Back in January, just before the new administration moved into the White House, the U.S. blacklisted Chinese manufacturer Xiaomi. The company is red hot and is now the third largest smartphone manufacturer in the world, taking advantage of Huawei's fall from grace. U.S. investors are now prohibited from investing in the company and those who already have an investment in Xiaomi must divest themselves of these holdings by November 11th. Xiaomi's shares are traded via the Over The Counter Pink Sheets in the form of American Depository Receipts (ADR). They closed Friday at $15.34 a share, down 25% since the blacklisting was announced.
Award given to Xiaomi founder Lei Jun caused the U.S. Defense Department to blacklist the company
Xiaomi was blacklisted by the U.S. Department of Defense along with eight other Chinese companies because of alleged ties with the Chinese military. After we posted our article on the blacklisting in January, we received a statement from Xiaomi that said, "The Company has been in compliance with law and operating in compliance with the relevant laws and regulations of jurisdictions where it conducts its businesses. The Company reiterates that 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. The Company will take appropriate course of actions to protect the interests of the Company and our stakeholders."
Yesterday, the Wall Street Journal cited a legal filing made with the U.S. Defense Department for running a report that claimed to reveal the real reason for Xiaomi's blacklisting. That report said that an award given to Xiaomi founder and CEO Lei Jun for his service to the state was the reason why in its last days, the Trump administration decided to call out Xiaomi. Lei was one of 100 executives in China given an award for of "Outstanding Builder of Socialism with Chinese Characteristics" in 2019. Xiaomi promotes the award which is listed in the executive's biography page on Xiaomi's corporate website and annual report.
The legal filing also mentioned Xiaomi's investment in advanced technologies including 5G and artificial intelligence. Xiaomi is trying to use the courts to remove the blacklisting and has filed a lawsuit with the U.S. District Court in Washington, D.C. The U.S. Department of Defense responded with a filing of its own which includes the report about the award given to Lei Jun. Other prominent names on the Defense Department's list include smartphone manufacturer Huawei, whose troubles with U.S. restrictions were discussed today in an earlier story, and China's top foundry SMIC.
Lei's award was given to him by China's MIIT; this is the government agency that oversees the country's policies related to technology and industrial policy. The U.S. Defense Department says this agency manages China's "civil-military fusion." Under this program, China works with private businesses to create technology for the military.
There has been talk over the years about Xiaomi selling its handsets in the U.S. Right now, it does offer limited products in the states including power banks and its popular Mi Band fitness tracker can be purchased in the U.S. through Amazon. Former Xiaomi Vice President Hugo Barra said in 2016 that the company would eventually be selling its handsets in the U.S. although plenty of time has elapsed since then. Also, the U.S. government has become a lot cooler in its relationships with Chinese tech firms and outside of OnePlus, such phone manufacturers have not had much success in the U.S. lately.