US provides Tencent, CATL to record of Chinese language corporations allegedly aiding Beijing’s navy

By Michael Martina, David Shepardson and Karen Freifeld

WASHINGTON/NEW YORK (Reuters) – The U.S. Protection Division stated on Monday it has added Chinese language tech large Tencent Holdings (OTC:TCEHY) and battery maker CATL to a listing of firms it says work with China’s navy, in a transfer set to escalate U.S.-China tensions.

The Hong Kong-listed shares of Tencent, the father or mother of Chinese language on the spot messaging app WeChat, fell 7.3% on Tuesday, shedding about HK$275 billion ($35.4 billion) in market worth, Shenzhen-listed shares of CATL closed 2.8% decrease, shaving off 32.2 billion yuan ($4.4 billion) in market worth.

Each firms known as the transfer, which comes two weeks earlier than U.S. President-elect Donald Trump takes workplace, a “mistake”. Tencent stated on Tuesday its enterprise can be unaffected and that it could provoke a reconsideration course of to appropriate its inclusion and if crucial, would undertake authorized proceedings.

CATL, the world’s largest electrical automobile battery maker, stated it was “not engaged in any military-related actions”.

Whereas the designation doesn’t contain speedy bans, it may be a blow to the reputations of affected firms and represents a stark warning to U.S. entities and corporations in regards to the dangers of conducting enterprise with them. It may additionally add strain on the U.S. Treasury Division to sanction the businesses.

The yearly up to date record of Chinese language navy firms, formally mandated below U.S. regulation because the “Part 1260H record,” designated 134 firms, based on a discover posted to the Federal Register.

It additionally included chip maker Changxin Reminiscence Applied sciences, Quectel Wi-fi, drone maker Autel Robotics and China’s largest transport firm COSCO Delivery Holdings, based on a doc revealed on Monday.

Two entities owned by Chinese language state-owned oil main China Nationwide Offshore Oil Company have been additionally listed, CNOOC (NYSE:CEO) China Ltd and CNOOC Worldwide Buying and selling.

A Quectel spokesperson stated the corporate “doesn’t work with the navy in any nation and can ask the Pentagon to rethink its designation, which clearly has been made in error.” Quectel’s shares fell almost 7%.

COSCO’s HK-listed shares dropped greater than 4%. It and the opposite firms didn’t instantly reply to requests for remark.

The Chinese language international ministry advised a day by day briefing on Tuesday that it urged america to right away elevate “unlawful unilateral sanctions” in opposition to Chinese language enterprises, including that China would safeguard the reputable rights and pursuits of its firms.

IMPACT ON COMPANIES

The up to date record is considered one of quite a few actions taken by Washington lately to focus on and limit Chinese language firms it says pose safety dangers, weighing on strained relations between the world’s two largest economies.

Jefferies stated in a analysis be aware the aim of the Chinese language Navy Corporations (CMC) record was to specific the opinion of the Protection Division which may function a reference for different authorities departments.

“Essentially the most severe consequence for CMC firms is U.S. funding ban, nevertheless it’s all as much as Trump and his group.”

In 2021, the U.S. Protection Division eliminated Xiaomi (OTC:XIACF) after the Chinese language tech agency sued the U.S. authorities for together with it on the record. A federal choose had known as the U.S. authorities’s course of to incorporate Xiaomi “deeply flawed”.

Morningstar senior fairness analyst Ivan Su stated he believed Tencent had a superb likelihood to safe exclusion by way of U.S. courts, like Xiaomi, however that its inclusion may end in reputational injury.

Tencent’s U.S. earnings publicity was within the high-single-digit proportion vary, he added, principally made up of gaming income. “Whereas this represents the utmost potential draw back, we see it as extremely unlikely that Tencent’s US gaming income might be affected over the close to time period.”

Craig Singleton, a China skilled on the Basis for Protection of Democracies, stated the additions confirmed that it was “reckless” for American corporations to conduct enterprise with a rising swath of Chinese language companies.

“The U.S. is not simply safeguarding a handful of applied sciences anymore,” he stated. “The backyard of delicate applied sciences is rising, and the fence defending them is being fortified.”

Different firms added embrace MGI Tech, which makes genomic sequencing devices, and Origincell Expertise, which lawmakers have alleged operates a cell financial institution community and bio-storage applied sciences. Neither agency instantly responded to requests for feedback.

U.S. lawmakers had pushed the Pentagon all through 2024 so as to add among the firms, together with CATL, to the record. Ford Motor (NYSE:F) is constructing a battery plant in Michigan and plans to license CATL know-how to supply low-cost lithium-iron batteries on the facility – a transfer that has sparked considerations by some lawmakers. Ford didn’t instantly touch upon Monday.

Two beforehand listed firms, drone maker DJI and Lidar-maker Hesai Applied sciences, each sued the Pentagon final yr over their earlier designations, however stay on the up to date record. 

The Pentagon additionally eliminated six firms it stated now not met the necessities for the designation, together with AI agency Beijing Megvii Expertise, China Railway Building Company Restricted, China State Building Group Co and China Telecommunications Company.

($1 = 7.7730 Hong Kong {dollars})

($1 = 7.3250 Chinese language yuan renminbi)