, lost over $35 billion in market value after the U.S. Department of Defense designated the tech giant as a “Chinese military company.”, according to Fortune. The unexpected move caused Tencent’s shares in Hong Kong to plummet 7.3% on Tuesday. The Hang Seng Tech Index, which tracks tech firms listed in Hong Kong, fell 0.9% as a ripple effect.
The U.S. also accused Contemporary Amperex Technology Co. (CATL), the leading electric vehicle battery producer, of similar ties, causing its shares to drop 2.8% in Shenzhen.
The U.S. Blacklist and Its Impact
First compiled in 2021, the Department of Defense blacklist targets firms allegedly aiding the modernization of China’s military. While the designation does not impose direct sanctions, it may result in reputational harm, dissuading other businesses from collaborating with blacklisted companies.
Morningstar analysts Ivan Su and Vincent Sun warn that this could deter partnerships for both Tencent and CATL.
Tencent, which operates popular platforms like WeChat and owns stakes in global gaming companies such as Riot Games and Epic Games, called the designation a “mistake.” A spokesperson stated the company will work with U.S. authorities to resolve the misunderstanding. Similarly, CATL, which supplies batteries to automakers like Tesla and Volkswagen, denied any military ties and said it might pursue legal action to challenge the decision.
China’s Response
China’s foreign ministry condemned the blacklist, accusing the U.S. of using national security as a pretext to suppress Chinese enterprises. “China firmly opposes discriminatory lists and unreasonable suppression,” said spokesperson Guo Jiakun.
Chances of Reversal
Tencent and CATL may look to precedents like Xiaomi’s successful removal from a similar blacklist in 2021. Xiaomi’s aggressive legal challenge led to the reversal of its designation within four months. Analysts believe Tencent, whose business focuses on social media and gaming, stands a strong chance of achieving a similar outcome.
Broader U.S.-China Tensions
The designation of Tencent and CATL is part of escalating U.S.-China tensions. The Biden administration has targeted China’s tech sector with restrictions on advanced chips, tariffs on EVs, and limits on U.S. investments in strategic Chinese technologies. Beijing has retaliated with export controls on critical minerals and sanctions on U.S. defense firms.
This latest move underscores the deepening rivalry between Washington and Beijing, with implications for global markets and technology industries.
Photo: Fortune
