(Reuters) – Chinese companies targeted by a broad investment ban imposed by former President Donald Trump are considering suing the U.S. government after a federal judge on Friday suspended a similar blacklist for smartphone maker Xiaomi, with headquarters in Beijing.
Lawyers familiar with the matter said that some of the banned Chinese companies are in negotiations with law firms, including Steptoe & Johnson and Hogan Lovells, encouraged by the preliminary order of U.S. District Judge Rudolph Contreras to prevent Xiaomi from being included in a US list of alleged Chinese communist military companies that are subject to an investment ban.
The Trump administration’s move to the Xiaomi Corp blacklist, which took $ 10 billion from its market share and caused its shares to fall 9.5% in January, would have forced investors to completely divest their holdings in the company.
“Companies are reaching out to lawyers to challenge the listings and the grounds for the listings,” said Wendy Wysong, managing partner of the Hong Kong office of Steptoe & Johnson, a global law firm based in Washington. Wysong and a person familiar with Hogan Lovells, another global law firm, declined to name the companies involved in the discussions.
Contreras signaled the “deeply flawed” process by the United States government to include the company in the investment ban, based on just two main criteria: the development of 5G technology and artificial intelligence, which the Department of Defense claims are “essential to modern military operations “and an award given to Xiaomi’s founder and Chief Executive, Lei Jun, by an organization that would help the Chinese government eliminate barriers between the commercial and military sectors.
The judge noted that 5G and AI technologies were fast becoming the standard in consumer electronics and that more than 500 entrepreneurs have received the same award as Lei since 2004, including the leaders of a children’s formula company.
“The facts that led to the Xiaomi designation are almost ridiculous and I think they will certainly prompt other companies to seek relief,” said Washington lawyer Brian Egan, a former legal adviser at the White House and the State Department who also works at Steptoe.
GOVERNMENT NOT DECIDED IN THE WAY FORWARD
In a joint action on Tuesday, the government said it had not decided on the “appropriate way forward” in the Xiaomi case in light of the judge’s decision.
A spokeswoman for the U.S. Department of Justice, who is defending the case, declined to comment. A Defense Department spokeswoman referred questions to the White House, which did not respond.
Xiaomi and 43 other companies have been added here in the last few months of the Trump administration to the black list, which was determined by a 1999 law that required the Department of Defense to publish a compilation of companies “owned or controlled” by the Chinese military.
Seeking to cement a hard line on China and to box his Democratic successor, Joe Biden, into hard line policies, Trump signed an executive order that was later expanded to prohibit all American investors from holding bonds in nominated companies as of November 2021.
Other listed companies include video surveillance giant Hikvision, China National Offshore Oil Corp (CNOOC) and China’s largest chip maker, Semiconductor Manufacturing International Corp.
SMIC, Hikvision and CNOOC did not immediately respond to requests for comment.
Luokung Technology Corp, a list-mapping technology company, also sued the United States government earlier this month and is expected to seek a preliminary measure similar to that granted to Xiaomi.
Reporting by Karen Freifeld and Alexandra Alper; Additional reporting by Mike Stone; Peter Cooney edition