US Blacklisted Xiaomi Citing Alleged Military Ties With China: WSJ

The U.S. banned Chinese smartphone major Xiaomi Corp (OTC: XIACF) (OTC: XIACY) over alleged military ties triggered by an award given to its founder his service to the state, the Wall Street Journal reports.

What Happened: Xiaomi CEO Lei Jun received the award of “Outstanding Builder of Socialism with Chinese Characteristics” in 2019 from the Ministry of Industry and Information Technology (MIIT). Xiaomi promoted the award on the CEO’s biography page on its website and its annual report.

The designation barred Americans from investing in the company.

The U.S. justification for adding Xiaomi to its list was laid out in a court filing in response to a U.S. lawsuit filed by Xiaomi seeking to overturn the military designation. The filing, which appeared last week for the first time, disclosed the reasoning behind the listing.

Why It Matters: Xiaomi was added to the Defense Department’s list during the fading days of the Trump administration on Jan. 14, together with eight other Chinese companies, including aerospace and chip firms. The department added 44 companies to its list, including telecom giant Huawei Technologies Corp. and computing chip maker Semiconductor Manufacturing International Corp (OTC: SMICY), both of which have also denied the military links.

Xiaomi stock which more than tripled in Hong Kong last year, has shed 25% since its Jan. 14 close.

Xiaomi’s designation surprised various analysts considering its key focus on consumer electronics. Additionally, Xiaomi manufactures internet-connected gadgets like air purifiers, scooters, body-weight scales, and fitness bands. It does not sell communications infrastructure or other equipment typically considered as sensitive, unlike Huawei.

Xiaomi’s prospects boomed in the smartphone market in the past year as it gained market share from Huawei. The company’s handset shipments climbed by nearly one-third in the fourth quarter globally, making it the third-largest vendor after Apple Inc (NASDAQ: AAPL) and Samsung Electronics Co Ltd (OTC: SSNLF).

The award came from China’s MIIT, the government agency responsible for overseeing Chinese tech and industrial policy. According to the Defense Department, the MIIT assisted China’s policy of civil-military fusion, and Beijing depended on MIIT to boost military technology development.

The award is given once every five years to top private-sector entrepreneurs. The last award, in 2019, was given to 100 people. Other notable CEOs who won the award include Ding Lei of NetEase Inc (NASDAQ: NTES), Wang Gaofei of Weibo Corp (NASDAQ: WB), and Wang Chuanfu BYD Co Ltd (OTC: BYDDF) (OTC: BYDDY).

The Defense Department further alleged Xiaomi’s plans to invest $7.7 billion (50 billion yuan) over five years into 5G and artificial intelligence, which were of key interest to the People’s Republic of China focus of the Military-Civil Fusion strategy.

Chinese big-data company Luokung Technology Corp (NASDAQ: LKCO) also filed a lawsuit in the U.S. on Thursday seeking its removal to the list along with Xiaomi in January.

Price action: XIACF shares are down 4.22% at $3.03 on the last check Friday.