The U.S. Department of Defence on Thursday included Chinese smartphone maker Xiaomi to its blacklist of companies with alleged links to the People’s Liberation Army (PLA). The move which forms part of the outgoing Trump administration’s crackdown on Chinese corporate interests will restrict American investment in the company.
Founded in 2010 and nicknamed "China's Apple'' in its early days, the Beijing-based smartphone maker holds top positions in several emerging handset markets, such as India, as its products are cheaper than rivals such as Samsung.
The other Chinese companies blacklisted for military links include Advanced Micro-Equipment Fabrication Co. (AMEC) which is one of China's leading firms in building chip equipment.
The blacklisting of Xiaomi comes close on the heels of the earlier crackdown against compatriot Huawei, the world's No. 2 smartphone maker, that has restricted its access to U.S. technologies. China's top chipmaker Semiconductor Manufacturing International Corp. has also been added to multiple blacklists to restrict its business with American suppliers and force U.S. investors to sell their shares in the company.
The blacklisting comes as a major setback of Xiaomi, which had shot past Apple to become the world's third-largest smartphone maker by shipments in the July-September quarter last year, displacing the US tech giant global from the world’s top three ranks for the first time in 10 years.
The flip side is that Xiaomi is also one of the biggest buyers of chips produced by US tech giant Qualcomm and Taiwan’s Mediatek.
President Donald Trump in an executive order last November accused China of increasingly exploiting U.S. capital to enable the development and modernization of its military.
The order, which came into effect on Jan. 11, bars "any United States person" from holding securities, directly or through funds, in companies deemed to have links to China's military. Investors already holding such assets will have to dispose them by November 2021.
Xiaomi is traded in Hong Kong and several top U.S. funds, such as the Vanguard Group, BlackRock Institutional Trust Company, Wells Capital Management and Geode Capital Management, are among its leading investors.
The chip equipment sector is a key area for China's ambition to develop a self-sufficient semiconductor industry, as the sector is dominated by American companies.
More than 40 Chinese entities have been named as Chinese military companies so far. That includes the country's top mobile carriers China Mobile and China Telecom, which were delisted from New York from Jan. 11, as well as Hikvision, the world's top surveillance camera maker, and Inspur, a leading Chinese server maker. Huawei and SMIC are both on the list..
