Key Takeaways:
A new Pentagon rule that took effect Tuesday forces lobbying firms to choose between defense contracts and representing Chinese companies on the military's 1260H list, severing nine lobbying relationships for Alibaba Group Holding Ltd. and Tencent Holdings Ltd. in a single month.
"Lobbying firms face a binary choice: keep the Chinese client or keep the defense work, and the math is simple — defense pays more," said Rob Kelner, a partner at Covington & Burling LLP, which advises clients on compliance with the new restrictions. "Some firms terminated their Chinese clients even before the law was signed as a precaution."
Section 851 of the fiscal 2025 National Defense Authorization Act bars the Defense Department from contracting with any company that also employs a registered lobbyist for an entity on the Pentagon's 1260H list of Chinese military companies. Alibaba lost five lobbying firms — including Brownstein Hyatt Farber Schreck LLP and Mercury Public Affairs LLC — while Tencent lost four, according to people familiar with the departures. MO Strategies Inc. also ended its relationship with Alibaba.
The rule effectively severs the informal networks through which Chinese technology conglomerates have historically navigated Washington. Alibaba spent hundreds of thousands of dollars on federal lobbying in recent years, disclosure filings show, while Tencent was added to the 1260H list in January 2025 and called the designation a mistake. Both companies now face a regulatory landscape where no major lobbying firm can represent them without risking its defense contracts.
The 1260H List Expands
The Pentagon added 65 new entities to the 1260H list on June 8, bringing the total to 188 companies that the Defense Department says support China's military. The expanded list includes Alibaba, Tencent, Baidu Inc., BYD Co., and robotics maker Unitree Technology Co. — names that had previously avoided the designation.
Kit Conklin, a former Trump White House aide now at a lobbying firm, said the exodus of lobbyists accelerated after the June 8 expansion. The previous 1260H list, which had existed since 2021, named roughly 120 companies before the update.
Alibaba has since sued the Defense Department in federal court in San Jose, California, seeking removal from the list. In its legal complaint, the company argued that the designation prevents it from retaining lobbyists needed to challenge the military-supporter label — a predicament the lobbying departures now confirm.
Broader Fallout
The lobbying freeze compounds a series of setbacks for both companies in Washington. Anthropic, the AI safety company backed by Amazon.com Inc., accused Alibaba's Qwen AI lab last week of using nearly 25,000 fake accounts to harvest Claude's capabilities in what it called the largest distillation campaign yet against a US AI company.
China retaliated against the Pentagon's list by imposing trade curbs on 56 American firms, including rare-earth miners and drone makers, an escalation that deepened congressional hostility toward Chinese technology companies. The previous US tariff escalation on Chinese goods, which reached an average rate of about 19 percent after the 2024 round, reduced bilateral trade by roughly $60 billion over 12 months, according to Census Bureau data.
The new rule regulates only lobbying activities and does not apply to legal representation, meaning Alibaba and Tencent can still retain law firms for litigation. But the loss of their Washington lobbying presence leaves both companies without conventional channels to shape US policy at a time when regulatory pressure is intensifying on multiple fronts.
This article is for informational purposes only and does not constitute investment advice.
