By Michael Martina, David Shepardson and Karen Freifeld
WASHINGTON/NEW YORK (Reuters) – The U.S. Department of Defense said on Monday it has added Chinese technology giant Tencent Holdings (OTC:) and battery maker CATL to a list of companies it says are working with the Chinese army, as part of a move intended to intensify the efforts of the United States. -Chinese tensions.
Hong Kong-listed shares of Tencent, the parent company of Chinese instant messaging app WeChat, fell 7.3% on Tuesday, losing about HK$275 billion ($35.4 billion) in value. trading, CATL’s Shenzhen-listed shares closed down 2.8%, reducing their market value. 32.2 billion yuan ($4.4 billion) in market value.
Both companies called the decision, which comes two weeks before US President-elect Donald Trump takes office, a “mistake.” Tencent said on Tuesday that its business would not be affected and that it would begin a review process to correct its inclusion and, if necessary, take legal action.
CATL, the world’s largest maker of electric vehicle batteries, said it was “not engaged in any military-related activities.”
Although this designation does not result in an immediate ban, it may be a serious blow to the reputation of the companies involved and serves as a stark warning to U.S. entities and businesses about the risks of doing business with them. It could also increase pressure on the U.S. Treasury Department to sanction companies.
The annually updated list of Chinese military companies, officially mandated by U.S. law as the “Section 1260H list,” named 134 companies, according to a notice published in the Federal Register.
It also included chipmaker Changxin Memory Technologies, Quectel Wireless, drone maker Autel Robotics and China’s largest shipping company COSCO Shipping Holdings, according to a document released Monday.
Two entities owned by Chinese state-owned oil major China National Offshore Oil Corporation were also listed, CNOOC (NYSE:) China Ltd and CNOOC International Trading.
A Quectel spokesperson said the company “does not work with any country’s military and will ask the Pentagon to reconsider its designation, which was clearly made in error.” Quectel shares fell nearly 7%.
Hong Kong-listed COSCO shares fell more than 4%. It and the other companies did not immediately respond to requests for comment.
China’s Foreign Ministry said at a daily press briefing on Tuesday that it urged the United States to immediately lift “illegal unilateral sanctions” against Chinese companies, adding that China would protect legitimate rights and interests of its businesses.
IMPACT ON BUSINESSES
The updated list is one of several steps Washington has taken in recent years to highlight and restrict Chinese companies it says pose security risks, straining strained relations between the two largest economies global.
Jefferies said in a research note that the purpose of the list of Chinese military companies (CMC) was to express the opinion of the Ministry of Defense which could serve as a reference for other government ministries.
“The most serious consequence for CMC companies is the ban on investments in the United States, but it all depends on Trump and his team.”
In 2021, the US Department of Defense delisted Xiaomi (OTC:) after the Chinese tech company sued the US government for including it on the list. A federal judge had called the US government’s process to include Xiaomi “deeply flawed.”
Ivan Su, senior equity analyst at Morningstar, said he thought Tencent had a good chance of winning exclusion in U.S. courts, like Xiaomi, but that its inclusion could result in reputational damage.
Tencent’s earnings exposure in the United States is in the high single-digit percentage range, he added, and is primarily made up of gaming revenue. “While this represents the maximum potential downside, we consider it highly unlikely that Tencent’s U.S. gaming revenues will be impacted in the near term.”
Craig Singleton, a China expert at the Foundation for Defense of Democracies, said the additions showed it was “unwise” for American companies to do business with a growing number of Chinese companies.
“The United States no longer protects just a handful of technologies,” he said. “The garden of sensitive technologies is growing and the fence that protects them is being strengthened.”
Other companies added include MGI Tech, which makes genomic sequencing instruments, and Origincell Technology, which lawmakers say operates a network of cell banks and bio-storage technologies. Neither company immediately responded to requests for comment.
American lawmakers had been pushing the Pentagon throughout 2024 to add certain companies, including CATL, to the list. Ford Motor (NYSE:) is building a battery factory in Michigan and plans to license CATL technology to produce low-cost lithium-iron batteries at that facility – a move that has raised concerns among some lawmakers . Ford had no immediate comment Monday.
Two previously listed companies, drone maker DJI and Lidar maker Hesai Technologies, both sued the Pentagon last year over their previous designations but remain on the updated list.
The Pentagon also delisted six companies that it said no longer met the requirements for the designation, including artificial intelligence company Beijing Megvii Technology, China Railway Construction Corporation Limited, China State Construction Group Co and China Telecommunications Corporation.
($1 = 7.7730 Hong Kong dollars)
($1 = 7.3250 renminbi)
