What does the US blacklist of Tencent and CATL mean for Asia?

Tencent and CATL are not the only companies added to the "Section 1260H" list of firms allegedly linked to China's military.

On January 7^th, the Biden Administration added Tencent Holdings and Contemporary Amperex Technology (CATL) to its list of Chinese miliary companies, which are supposed working directly or indirectly with China’s People’s Liberation Army.

As the world's largest gaming publisher, Tencent Holdings has a huge influence in the American market, especially with its PUBG game being one of the most popular games in the country. Tencent is also the parent company of WeChat, a social media messaging app that has over 1.3 billion active monthly users worldwide. The company also provides cloud services with over 58 availability zones globally, including two in the US itself.

In a statement on the blacklist, Tencent said its inclusion on the list is “clearly a mistake”.

“We are not a military company or supplier. Unlike sanctions or export controls, this listing has no impact on our business. We will nonetheless work with the Department of Defense to address any misunderstanding," the statement said.

In Asia Pacific, Tencent Cloud has a rather strong presence in the region. It currently serves several major organizations in the Asia Pacific, including banks, insurance services and gaming service providers. Some of Tencent Cloud current customers include Bank Neo Commerce, Bravesoft, Blue Insurance Hong Kong, and OOKBEE, a Thai e-book store.

Meanwhile, CATL is a key battery supplier to EV vehicles, including Tesla in its Shanghai factory. The world’s largest battery maker is a major supplier of lithium iron phosphate (LFP) batteries, which Tesla uses for its vehicles that exported to markets in Europe and Canada.

With demand for EV chips already seeing semiconductor companies stretch out their production, any impact on battery supply to EVs could lead to further disruption in the EV supply chain. While EV productions remain at an all-time high, battery technology remains a key component in EV sales, with more research and development being conducted on these.

It will be interesting to see how the Trump Administration will look into the companies in the list when it takes over from the current administration. While Trump has said that he will be adding more tariffs, he has yet to specify them. And with Elon Musk, CEO of Tesla being part of the Trump Administration as well, it could see some changes take place in the near future, especially with Musk having strong business investments in China as well through Tesla.

Interestingly, Tencent and CATL are not the only companies added to the "Section 1260H" list of firms allegedly linked to China's military. AI software company SenseTime and CloudWalk Technology, as well as IoT solutions provider Quectel Wireless Solutions were also added to the list.

While the list does not impose any sanctions, it does create a concern for the global economy, especially on how businesses, both in the US and around the world, plan to continue operations with these companies.

Businesses in Southeast Asia are already preparing to work with both China and US companies, especially in their tech adoption. US tech vendors continue to have a strong presence in the region, but Chinese tech companies like Huawei and Tencent have a strong influence as well. For example, in cloud adoption, Chinese cloud companies command a relatively strong market share in the region despite AWS and Google Cloud dominating the market.

According to a report by South China Morning Post (SCMP), Tencent said it “intends to initiate a reconsideration process to correct this mistake” and “undertake legal proceedings” to remove the company from the list, if necessary, in a filing to the Hong Kong stock exchange.

SCMP highlighted precedents for the removal of Chinese companies from the Pentagon’s list such as the case of smartphone giant Xiaomi. In 2021, Xiaomi reached an agreement with the US government to overturn a blacklisting by the Trump administration.