Why did the US designate Tencent as a Chinese Military Company?

For the longest time, Tencent was the biggest gaming publisher few gamers had heard of. But between its shares in studio darling FromSoftware and its classification as a military company by the U.S. Department of Defense, Tencent just can’t avoid the spotlight of late.

Yes, you heard that right. The U.S. DoD classified Tencent as a military company on Jan. 6. Despite such a harsh designation, being put on the list of so-called Chinese military companies doesn’t necessarily ban U.S. companies from working with Tencent or result in direct sanctions. However, the existence of these 134 companies on the Section 1260H list (as it’s officially called) could scare other businesses from dealing with Tencent on a per-company basis and escalate U.S./Chinese tensions.

As expected, Tencent has denied the U.S. DoD’s claims that it is a Chinese military company. Tencent has already formally told Bloomberg that its inclusion on the list is “Clearly a mistake.” Ever the confident company, Tencent even claims the DoD’s designation “has no impact on our business,” as Tencent’s public affairs lead told The Verge.

Potential reasons for the designation of Tencent as a military company

Obviously, Tencent doesn’t make military weapons or supply the Chinese military directly. So, why in the world is the DoD accusing it of being a military company? From a national defense perspective, any firm that even indirectly aids Chinese military growth from a financial perspective is a soft threat. Tencent is a leading entertainment and tech company in China, consistently earning $80 billion in revenue annually. Such economic growth is valuable to China in general, and this indirectly filters into areas like military funding.

The DoD’s most direct reason for considering Tencent a military company is already outlined in its one-page report on China’s military-civil fusion. The report warns of tech companies supplying research and development of AI and quantum computing to the Chinese military and using civilian applications of tech to financially support the military. Many are questioning this suppression of foreign companies, especially when they’re not intrinsically tied to military affairs, but those are the potential reasons why the DoD made the determination in any case.

What games does Tencent own?

As the world’s largest video game publisher, Tencent has a metric ton of games under it. Tencent doesn’t directly publish most of its notable games but has a large ownership share. The biggest games owned by Tencent are League of Legends from Riot Games and Path of Exile 1 and 2 from Grinding Gear Games. More significantly, Tencent owns 40 percent of Epic Games and its monolithic Unreal Engine software. This means that Tencent owns a significant piece of games like Fortnite, Gears, and even Alan Wake.

Oh, and Tencent also has a piece of the other huge publishers. It owns no less than five percent of Activision/Blizzard and a not insignificant 15 percent of Ubisoft, leading many to ponder the future of the floundering French publisher. Tencent owns a sizable portion of the games industry as we know it, but only time will tell if its recent classification as a Chinese military company by the U.S. DoD will carry meaningful weight for its future.