WASHINGTON: The US Defense Department said on Monday (Jan 6) it had added Chinese tech giants Tencent Holdings and battery maker CATL to a list of companies it says work with China’s military, in a move set to escalate US-China tensions.
The Hong Kong-listed shares of Tencent, the parent of Chinese instant messaging app WeChat, fell 7.3 per cent on Tuesday, losing about HK$275 billion (US$35.4 billion) in market value, Shenzhen-listed shares of CATL closed 2.8 per cent lower, shaving off 32.2 billion yuan (US$4.4 billion) in market value.
Both companies called the move, which comes two weeks before US President-elect Donald Trump takes office, a “mistake”. Tencent said on Tuesday its business would be unaffected and that it would initiate a reconsideration process to correct its inclusion and if necessary, would undertake legal proceedings.
CATL, the world’s largest electric vehicle battery maker, said it was “not engaged in any military-related activities”.
While the designation does not involve immediate bans, it can be a blow to the reputations of affected companies and represents a stark warning to US entities and firms about the risks of conducting business with them. It could also add pressure on the US Treasury Department to sanction the companies.
The annually updated list of Chinese military companies, formally mandated under US law as the “Section 1260H list”, designated 134 companies, according to a notice posted to the Federal Register.
It also included chip maker Changxin Memory Technologies, Quectel Wireless, drone maker Autel Robotics and China’s largest shipping company COSCO Shipping Holdings, according to a document published on Monday.
Two entities owned by Chinese state-owned oil major China National Offshore Oil Corporation were also listed, CNOOC China Ltd and CNOOC International Trading.
A Quectel spokesperson said the company “does not work with the military in any country and will ask the Pentagon to reconsider its designation, which clearly has been made in error”. Quectel’s shares fell nearly 7 per cent.
COSCO’s HK-listed shares dropped more than 4 per cent. It and the other companies did not immediately respond to requests for comment.
The Chinese foreign ministry told a daily briefing on Tuesday that it urged the United States to immediately lift “illegal unilateral sanctions” against Chinese enterprises, adding that China would safeguard the legitimate rights and interests of its companies.
IMPACT ON COMPANIES
The updated list is one of numerous actions taken by Washington in recent years to highlight and restrict Chinese companies it says pose security risks, weighing on strained relations between the world’s two biggest economies.
Jefferies said in a research note the purpose of the Chinese Military Companies (CMC) list was to express the opinion of the Defense Department which could serve as a reference for other government departments.
“The most serious consequence for CMC companies is US investment ban, but it’s all up to Trump and his team.”
