Chinese smartphone brand Xiaomi (1810.HK) was added to US Department of Defense’s ‘investment blacklist’ of companies that are alleged to be “Communist Chinese Military Companies” that operate directly or indirectly in the US. The recent (1/14/21) additions are as follows with previous lists available through the links below this list.
Advanced Micro-Fabrication Equipment Co.
Luokong Technology Corp
Xiaomi Corp.
Beijing Zhongguancun Development Investment Center
GOWIN Semiconductor Corp. (pvt)
Grand China Air Co.
Global Tone Communication Technology Co.
China National Aviation Holding Co.
Commercial Aircraft Corp of China.
https://media.defense.gov/2020/Dec/03/2002545864/-1/-1/1/TRANCHE-4-QUALIFYING-ENTITIES.PDF
https://media.defense.gov/2020/Aug/28/2002486659/-1/-1/1/LINK_2_1237_TRANCHE_1_QUALIFIYING_ENTITIES.PDF
https://media.defense.gov/2020/Aug/28/2002486689/-1/-1/1/LINK_1_1237_TRANCHE-23_QUALIFYING_ENTITIES.PDF
Under the executive order signed by President Trump, US investors are required to divest holdings in each of the blacklisted companies by 11/11/21, and while the list above certainly has ramifications for each company in terms of capital raising and stock price, it does not provide for the same trade sanctions as the US Commerce Department’s ‘entity list’ that prohibits all trade with list members without a license. That said, the DOD list does force all US companies that might have investments in list members to follow the same rules.
While we expect the new administration to maintain a less stringent stance against Chinese companies that are alleged to be tied to the Chinese military or would be willing to give sensitive information to the Chinese government if requested (or that are strong competitors to favored US companies…), lowering the rhetoric and restrictions will likely not be a priority during the early days of the Biden administration, which could leave investors, funds and US companies in the position of having to decide whether to remove investments in companies on the list, despite the possibility that restrictions will be lessened or removed going forward.
Xiaomi, who recently surpassed Apple as the 3rd largest smartphone brand, which likely triggered the ire of the outgoing President, has responded:
“This announcement is made by Xiaomi Corporation (the “Company”, together with its subsidiaries, the “Group”) at the request of The Stock Exchange of Hong Kong Limited.
The Company noted that the Department of Defense of the United States released a news release on January 14, 2021 (U.S. time) adding the Company to the list of qualifying entities prepared in response to section 1237 of the National Defense Authorization Act for fiscal year 1999 (the “NDAA”). The news release can be found at: https://www.defense.gov/Newsroom/Releases/ Release/Article/2472464/dod-releases-list-of-additional-companies-in-accordance-with-section1237-of-fy/.
The Company has been in compliance with law and operating in compliance with the relevant laws and regulations of jurisdictions where it conducts its businesses. The Company reiterates that it provides products and services for civilian and commercial use. The Company confirms that it is not owned, controlled or affiliated with the Chinese military, and is not a “Communist Chinese Military Company” defined under the NDAA. The Company will take appropriate course of actions to protect the interests of the Company and its shareholders.
The Company is reviewing the potential consequences of this to develop a fuller understanding of its impact on the Group. The Company will make further announcements as and when appropriate.”
Advanced Micro-Fabrication Equipment Co.
Luokong Technology Corp
Xiaomi Corp.
Beijing Zhongguancun Development Investment Center
GOWIN Semiconductor Corp. (pvt)
Grand China Air Co.
Global Tone Communication Technology Co.
China National Aviation Holding Co.
Commercial Aircraft Corp of China.
https://media.defense.gov/2020/Dec/03/2002545864/-1/-1/1/TRANCHE-4-QUALIFYING-ENTITIES.PDF
https://media.defense.gov/2020/Aug/28/2002486659/-1/-1/1/LINK_2_1237_TRANCHE_1_QUALIFIYING_ENTITIES.PDF
https://media.defense.gov/2020/Aug/28/2002486689/-1/-1/1/LINK_1_1237_TRANCHE-23_QUALIFYING_ENTITIES.PDF
Under the executive order signed by President Trump, US investors are required to divest holdings in each of the blacklisted companies by 11/11/21, and while the list above certainly has ramifications for each company in terms of capital raising and stock price, it does not provide for the same trade sanctions as the US Commerce Department’s ‘entity list’ that prohibits all trade with list members without a license. That said, the DOD list does force all US companies that might have investments in list members to follow the same rules.
While we expect the new administration to maintain a less stringent stance against Chinese companies that are alleged to be tied to the Chinese military or would be willing to give sensitive information to the Chinese government if requested (or that are strong competitors to favored US companies…), lowering the rhetoric and restrictions will likely not be a priority during the early days of the Biden administration, which could leave investors, funds and US companies in the position of having to decide whether to remove investments in companies on the list, despite the possibility that restrictions will be lessened or removed going forward.
Xiaomi, who recently surpassed Apple as the 3rd largest smartphone brand, which likely triggered the ire of the outgoing President, has responded:
“This announcement is made by Xiaomi Corporation (the “Company”, together with its subsidiaries, the “Group”) at the request of The Stock Exchange of Hong Kong Limited.
The Company noted that the Department of Defense of the United States released a news release on January 14, 2021 (U.S. time) adding the Company to the list of qualifying entities prepared in response to section 1237 of the National Defense Authorization Act for fiscal year 1999 (the “NDAA”). The news release can be found at: https://www.defense.gov/Newsroom/Releases/ Release/Article/2472464/dod-releases-list-of-additional-companies-in-accordance-with-section1237-of-fy/.
The Company has been in compliance with law and operating in compliance with the relevant laws and regulations of jurisdictions where it conducts its businesses. The Company reiterates that it provides products and services for civilian and commercial use. The Company confirms that it is not owned, controlled or affiliated with the Chinese military, and is not a “Communist Chinese Military Company” defined under the NDAA. The Company will take appropriate course of actions to protect the interests of the Company and its shareholders.
The Company is reviewing the potential consequences of this to develop a fuller understanding of its impact on the Group. The Company will make further announcements as and when appropriate.”
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