Tencent’s US blacklisting stokes fear of tech war escalation with China

Birds fly close to the Pentagon constructing over the U.S. Air Power Memorial, Dec. 22, 2024 in Arlington, Va., U.S. AFP-Yonhap

The U.S. authorities’s transfer so as to add Tencent Holdings, China’s most beneficial firm, to its record of Chinese language navy companies has raised issues about additional bifurcation within the expertise spheres of the world’s two largest economies.

Tencent, operator of super-app WeChat and the world’s largest video gaming enterprise by income, is amongst 5 new corporations that Washington believes pose a risk to U.S. nationwide safety, in line with a doc on the Federal Register printed on Tuesday.

The Shenzhen-based social media big stated its inclusion on the Pentagon’s record was „clearly a mistake“, as the corporate is „not a navy firm or provider.“

„In contrast to sanctions or export controls, this itemizing has no influence on our enterprise,“ Tencent stated in a press release on Tuesday. „We’ll nonetheless work with the Division of Protection to handle any misunderstanding.“

The most recent U.S. transfer shook investor confidence in a few of China’s largest non-public tech corporations forward of the inauguration of president-elect Donald Trump this month.

Tencent shares slumped 7.3 % to HK$379.60 in Hong Kong on Tuesday. CATL, the world’s largest maker of electric-vehicle batteries and which was additionally newly blacklisted, fell 2.8 % to 249.45 yuan in Shenzhen.

Whereas the addition of Tencent to the U.S. blacklist was a „destructive shock“, it doesn’t incur particular sanctions or penalties, in line with Ivan Su, senior fairness analyst at Morningstar. Additionally it is possible that the corporate can reverse the choice by way of authorized actions, he added.

„Given Tencent’s enterprise mannequin — which primarily revolves round social networking and on-line gaming — we imagine the corporate has likelihood to safe exclusion by way of U.S. courts,“ Su wrote in a analysis be aware. „Nevertheless, inclusion within the record could end in reputational injury and will discourage different corporations from collaborating with Tencent and its subsidiaries.“

2025-01-08 15:14  |  Tech

In a submitting to the Hong Kong inventory change on Tuesday, Tencent stated it „intends to provoke a reconsideration course of to appropriate this error“ and „undertake authorized proceedings“ to take away the corporate from the record if mandatory.

A person walks exterior CATL’s battery cell manufacturing facility code-named „Z-base“ in Ningde, Fujian province, China, Nov. 8, 2024. Reuters-Yonhap

There are precedents for the elimination of Chinese language corporations from the Pentagon’s record. In 2021, smartphone big Xiaomi reached an settlement with the U.S. authorities to overturn a blacklisting by the Trump administration.

The Pentagon additionally faraway from its newest record six corporations it stated now not met the necessities for the designation, together with synthetic intelligence (AI) agency Megvii.

Nevertheless, Tencent faces the chance of broader sanctions if U.S.-China relations proceed to deteriorate, in line with Alex Capri, a lecturer on the Nationwide College of Singapore’s Enterprise Faculty and writer of Techno-Nationalism: The way it’s Reshaping Commerce, Geopolitics and Society. That would ship ripples by way of the worldwide provide chain, he stated.

„Washington has widened the techno-nationalist gray zone for a whole ecosystem of Chinese language and non-Chinese language corporations that use Tencent for every part from cloud infrastructure and cloud computing, to knowledge heart providers,“ Capri stated.

„These creeping export controls sign that the tech warfare between China and the U.S. is escalating, and there’s each indication that in terms of strategic applied sciences like telecoms, or, within the case of CATL, batteries for [electric vehicles], international worth chains will proceed to bifurcate and fragment.“

The favored online game „Fortnite“ by Epic Video games is pictured on a display on this image illustration, Aug. 14, 2020. Reuters-Yonhap

Tencent, as soon as recognized for „proudly owning half the rivers and mountains“ in China’s web trade, operates throughout a variety of companies masking social media, on-line gaming, fintech, cloud computing, AI and extra.

It additionally has a sprawling international funding portfolio, with stakes in U.S. social media platforms Reddit and Snap, in addition to sport studios together with League of Legends developer Riot Video games and Fortnite creator Epic Video games.

Tencent’s earnings publicity within the U.S. is estimated to be within the high-single-digit proportion vary, stemming primarily from video gaming income, in line with Morningstar’s Su. The corporate’s video gaming income within the U.S. is unlikely to be affected within the close to time period, he added.

Whereas the Pentagon designation has no authorized ramifications, it could give the U.S. Treasury an excuse to impose additional sanctions and commerce restrictions, and will make it tougher for Tencent to purchase superior merchandise from U.S. tech giants equivalent to chip-designing firm Nvidia, stated Zhou Chao, researcher at Beijing-based assume tank Anbound.

This isn’t the primary time that Tencent has grow to be a goal of U.S. scrutiny.

In 2020, the Trump administration tried to ban WeChat within the U.S. citing nationwide safety causes. That order was revoked in 2021 by President Joe Biden.

Learn the complete story at SCMP.