US Gov’t Places Tencent On Military Blacklist, Sending Shares Tumbling

Tencent Holdings Ltd. tumbled in the early afternoon trading in New York after a Bloomberg report revealed that the US Defense Department had designated the company as a Chinese military entity operating within the US.

WeChat parent Tencent was among several companies, including Contemporary Amperex Technology Co., chipmaker Changxin Memory Technologies Inc., Quectel Wireless, and drone maker Autel Robotics, which were designated as Chinese military entities in a Federal Register filing.

This disclosure, made through an annually updated „Section 1260H list,” now features 134 companies, according to the filing.

Section 1260H refers to a provision in the National Defense Authorization Act for Fiscal Year 2021. This section is part of the US Gov’t aimed at addressing China’s economic and military activities in the US.

Bloomberg quoted a Tencent spokesperson as saying the DoD’s move was „clearly a mistake.” A Quectel spokesperson told Reuters the company „does not work with the military in any country and will ask the Pentagon to reconsider its designation, which clearly has been made in error.”

Tencent shares in New York slumped 6.5% on the news.

The iShares China Large-Cap ETF (FXI), which has about 9.2% of its holdings in Tencent shares (the largest holdings), fell about 1%.

The KraneShares CSI China Internet ETF (KWEB), which has an even higher exposure to Tencent at around 10.8% of its holdings, fell over 1%.

„Some Chinese firms have successfully fought to be removed from the US list, such as Chinese smartphone giant Xiaomi Corp. managed to reach an agreement with the US government that set aside its designation as a Chinese military company,” according to Bloomberg.