The US Department of Defense has recently added Chinese tech companies Tencent and CATL to a list of firms that it alleges work with China’s military. Tencent, a social media and gaming giant, and CATL, the world’s largest battery maker, have been included in the Pentagon list, which could potentially impact their reputations and hinder their commercial progress, especially in the United States.
Although inclusion on the list does not immediately result in sanctions, it could have long-term implications for the companies named. Following the announcement, shares in Tencent dropped by 6.5% in Hong Kong, while CATL’s Shenzhen-listed shares experienced a more than 3% decline.
The Defense Department's list, known as the 1260H list, is part of an ongoing effort to counter China’s “military-civil fusion” strategy. This strategy aims to develop a technologically advanced military by bridging the gap between China’s civilian research, commercial sectors, and its armed forces.
In response to being listed, Tencent stated that it is not a military company or supplier and called its inclusion a mistake. The company emphasized that the listing would not impact its business operations and expressed willingness to work with the Department of Defense to address any misunderstandings.
The escalating tech rivalry between the US and China has been further fueled by recent actions. Beijing announced plans to restrict the export of technology crucial for the global electric vehicle industry, while the outgoing Biden administration imposed new export controls on US-made semiconductors to prevent their potential use in advanced AI systems and weapons by China.
China’s military-civil fusion strategy, spearheaded by President Xi Jinping, aims to modernize the Chinese military by integrating the private sector and defense industry. This strategy, elevated to a national level in 2014, reflects China’s ambition to become a global economic, technological, and military powerhouse.
Analysts suggest that companies like Tencent, with a focus on social media and gaming, may seek exclusion through US courts, similar to Xiaomi's successful case in 2021. Xiaomi was temporarily spared from restrictions after a federal judge ruled that there was insufficient evidence to link the company to China’s military.
The evolving dynamics between the US and China underscore the complexities faced by companies operating in both countries, as regulatory, economic, and public relations risks continue to grow.
