Xiaomi Corp, the world’s third-largest smartphone vendor, has sued the defence and treasury departments of the United States, seeking to undo the former Trump administration’s ban that prohibits US investors from owning the company’s shares.
The US Department of Defence (DOD) designation of Xiaomi’s affiliation with the People’s Liberation Army (PLA) of China is “unconstitutional” as “it deprives Xiaomi of its liberty and property rights without due process of law,” according to the Beijing-based company’s filing in the US District Court of Columbia.
“Xiaomi faces imminent, severe, and irreparable harm if the Designation remains in place and the restrictions take effect,” the company said in its filing, which named as defendants Defence Secretary Lloyd Austin and Treasury Secretary Janet Yellen, both appointees of President Joe Biden’s administration.
Xiaomi was among dozens of Chinese technology companies placed under sanctions and black lists by Trump, whose tumultuous four-year tenure caused US-China relations to deteriorate to the worst level in decades. Tension between the world’s two largest economies spilled over from their trade war into conflicts over technology, human rights, currency and even the origin of the coronavirus pandemic.
The former administration has already put Chinese telecommunications equipment giant Huawei Technologies Co, chip maker Semiconductor Manufacturing International Corporation and drone manufacturer DJI on sanction lists that barred them from using US hi-tech hardware and software. The shares of China Telecom, China Mobile and China Unicom were excluded from US portfolios for their alleged ties to the PLA, denied by all three state-owned Chinese telecoms network operators.
“Xiaomi is not owned or controlled or otherwise affiliated with the Chinese government or military, nor is it owned or controlled by any entity affiliated with the Chinese defence industrial base,” the Hong Kong-listed technology company said.
Unlike Chinese 5G leader Huawei – which was added to Washington’s Entity List in May 2019, blocking it from acquiring US technology – Xiaomi only focuses on consumer products like smartphones and smart home devices.
However, it was uncertain whether the investment ban would be expanded to cover restrictions on the company’s supply chain, especially its chip supply.
Some Chinese tech companies have taken action against US government agencies before, but only internet firms have met with moderate success. While hardware companies like Huawei have been cut off access to US technologies, US users of services provided by Chinese internet firms such as ByteDance and Tencent Holdings successfully sued to challenge Trump’s executive orders banning the use of TikTok and WeChat.
The DOD said in an announcement on its website that the move was targeting “Communist Chinese military companies” operating directly or indirectly in the US to “highlight and counter the People’s Republic of China’s Military-Civil Fusion development strategy.” It did not provide further details on what kind of military ties each company has.
US investors make up the third-largest group of holders of Xiaomi’s shares, rising steadily since their Hong Kong initial public offering to a record 15.3 per cent this week. Xiaomi’s shares have more than doubled since their July 2018 offering to a record HK$35.30 on January 5, before giving back some of the gains to close this week at HK$29.20.
US investors, including BlackRock, the Vanguard Group and State Street, may be forced to divest their holdings by November if Trump’s executive order is not overturned, according to filings. US chip technology supplier Qualcomm is also one of the earliest investors in Xiaomi, established by billionaire Lei Jun a decade ago.