A Xiaomi store in Beijing on Jan. 15, 2021. Shares of Xiaomi Group plunged on Jan. 15 as it was placed on the U.S. Department of Defense’s sanctions list, with the price of shares traded in Hong Kong falling 13.6 percent at one point.
In January, the Trump administration added nine Chinese companies to a blacklist of Chinese Communist Party military companies, including cell phone maker Xiaomi, and on March 5, the Wall Street Journal reported that the Defense Department blacklisted Xiaomi because of its founder Lei Jun’s Communist Party state awards and Xiaomi’s technological ambitions.
The China Daily reported that the Defense Department said in a legal filing that U.S. officials placed Chinese smartphone giant Xiaomi Corp. on a list of companies with ties to the Communist Party’s military in part because the company’s founder received awards from the Chinese Communist Party for his contributions to the country.
Lei Jun, Xiaomi’s CEO and founder, received the “Outstanding Builder of Socialism with Chinese Characteristics” award from the Communist Party’s Ministry of Industry and Information Technology in 2019. This information is reported on the biography page of Lei Jun on Xiaomi’s website and in its annual report, where the Communist Party presented the award to 100 Chinese executives that year.
The award, combined with Xiaomi’s ambitious investment plans in advanced technologies such as 5G and artificial intelligence, was enough for the U.S. Department of Defense to add Xiaomi to a list of companies supporting the Communist Party’s military in January, legal documents said. Americans are barred from investing in the companies on the list.
U.S. Defense Department reveals for the first Time the reasons for blacklisting Chinese companies
The U.S. Department of Defense recounted in a court filing the reasons the U.S. added Xiaomi to its blacklist in response to its lawsuit in U.S. District Court in Washington, D.C. The legal document, which surfaced last week but has not been previously reported, is the first publicly available justification for the Defense Department to blacklist a company.
A Xiaomi spokesman did not immediately comment to The China Daily on the document. The company has previously denied any affiliation with the Communist Party’s military and said the company sells products and services for civilian and commercial use only.
Xiaomi said in the lawsuit that the U.S. Department of Defense did not provide any explanation for its decision and did not give the company an opportunity to respond.
The list of “Communist Chinese Military Companies” (CCMEC) is mandated by a 1999 law that requires the Pentagon to compile a list of companies “owned or controlled” by the Communist Chinese military ” list of companies “owned or controlled” by the CCP, which the Defense Department began implementing only last year (2020).
A total of 44 companies have been added to the CCP’s blacklist of military companies so far, with new additions this January including Commercial Aircraft Corporation of China (Comac), Advanced Micro-Fabrication Equipment (Shanghai) Co. Ltd. (GOWIN Semiconductor), China National Aviation Holding (CNAH), LKCO, Grand China Air Co.,Ltd.), Zhongguancun Development & Investment Center (Zhongguancun), and Global Tone Communication Technology Co. Ltd. (GTCOM for short).
huawei and SMIC are also on the blacklist.
Xiaomi’s share price has fallen 25 percent in Hong Kong since the close of trading on Jan. 14. Xiaomi shares more than tripled in Hong Kong last year.
U.S. Defense Blocks Communist Party’s Civil-Military Integration Policy
The award Lei Jun received came from the Communist Party’s Ministry of Industry and Information Technology, the government agency responsible for China’s technology and industrial policies. The U.S. Department of Defense said the Ministry of Industry and Information Technology will help manage the Communist Party’s civil-military integration policy, and that the civil-military integration government has allowed the Communist Party to use private companies to help develop its military technology.
The second reason cited by the U.S. Department of Defense is Xiaomi’s plan to invest 50 billion yuan ($7.7 billion) over five years in 5G technology and artificial intelligence. Lei Jun outlined these investment plans in his New Year’s message to employees in January 2020.
In its filing, the U.S. Department of Defense said, “Both technologies are of key interest to China [the Communist Party of China] and are the focus of the civil-military integration strategy.”
The CCP has been pursuing a civil-military integration development strategy, which supports the CCP’s military modernization goals by ensuring that the military has access to advanced technologies and expertise acquired and developed by Chinese companies, universities and research programs that appear to be civilian entities.
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