US Adds Tencent to Chinese Military Company List

Tencent Faces U.S. Scrutiny as a “Chinese Military Company”

Tencent, the prominent Chinese technology conglomerate primarily recognized for its widely used WeChat application, maintains significant investments in numerous U.S. technology firms and emerging startups.

Notable, ongoing investments by Tencent encompass companies such as Reddit, Snap, and Epic Games, the developer of Fortnite.

Designation by the U.S. Department of Defense

A potential complication has arisen, however, with the U.S. Department of Defense designating Tencent as a “Chinese military company” on Monday. This designation functions as a cautionary notice from the U.S. government regarding entities it alleges are involved in Chinese “military-civil fusion” initiatives, as detailed in a 2022 DoD press statement.

Currently, this listing carries no immediate legal ramifications, beyond prohibiting the Department of Defense from engaging in business transactions with Tencent beginning in 2026, as stipulated by U.S. legislation.

Updated January 7, 2025: Initial reports by TechCrunch indicated a broader impact on U.S. government contractors; however, the restriction is specifically limited to the DoD.

Tencent’s Response and Potential Actions

The official notice does not elaborate on the specific reasons behind the U.S. government’s belief that Tencent is providing support to the Chinese military.

Tencent has strongly contested the designation, asserting that it represents “clearly a mistake” and emphasizing that the company is neither a military entity nor a supplier to the military.

Updated January 7, 2025: Further communication from Tencent to TechCrunch revealed the company’s intention to initiate a formal U.S. government review process, known as a Reconsideration Process, to “correct this mistake.” They also stated they will, “if necessary,” pursue legal action to secure Tencent’s removal from the list.

The Defense Department has not yet responded to requests for comment regarding this matter.

Tencent’s Investment Portfolio

Tencent actively participates in venture capital investments through its Tencent Exploration Team, based in Palo Alto. This team’s investments include Snap, Epic Games, and other companies like the health insurer Oscar Health.

Furthermore, Tencent holds a substantial stake in Reddit, although a November 2024 SEC filing indicates that its ownership has recently fallen below the 10% threshold. (Reddit has not yet provided comment, as of the time of reporting, on the precise extent of Tencent’s current ownership.)

Potential Implications for Future Investments

A long-standing strategic focus for Tencent has been investing in global technology companies, particularly within the health and video game sectors.

Should Tencent fail to have the designation removed – similar to how smartphone manufacturer Xiaomi succeeded in 2021 – it could potentially impede its investment activities within the U.S.

Founders may become hesitant to accept funding from a company officially identified as having ties to the Chinese military, even in the absence of publicly available evidence.

Risk of Further Sanctions and Decoupling

There is also a possibility that this designation will lead to increased pressure for additional sanctions against Tencent from other branches of the U.S. government, such as the Treasury Department, as reported by Reuters.

Regardless of any further actions taken, the listing underscores a growing trend of U.S.-China decoupling.

Cross-border investments between Chinese and U.S. venture capital firms, once commonplace, are unlikely to return to previous levels in the foreseeable future.