The shares of China’s Xiaomi, the world’s third-largest maker of smartphones, plunged in Hong Kong trade on Friday after the U.S. Department of Defense labeled it as having ties to China’s military.
Xiaomi stock ended the day down 10.3%.
Xiaomi’s shares had tripled in value over the course of the year, as it won business from its main Chinese competitor Huawei Technologies, the initial target for U.S. sanctions.
The Pentagon on Thursday named Xiaomi as one of nine new names on its list of “Communist Chinese military companies,” which now contains 44 Chinese corporations. Other notable additions include COMAC, or the Commercial Aircraft Corp. of China…
In China… many private companies have links to the state. Even shareholder-owned companies have at times written the Communist Party into their charter as the ultimate controller. Any Chinese company would serve the central state if ordered to do so. And telecoms are always going to be of interest to military users.
The U.S. Department of Defense said that it “is determined to highlight and counter” China’s military-civil fusion development strategy, which supports the modernization of the People’s Liberation Army “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.”
Putting Xiaomi and COMAC on the DoD’s list means that they are now covered by a November 12 executive order from outgoing President Donald Trump. The order states that U.S. investors, whether individuals or funds, can no longer buy the shares of these companies. The order went into effect on January 11 for the initial list of 35 companies, which included Huawei, and will apply to any newly added companies such as Xiaomi 60 days after their inclusion. U.S. investors have until November 11 to sell the shares they hold in the first set of companies.
MacDailyNews Take: McMillan also makes the important point that Xiaomi is not currently on the U.S.’s “Entity List,” but if it is added, it could be devastating to the Chinese company. The Entity List prevents companies worldwide from supplying those on the list if they use U.S. parts or technology. The Entity List ban is making it extremely difficult for Huawei to source chips for its phones, and would cause the same issue for Xiaomi.