Shares of Tencent Holdings plunged more than 7% on Tuesday after the U.S. Department of Defense blacklisted the Chinese tech giant, battery maker Contemporary Amperex Technology and a slew of other companies on Monday.
Tencent, the owner of WeChat and many video games, said in a statement that the listing was “Obviously a mistake,” Adding: “We are not a military company or supplier. Unlike sanctions or export controls, this listing has no impact on our business.
At the same time, the share price of CATL, a global electric vehicle battery manufacturer, fell more than 5% on the Shenzhen Stock Exchange. The company also complained that the identification was an error, saying that it “has not engaged in any military-related activities.”
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The list also includes China's largest shipping company Cosco Shipping Holdings, as well as chip maker Changxin Storage Technology, Quectel Wireless and drone maker Autel Robotics, according to documents released on Monday.
Two entities owned by China's state-run oil giant China National Offshore Oil Corporation – CNOOC China Ltd and CNOOC International Trading Co – also went public.
The annually updated list of Chinese military companies designates 134 companies under the “Section 1260H List” duly authorized by U.S. law. Notice published in the Federal Register.
Warning to U.S. Entities
While the designation does not involve an immediate ban, it could deal a blow to the reputation of the affected companies and serve as a stern warning to U.S. entities and companies about the risks of doing business with these companies. It could also increase pressure on the U.S. Treasury Department to sanction the companies.
Tencent's Hong Kong-listed shares fell 7% in early trading, while U.S.-listed shares of the company, owner of messaging app WeChat, fell 8% in over-the-counter trade.
A Quectel spokesman said the company “does not work with any country's military and will ask the Pentagon to reconsider its designation, which is patently wrong.” Quectel shares fell nearly 7%.
The share price of COSCO Hong Kong listed in Hong Kong fell by more than 4%.
The Chinese Embassy in Washington said it opposed the move and urged the U.S. to correct “discriminatory practices,” adding that China would safeguard the legitimate rights and interests of its companies.
Other companies did not immediately respond to requests for comment.
“A garden of sensitive technologies is growing”
The updated list is one of many actions Washington has taken in recent years to highlight and restrict Chinese companies it believes pose security risks, adding to tensions between the world's two largest economies.
In 2021, the U.S. Department of Defense removed the Chinese technology company after it sued the U.S. government for its inclusion on the list. A federal judge called the U.S. government's process for including Xiaomi “seriously flawed.”
Ivan Su, senior equity analyst at Morningstar, said he believed Tencent had a good chance of being excluded through the U.S. courts like Xiaomi, but being excluded could lead to reputational damage.
Tencent's U.S. earnings exposure is in the high-single-digit percentage range and consists primarily of gaming revenue, he added. “While this represents the largest potential negative impact, we believe it is extremely unlikely that Tencent's U.S. gaming revenue will be impacted in the near term.”
Jeffries said in the research report that the purpose of the Chinese Military Enterprises (CMC) list is to express the opinions of the Ministry of Defense and provide reference for other government departments.
“The most serious consequence for CMC is a U.S. investment ban, but that is entirely up to Trump and his team.”
Craig Singleton, a China expert at the Foundation for Defense of Democracies, said the additions showed it was “reckless” for U.S. companies to do business with an increasing number of Chinese companies.
“The United States no longer protects just a few technologies,” he said. “Gardens of sensitive technologies are growing, and the fences that protect them are being strengthened.”
Other new companies include MGI Manufacturingmanufacture genome sequencing instruments, and Yuansai TechnologyLawmakers claim the company operates a network of cell banks and biostorage technology. Neither company immediately responded to requests for comment.
U.S. lawmakers are urging the Pentagon to add companies including CATL to the list throughout 2024.
Ford Motor Co. is building a battery factory in Michigan and plans to license CATL's technology to produce low-cost lithium-iron batteries at the plant, a move that has raised concerns among some lawmakers. Ford had no immediate comment Monday.
Two previously listed companies, Drone maker DJI LiDAR maker Hesai Technologies sued the Pentagon last year over its previous designation but remains on the updated list.
The Pentagon also removed six companies it said no longer met designation requirements, including artificial intelligence company Beijing Megvii Technology, China Railway Construction Corporation, China State Construction Engineering Corporation and China Telecom Group Corporation.
- Reuters Additional editing by Jim Pollard
See also:
U.S. considers restrictions and potential ban on Chinese drones
China considers restricting exports of lithium technology, electric vehicle batteries
Chinese hackers breached U.S. Treasury sanctions office: report
U.S. officials say Chinese hackers stole Treasury documents
U.S. plans to ban sales of Chinese TP-Link routers
U.S. says China is using artificial intelligence to boost espionage – Wall Street Journal
U.S. sets new rules to block China and its rivals from accessing U.S. data
China tests bigger cargo drones and helicopter taxis
More Chinese companies blacklisted for forced Uyghur labor
Italian officials seize Chinese drone parts destined for Libya
China’s DJI stops selling drones in Russia and Ukraine due to war risk
