The United States Department of Defense has broadened its accusations against Chinese companies, adding two major firms, Tencent Holdings Ltd. and Contemporary Amperex Technology Co. Ltd. (CATL), to a list of entities allegedly supporting China’s military. This move marks the latest salvo in the intensifying competition between the world’s two largest economies, particularly in the spheres of technology and national security.
The inclusion of Tencent, a global leader in social media and gaming, and CATL, the world’s foremost battery manufacturer, on the so-called 1260H list signals Washington’s growing concern over Beijing’s military-civil fusion strategy. This strategy aims to integrate technological advancements from civilian sectors into China’s military infrastructure, thereby accelerating its modernization efforts. While the listing does not immediately impose sanctions, it has the potential to damage the reputations of the affected companies and limit their business opportunities, especially within the US market.
The announcement, which was made public via the Federal Register, had immediate repercussions on the financial markets. Tencent, the operator of China’s super-app WeChat, saw its shares tumble by 6.5% on the Hong Kong Stock Exchange. CATL, a pivotal supplier of batteries to global automakers like Tesla and Ford, experienced a 3% decline in its Shenzhen-listed shares. These reactions underscore the potential commercial risks posed by Washington’s allegations.
In its defense, Tencent has categorically denied any connection to the Chinese military. A company spokesperson described the listing as “a mistake” and emphasized that Tencent is neither a military company nor a supplier. The spokesperson also clarified that the listing would not have a material impact on the company’s operations and expressed a willingness to engage with US authorities to resolve the issue. CATL, which is also involved in plans to establish a lithium-ion battery plant in Michigan in collaboration with Ford, has yet to issue a public response.
This development comes amidst a broader strategic confrontation between Washington and Beijing, where technology has become a critical battleground. In December, the Biden administration introduced sweeping export controls aimed at restricting China’s access to advanced US-made semiconductors. These chips, integral to artificial intelligence and next-generation weaponry, are viewed by Washington as potential tools for bolstering China’s military capabilities. Simultaneously, Beijing has announced plans to limit the export of technology essential for rare earth mineral extraction, a move that could have significant implications for the global electric vehicle industry.
Under the leadership of President Xi Jinping, China has pursued an ambitious agenda to modernize its military into a world-class force. A cornerstone of this effort is the military-civil fusion strategy, which seeks to break down barriers between the country’s civilian and defense sectors. While this approach has been a part of China’s development strategy since the 1990s, it has been elevated to a national priority under Xi’s administration, aligning with his vision of China as a global superpower in technology, economics, and military strength.
The US Department of Defense has underscored the strategic importance of the 1260H list in countering Beijing’s ambitions. The Pentagon asserts that the list serves as a critical tool in identifying companies that directly or indirectly support China’s military objectives. This stance reflects Washington’s broader efforts to maintain technological superiority while curbing potential security threats posed by Beijing’s rapid advancements.
Industry analysts have pointed out potential avenues for Tencent to contest its inclusion on the list. Ivan Su, a senior equity analyst at Morningstar, argued that Tencent’s core business—social media and gaming—is unlikely to be linked to military activities. He drew parallels to a 2021 case involving Xiaomi, another Chinese tech giant, which successfully challenged its designation as a military-linked company in US courts. A federal judge had ruled that the Defense Department lacked substantial evidence to justify its claims against Xiaomi, leading to a settlement that removed the company from the list.
As the geopolitical rivalry between the US and China continues to escalate, the stakes in the technology sector remain high. Both nations are vying for dominance in critical areas such as artificial intelligence, semiconductor production, and clean energy technologies. The growing list of targeted companies underscores the broader implications of this conflict, not just for bilateral relations but also for global trade and innovation.
