Washington order means US shareholders in smartphone group could be forced to divest.
The U.S. Department of Defense under the outgoing Trump administration has named nine Chinese firms to an investment blacklist, including Chinese phone maker Xiaomi. The list that Xiaomi and eight other firms have been added to is a list of companies that are alleged to be “Communist Chinese military companies” that are operating either directly or indirectly within the United States. This is in accordance with the statutory requirement of Section 1237 of the National Defense Authorization Act for Fiscal Year 1999.
The Department of Defense announced its latest list earlier today. Under Section 1237 of the NDAA for FY 1999, the U.S. defines “Communist Chinese military companies” as “any person identified in the Defense Intelligence Agency publication numbered VP-1920-271-90, dated September 1990, or PC-1921-57-95, dated October 1995, and any update of those publications for the purposes of this section” as well as “any other person that–(i) is owned or controlled by the People’s Liberation Army; and (ii) is engaged in providing commercial services, manufacturing, producing, or exporting.” It’s unclear how Xiaomi fits this bill, as the company has mostly stuck to making consumer products.
As reported by Reuters, American investors will need to divest their holdings in each of the blacklisted firms by November 11, 2021. That’s because of an executive order signed by President Trump in November of 2020, barring Americans from investing in any companies added to the DOD’s list. Companies previously placed on this blacklist include Huawei and SMIC. What this means for the future of Xiaomi is not immediately clear, as while it’s not an outright ban on all trade, it’s possible that the company receives a large amount of investment from U.S.-based companies. For example, Qualcomm Ventures has publicly invested in Xiaomi, so by November 21st, Qualcomm may need to divest its holdings. That would affect Xiaomi’s stock price, but fortunately for the company, it won’t affect their supply chain.
If Xiaomi were to be placed on the U.S. Commerce Department’s Entity List (à la Huawei and DJI), the company would be barred from conducting any business with U.S.-based companies. Furthermore, any company using hardware or software developed primarily in the U.S., which includes many chip foundries and chip design firms, would also be subject to a trade ban with Xiaomi. Huawei’s placement on the Entity List crippled its ability to sell Android-based smartphones internationally, owing to its lack of a GMS license. The placement also crippled Huawei subsidiary HiSilicon’s ability to design new ARM-based chips.
Fortunately for Xiaomi, they have had time to prepare for the worst, which has yet to happen. “In any case, if in the future something happens, we have a plan B. Among other things, we are investing heavily in various semiconductor manufacturers in China, but we believe that our business strategy should not be conditioned by decisions made by politicians. Until now, we have opted for integrating the best components into our products, and we will continue to do so in the future”, Abi Go, Xiaomi’s global product manager, told Xataka early last year. It’s also possible that the forthcoming Biden administration may remove Xiaomi from this blacklist, though that reversal is not guaranteed. Whatever the case may be, this is a major developing story and the impact may not be felt for some time.
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