The U.S. just added Tencent, which backs U.S. startups, to its list of “Chinese army” companies.

While Chinese internet giant Tencent is best known for its super-app WeChat, it is also a major investor in US tech companies and startups. Some of its most notable and still active investments include Reddit, Snap and Fortnite creator Epic Games.

Things might be a little awkward because it was Tencent is assigned “Chinese military company” by the US Department of Defense on Monday. The list serves as a warning from the United States about companies it claims are involved in China’s “military-civilian integration” efforts. 2022 DoD press release. The listing has no legal consequences other than barring US government contractors from doing business with Tencent starting in 2026. Under US law.

The notice did not say why the US believed Tencent was helping the Chinese military. Tencent vehemently denies the listing, telling TechCrunch that it was “an obvious mistake” and that “we are not a military company or supplier.” The Defense Ministry did not respond to a request for comment.

Tencent is active in the VC world through an arm it calls Tencent Exploration Group, which is run out of Palo Alto, and whose investments Others include Snap, Epic Games and insurer Oscar Health. Tencent is also a major shareholder in Reddit, although its stake recently fell below the 10% mark. As of November 2024, SEC filings show. (Reddit would not comment at press time on exactly how much money Tencent has.)

Investing in global tech companies, particularly in sectors such as healthcare and video games, has long been a focus of Tencent. If Tencent can’t delist itself – like smartphone maker Xiaomi he did successfully In 2021 – this may harm investment activities in the United States, founders are reluctant to accept funds from a company officially designated as connected to the Chinese military, even without public proof.

There is also a risk that the move could result in pressure from other parts of the US government, such as the Treasury Department, to impose additional sanctions on Tencent. This was reported by Reuters.

Even without further action, the list reinforces a long-standing trend of US-China disengagement. It was once relatively common for Chinese VCs to invest in US companies (and vice versa), but those days aren’t coming back anytime soon.