6 Months Later: Legal Questions Still To Be Considered After Tencent’s Designation As A “Chinese Military Company”

In January 2025, the U.S. Department of Defense (DoD) added Tencent Holdings to its Section 1260H list of “Chinese military companies” (CMCs). The move raised eyebrows across the gaming and esports world, especially given Tencent’s global reach through its full ownership of Riot Games (League of Legends, Valorant) and major stakes in Epic Games and Activision Blizzard.

While this designation marked a significant escalation in U.S.-China tech tensions that could reshape the global gaming ecosystem, the company remains fully operational in the United States with no immediate restrictions on its business activities. The immediate consequences of being on the CMC List are limited, and US persons may generally do business with companies on the CMC List (unless they are prohibited under other US regulations). This means that:

• Riot Games can continue operating: League of Legends and Valorant remain unaffected.
• Investments remain intact: Tencent’s stakes in Epic Games, Activision Blizzard, and other U.S. gaming companies face no current restrictions.
• WeChat continues functioning: The messaging app operates normally for its users.
• No transaction bans: Unlike OFAC sanctions, there are no prohibitions on financial transactions with Tencent.

The designation appears on the official Section 1260H list published on January 6, 2025, placing Tencent among 134 entities currently designated as CMCs. However, it does not impose immediate legal or economic restrictions. In fact, the most immediate effect it has had was on Tencent’s stock price after the announcement.

Understanding the Section 1260H Framework

Section 1260H of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 (Pub. L. 116-283) requires the Secretary of Defense to identify and publish a list of “Chinese military companies” annually until 31 December 2030. This statutory mandate represents a cornerstone of the U.S. government’s efforts to identify and monitor entities allegedly connected to China’s military-industrial complex.

The legal definition of a “Chinese military company” under Section 1260H encompasses entities that are engaged in providing commercial services, manufacturing, producing, or exporting and meet specific criteria related to military connections or military-civil fusion contributions. Section 1346 of NDAA 2025 also introduces an “upstream/downstream ownership penetration” clause under Section 1260H(g)(2)(C), which can capture parent companies and subsidiaries with significant equity control relationships.

What the Designation Does NOT Currently Do:

Contrary to popular misconception, designation on the Section 1260H List alone has no current legal consequences (unlike sanctions and export controls). Specifically, the designation:

• Does not ban U.S. persons from doing business with Tencent.
• Does not freeze Tencent’s assets.
• Does not prohibit investments in Tencent securities.
• Does not restrict Tencent’s gaming operations in the U.S.
• Does not impact consumer use of Tencent products or services.

What the Designation Could Lead To:

Although there are no immediate restrictions, the designation sets the stage for future actions, including:

1. DoD Contracting Bans (Coming 2026–2027)

Under the FY2024 NDAA (Sec. 805), DoD will be barred from:

• Contracting with listed companies after 30 June 2026.
• Buying goods or services that include components from such companies after 30 June 2027.

For Tencent, the impact is minor since it doesn’t typically contract with the DoD—but any military-related gaming initiatives could be indirectly affected. Sponsorships, licensing contracts, and tournament collaborations involving Tencent-owned titles that are used in recruiting events, morale-building programs, or other DoD-affiliated activities may no longer be an option.

2. University Research Restrictions

DoD-funded research institutions may need to adopt “mitigation measures” when involved with 1260H-listed entities. This could impact esports programs at universities using Riot titles, though no specific rules have been announced.

3. Reputational and Compliance Red Flags

The designation may:

• Trigger heightened due diligence from banks and business partners.
• Raise export compliance flags (under EAR’s Military End User rule).
• Increase transactional friction, though no export bans currently apply.

4. Possible Congressional Action

Congress has previously proposed asset freezes and investment bans for CMCs. While none are in place yet, future legislation could impose new restrictions on companies like Tencent.

Tencent’s Legal Options

Tencent strongly disagrees with the designation, calling it a “mistake.” It plans to file for administrative reconsideration and may pursue litigation if necessary.

There’s legal precedent here for Tencent to follow:

• In Xiaomi Corp. v. DoD, a federal court found Xiaomi’s designation “deeply flawed” and granted a preliminary injunction (Mar. 12, 2021).
• In another case, Advanced Micro-Fabrication Equipment (AMEC) v. DoD, AMEC successfully challenged its designation. AMEC argued that the DoD designation was completed without due process and inherently based on weak evidence.

Both cases show that courts require the DoD to present a solid factual basis under the Administrative Procedure Act (APA).

International and Industry Implications

China’s Retaliatory Measures

U.S. companies acting against Tencent could face legal risks under China’s Anti-Foreign Sanctions Law, including asset seizures or penalties. This complicates compliance for multinationals navigating both systems.

Esports: Business As Usual

So far, no changes for esports:

• Tournaments have continued.
• Sponsorships remained in place.
• Player contracts are still valid.
• Streaming rights are still unaffected.

But after 2026, military-sponsored events or DoD-affiliated university programs may reconsider their use of Tencent titles.

What Companies Should Do Now

For those doing business with Tencent, the best approach is measured caution:

• Document commercial relationships.
• Monitor Tencent’s legal challenge and regulatory developments.
• Stay flexible in contracts for potential future restrictions.
• Avoid overreacting, since there are no legal prohibitions at present.

For risk-averse organizations, enhanced compliance procedures and clear communication with stakeholders may be wise.

Looking Ahead: Play On While Legal Questions Mount

The Tencent designation represents a peculiar moment in the esports landscape—a major company labeled as military-linked yet facing no immediate consequences. While the inclusion on the DoD’s list clearly inflicts some reputational damage, it is unlikely that Tencent’s partners will cease to do business with these companies.

As of today, Tencent’s vast gaming empire continues to operate without restriction. The designation served more as a warning shot than an immediate prohibition—a signal of potential future action rather than current enforcement.

For the esports legal community, this creates an unusual challenge: advising clients about a designation that currently means little but could mean much more in the future. While Tencent may be listed as a “Chinese military company,” it remains very much a commercial gaming company in practice. With 2026 just six months away, only time will tell what lies ahead for Tencent and the global gaming community it continues to serve—so far, uninterrupted by its CMC status.