HONG KONG – US officials blacklist Chinese smartphone giant Xiaomi Corp.
1810 -3.74%
as a company with military ties, in part because of an award given to the company’s founder for his service to the state, the U.S. Department of Defense said in a lawful submission.
Lei Jun, the chief executive officer and founder of Xiaomi, received in 2019 the award of “Outstanding Builder of Socialism with Chinese Characteristics” from the Ministry of Industry and Information Technology. Xiaomi mentioned the award – given to 100 Chinese executives in that year – to Mr. Lei’s biography page on the company’s website and in its annual report.
The award – coupled with Xiaomi’s ambitious investment plans in advanced technologies such as 5G and artificial intelligence – was enough to add Xiaomi to a list of companies supporting China’s military, according to the January submission. The name prohibits Americans from investing in the company, the third largest smartphone retailer in the world.
The U.S. rationale for adding Xiaomi to its list was set out in the court version by the Department of Defense in response to a lawsuit in U.S. District Court in Washington, DC, by the Chinese company that wanted to reverse the military designation. The documentation, which appeared last week but has not been reported before, shed light for the first time on the department’s reasoning to add a company to the list.
A Xiaomi spokesman did not immediately comment on the submission. The company has previously denied any involvement with the Chinese military, saying it sells products and services exclusively for civilian and commercial use.
During the waning days of the Trump administration on January 14, Xiaomi was added to the Department of Defense’s list, along with eight other Chinese companies, including aviation and disk companies. In total, the department added 44 companies to its list, including telecommunications giant Huawei Technologies Corp. and computer chip maker Semiconductor Manufacturing International. Corp.
, who both also denied no military ties.
Shares of Xiaomi, which more than tripled in Hong Kong last year, have fallen by 25% since closing on 14 January.
The designation of Xiaomi surprised many analysts by the main focus on consumer electronics. In addition to smartphones, the company makes Internet-connected devices such as air purifiers, scooters, scales and fitness bands. Unlike Huawei, its biggest Chinese competitor, it does not sell communications infrastructure or other equipment that is commonly considered sensitive.
Xiaomi’s prosperity in the crucial smartphone market has increased over the past year as it has increased Huawei’s market share. Worldwide, its handsets rose by nearly one-third in the fourth quarter, making it the no. 3 supplier behind Apple made. Inc.
and Samsung Electronics Co.
, according to International Data Corp.
In its lawsuit, Xiaomi said the department did not provide any explanation for its decision, nor did it give the company a chance to respond.
Mr. Lei’s award comes from China’s MIIT, the government agency that oversees Chinese technology and industrial policy and which, according to the Ministry of Defense, helps manage the policy of China’s civil-military merger, in which Beijing relies on private enterprises to to help develop military technology.
The technological battle between the US and China has shocked TikTok and Huawei and scared American companies that manufacture and sell in China. WSJ explains how Beijing is pouring money into high-tech chips because it wants to become self-sustaining. Video / illustration: George Downs / The Wall Street Journal (originally published on September 3, 2020)
The award is given once every five years to top entrepreneurs in the private sector. The last award, in 2019, was given to 100 people. Other notable executives who also achieved the cuts include Ding Lei of the internet and video industry NetEase Inc.,
Wang Gaofei of social media firm Weibo Corp.
, Wang Chuanfu of the car manufacturer BYD Co.
A second reason given by the Department of Defense was Xiaomi’s plans to invest 50 billion yuan, equivalent to $ 7.7 billion, over 5 years in 5G technology and artificial intelligence. Mr. Lei set out the investment plans in a New Year’s message to staff in January 2020. The Department of Defense said during the submission: “Both of these technologies are of great importance to the VRC, and are a focal point of the Military-Civil Fusion strategy,” China called its full name, the People’s Republic of China.
On Thursday, Luokung Technology Corp.
, a Chinese big data company that was added to the list of the Department of Defense in January along with Xiaomi, has also filed a lawsuit in the US to request its removal.
—Jing Yang contributed to this article.
Write to Dan Strumpf at [email protected]
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