Xiaomi Gets a Hall Pass
As sort of a final touch to his master plan, then President Trump, just a week before he left office, decided to add Chinese smartphone brand Xiaomi (1810.HK) to the list of companies his administration alleged were owned or controlled by the People’s Liberation Army and was therefore a “Communist Chinese Military Company”. The list (See our note of 5/19/21 for list), maintained by the US Department of Defense and the Department of the Treasury, broadly includes a number of Chinese companies that are directly or indirectly tied to the Chinese military and a number of companies that are not, but the list Xiaomi was placed on was one that singled out certain Chinese companies that were publicly traded either in the US, China or Hong Kong. The Executive Order surrounding the list instituted a ban on investment by US citizens and entities in these companies.
In some cases these companies protested, particularly Huawei (pvt) and ZTE (000063.CH), who were also banned from selling to or buying from US companies, or any company that used US goods to manufacture their products. Unfortunately for Huawei, their constitutional challenge to the law that was the basis for the EO was rejected by a US District Judge in a summary judgement in February of last year, and the company has been struggling under the ban ever since. Xiaomi however took hope in the fact that the Trump administration’s ban on Chinese video sharing app TikTok (pvt) had been blocked by the District Court and in February of this year filed a suit against the Trump administrations investment ban.
Xiaomi announced yesterday that it had received a final judgement ruling from the District Court of the District of Columbia that lifted the Department of Defense’s recognition of Xiaomi being a ‘Chinese military company’ and formally revoked all US investor restrictions on buying or holding the company’s securities. In March the Xiaomi ban was temporarily blocked by a Federal judge who called the decision to blacklist the company ‘deeply flawed’ and the Biden administration has indicated that it would not challenge the ruling stating that ‘the Trump administration failed to develop a legally sufficient basis for imposing restrictions on the company and compelled this action.” While we expect others, particularly Chinese semiconductor foundry SMIC (688981.CH) to file similar suits against the investment ban, we also expect the Biden administration to draw a line at how much leeway they will give some of the companies on the list as not all are as clear in their relationship with the Chinese military.
In some cases these companies protested, particularly Huawei (pvt) and ZTE (000063.CH), who were also banned from selling to or buying from US companies, or any company that used US goods to manufacture their products. Unfortunately for Huawei, their constitutional challenge to the law that was the basis for the EO was rejected by a US District Judge in a summary judgement in February of last year, and the company has been struggling under the ban ever since. Xiaomi however took hope in the fact that the Trump administration’s ban on Chinese video sharing app TikTok (pvt) had been blocked by the District Court and in February of this year filed a suit against the Trump administrations investment ban.
Xiaomi announced yesterday that it had received a final judgement ruling from the District Court of the District of Columbia that lifted the Department of Defense’s recognition of Xiaomi being a ‘Chinese military company’ and formally revoked all US investor restrictions on buying or holding the company’s securities. In March the Xiaomi ban was temporarily blocked by a Federal judge who called the decision to blacklist the company ‘deeply flawed’ and the Biden administration has indicated that it would not challenge the ruling stating that ‘the Trump administration failed to develop a legally sufficient basis for imposing restrictions on the company and compelled this action.” While we expect others, particularly Chinese semiconductor foundry SMIC (688981.CH) to file similar suits against the investment ban, we also expect the Biden administration to draw a line at how much leeway they will give some of the companies on the list as not all are as clear in their relationship with the Chinese military.
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