Xiaomi sues US to reverse Trump blacklisting

Facing a late Trump-era blacklisting, Xiaomi sues the US Defense and Treasury to reverse its designation as a Chinese Communist military company.

Pádraig Belton, Contributor, Light Reading

February 1, 2021

4 Min Read
Xiaomi sues US to reverse Trump blacklisting

Donald Trump spent his last days in office blacklisting Beijing smartphone maker Xiaomi and other Chinese technology companies.

Not content to wait and see if the new administration of President Joe Biden overturns it, Xiaomi has decided to try its luck in court.

The world's third-largest smartphone maker brought the action on Friday in the US District Court for the District of Columbia, against Lloyd Austin's Department of Defense and Janet Yellen's Treasury.

Figure 1: Fight or flight: Xiaomi isn't taking Trump's farewell blacklisting lying down. (Source: keso s on Flickr CC2.0) Fight or flight: Xiaomi isn't taking Trump's farewell blacklisting lying down.
(Source: keso s on Flickr CC2.0)

Trump's decision on January 14, four days before he left office, added Xiaomi to a list of "Communist Chinese Military Companies" under the 1999 National Defense Authorization Act's Section 1237.

And this move "was factually incorrect and has deprived the Company of legal due process," argues the company in a statement.

Unless reversed, the move will prevent US investors from buying Xiaomi shares by March 15, forcing Americans to divest their holdings by January 14, 2022.

The US government hasn't identified the factual basis on which it reached the decision, or provided Xiaomi with the information or a chance to refute the decision, the company says.

Failing to provide Xiaomi with the opportunity to challenge the designation violated its Fifth Amendment rights of due process, says the lawsuit.

And by not offering accurate evidence Xiaomi was a "Communist Chinese military company," the Defense and Treasury Departments engaged in arbitrary and capricious decision making, the company adds.

This violates the US Administrative Procedure Act, Xiaomi says.

BlackRock or the Chinese army

If Xiaomi isn't actually owned by the Chinese military, in reality BlackRock, Vanguard, State Street and Qualcomm own large positions in the electronics maker.

With a current market capitalization of $96.8 billion, Xiaomi has its headquarters in Beijing, but is incorporated under the slightly more sunny laws of the Cayman Islands.

Xiaomi recently surpassed Apple as the third-biggest smartphone maker by units sold.

It has, in part, been helped by US sanctions against its competitor Huawei.

Other Trump sanctions included ordering the New York Stock Exchange to delist China Mobile, China Telecom and China Unicom, China's three large state-owned telecoms operators.

The orders were announced in such a confusing way that the Big Board reversed and then unreversed its delisting action within a week.

Unlike those three companies, Xiaomi doesn't have a US listing.

Xiaomi is instead listed on the Hong Kong Stock Exchange, where it raised $4.72 billion in its 2018 initial public offering.

The designation, then, would make American investors stop buying, and eventually divest, their holdings on the Hong Kong bourse.

It also doesn't place Xiaomi on the Commerce Department's (separately maintained) Entity List, which would make US customers stop using its goods and services.

Xiaomi, which has 18,170 employees, was founded ten years ago by Chinese angel investor Lei Jun.

Before that he led Beijing software company Kingsoft towards an IPO.

The name Xiǎomǐ refers to a grain of rice, and a Buddhist saying that a single grain of rice is as great as a mountain.

Mi (米), the name of their smartphone devices, is also an acronym both for mobile internet and, Lei Jun has said, Mission Impossible.

It launched its Mi 10 5G in February 2020, entering the 5G handset market and later shipping 46.2 million handsets in the third quarter.

In January 2021, it introduced the successor Mi 10i 5G.

Xiaomi also has just said it is joining a cross-China consortium to develop the country's chipmaking industry, with many Chinese manufacturers now facing difficulties accessing US technology.Along with Xiaomi, Huawei, China Mobile, China Unicom, ZTE, SMIC and Tencent joined the new consortium.

They have applied to China's government to create a National Integrated Circuit Standardization Technical Committee to establish shared standards across the Chinese semiconductor industry.

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— Padraig Belton, contributing editor, Light Reading

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About the Author(s)

Pádraig Belton

Contributor, Light Reading

Contributor, Light Reading

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