The outgoing President Donald Trump’s administration continues to add pressure on China even as its term nears an end. In the latest move, U.S. has added China’s leading smartphone maker Xiaomi Corp XIACF and its third-biggest driller CNOOC Ltd CEO to blacklisted firms — baning them from American investment due to ties with the Chinese military, Bloomberg reported on Thursday.
What Happened: Xiaomi was added to the Department of Defense (DoD) list of nine companies for alleged military ties. “The Department is determined to highlight and counter the People’s Republic of China’s (PRC) Military-Civil Fusion development strategy, which supports the modernization goals of the People’s Liberation Army (PLA) by ensuring its access to advanced technologies and expertise acquired and developed by even those PRC companies, universities, and research programs that appear to be civilian entities,” DoD said in a statement.
Companies in the DoD list are prohibited from American exchanges and investment. As per the administration’s amended order, investors have a November 2021 deadline to sell sanctioned securities.
Cnooc was added to the Department of Commerce (DoC) list — which denies access to U.S. technologies for the driller without specific permission. Bloomberg noted that the list is under an order issued in December that has blacklisted more than 60 companies.
“China’s reckless and belligerent actions in the South China Sea and its aggressive push to acquire sensitive intellectual property and technology for its militarization efforts are a threat to U.S. national security and the security of the international community," Commerce Secretary Wilbur Ross said in a press release.
"Cnooc acts as a bully for the People’s Liberation Army to intimidate China’s neighbors, and the Chinese military continues to benefit from government civil-military fusion policies for malign purposes.”
Why It Matters: Xiaomi’s stock crashed 10% in Hong Kong on the news. The company hit back by saying “it provides products and services for civilian and commercial use."
"The Company confirms that it is not owned, controlled, or affiliated with the Chinese military, and is not a ‘Communist Chinese Military Company’ defined under the NDAA,” Xiaomi said in a statement, as per CNBC.
Xiaomi is the third-largest smartphone maker globally, and this move could have future implications, CNBC notes. The smartphone has not been put on the “Entity List,” which bans sanctioned companies from using American technology. Xiaomi uses chips from QUALCOMM, Inc. QCOM.
As per the Bloomberg report, the move against Xiaomi was unexpected, which is viewed as China’s answer to Apple Inc AAPL. Unless the ban is reversed, Xiaomi risks being delisted from U.S. exchanges and deleted from global benchmark indexes.
So far, the government has left three major companies — Alibaba Group Holding Ltd (NYSE: BABA), Tencent Holdings (OTC: TCEHY), and Baidu Inc (NASDAQ: BIDU) off the ban list considering the potential economic impact.
Price Action: XIACF closed 9.35% lower at $3.88 on Thursday, and CEO closed 5.02% higher at $102.71.
Photo courtesy: Ilya Plekhanov on Wikimedia
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