China and the World

All good again

Xiaomi removed from Washington’s blacklist


Lei Jun: Xiaomi’s boss

Investment between the United States and China fell to its lowest level last year since 2009, said a new report on Wednesday by Rhodium Group and the National Committee on US-China Relations. Blame the Covid-19 pandemic and geopolitical friction, the authors say, with investment declining to $15.9 billion, a huge drop on $70 billion at the 2016 peak.

The plan from the former Trump administration was to choke off the flows even further, with an executive order last November banning shareholdings from Americans in Chinese companies alleged to have direct ties to China’s armed forces Congress also instructed the Pentagon to widen the screening to companies that provide technology to the People’s Liberation Army through “civil-military fusion”, with the Trump administration citing dozens of firms from sectors including telecommunications, semiconductors and aviation.

Smartphone maker Xiaomi was one of eight additions to the group in a final flurry of activity before Trump left the White House in January. But the Hong Kong-listed firm managed to free itself from the restrictions this month, after the Pentagon agreed to drop it from the targeted group.


Xiaomi challenged the executive order almost immediately in the American courts and it was awarded a temporary halt in March when the judge found there was insufficient evidence that it was connected to the Chinese military.

As justification for the blacklisting the Pentagon is said to have cited an award given to Lei Jun, Xiaomi’s founder, for services to the Chinese state, as well as the company’s plans to invest in advanced technologies such as artificial intelligence. But the judge disagreed, describing Xiaomi as “a publicly traded company that produces commercial products for civilian use, [which] is controlled by its independent board and controlling shareholders”.

And on Tuesday last week Xiaomi signalled that it had won a fuller victory by putting out a statement that the Pentagon had agreed to take it off the blacklist completely. Earlier this month the same judge ordered a pause on the blacklisting of Luokung, a Chinese mapping firm, after it filed a similar lawsuit.

Part of the problem for Biden in enforcing the November order is that he has inherited a chaotic approach from his predecessor. A lack of clarity about the terms of the ban contributed to farcical scenes at the New York Stock Exchange earlier this year when officials rescinded their initial decision to eject China’s three telecom majors, before executing a swift volte face and reinstating their removal after coming under pressure from the US Treasury.

The trio all made their way towards the exit at the bourse this month after losing an appeal against a May 27 deadline that blocks further investment in their shares in New York.

China Telecom and China Mobile now plan to list in Shanghai instead, complementing their existing Hong Kong presence and meaning they will remain ‘dual listed’ even after their New York delisting.

But there is going to be a slight delay in enforcing the order against other companies on the blacklist after an announcement from the US Treasury on Tuesday that American investors would be allowed to trade securities in subsidiaries of some of the named firms for a further two weeks until June 11.

Meanwhile the new administration has launched a broader review of the Trump measures. That could look at whether the policies against Chinese companies should be reworked, or even revoked, the South China Morning Post has speculated.

How Biden is going to proceed is unclear. He has been careful to avoid criticism on Capitol Hill that he is softer on China than Trump and a statement from the National Security Council on news of Xiaomi’s victory stressed how his government is still “deeply concerned” about American investment in companies associated with China’s armed services.

News of Xiaomi’s escape does suggest other Chinese firms will mount legal challenges, however. After its victory perhaps Washington will cede ground in situations where the allegations against the Chinese firms are harder to maintain. Maybe there will be a rethink in cases where they operate in less strategic sectors too.

Presumably Xiaomi’s focus on consumer electronics makes it less of a candidate for restrictions than a chipmaker like SMIC or a state-owned aircraft manufacturer like Comac, for instance.

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