HONG KONG – US officials blacklisted Chinese smartphone giant Xiaomi Corp.
1810 -3.74%
as a company with military ties, in part due to a prize awarded to the company’s founder for his services to the state, the United States Department of Defense said in a lawsuit.
Lei Jun, the executive director and founder of Xiaomi, received the “Notable Builder of Socialism with Chinese Features” award in 2019 from the Ministry of Industry and Information Technology. Xiaomi touts the award – given to 100 Chinese executives that year – on Lei’s biography page on the company’s website and in its annual report.
The award – along with Xiaomi’s ambitious investment plans in advanced technologies like 5G and artificial intelligence – was enough for the Department of Defense in January to add Xiaomi to a list of companies supporting China’s military, according to the document. . The designation prohibits Americans from investing in the company, the world’s third largest smartphone seller.
The United States’ justification for adding Xiaomi to its list was presented in a Department of Defense lawsuit in response to a lawsuit in the United States District Court in Washington, DC, by the Chinese company seeking to override the military designation. The lawsuit, which appeared last week but was not previously reported, for the first time shed light on the department’s reasoning to add a company to the list.
A spokeswoman for Xiaomi did not immediately comment on the request. The company previously denied any affiliation with the Chinese military and claims it sells products and services exclusively for civil and commercial use.
Xiaomi was added to the Department of Defense list during the last days of the Trump administration on January 14, alongside eight other Chinese companies, including aerospace and chip companies. In total, the department added 44 companies to its list, including telecommunications giant Huawei Technologies Corp. and computing chip maker Semiconductor Manufacturing International Corp.
, who also denied any military ties.
Xiaomi’s shares, which more than tripled in Hong Kong last year, have fallen 25% since closing on Jan. 14.
Xiaomi’s designation took many analysts by surprise due to its primary focus on consumer electronics. In addition to smartphones, the company manufactures devices connected to the internet, such as air purifiers, scooters, body weight scales and gym bracelets. Unlike Huawei, its main Chinese rival in devices, it does not sell communications infrastructure or other equipment considered confidential.
Xiaomi’s luck in the relentless smartphone market skyrocketed last year as it captured Huawei’s market share. Globally, device shipments increased by almost a third in the fourth quarter, making it the third supplier behind Apple Inc.
and Samsung Electronics Co.
, according to International Data Corp.
In its lawsuit, Xiaomi said the department offered no explanation for its decision, nor did it give the company a chance to respond.
The Lei award was awarded by MIIT of China, the government agency that oversees Chinese technology and industrial policy and which, according to the Department of Defense, helps to administer China’s civil-military fusion policy, which Beijing relies on in the private sector to help develop military technology.
The technological battle between the U.S. and China hit TikTok and Huawei and surprised American companies that produce and sell in China. WSJ explains how Beijing is pouring money into high-tech chips to become self-sufficient. Video / illustration: George Downs / The Wall Street Journal (originally published on September 3, 2020)
The award is given every five years to leading private sector entrepreneurs. The last award, in 2019, was given to 100 people. Other notable CEOs who also made the cut include Ding Lei, from video game company NetEase Inc.,
Wang Gaofei of social media company Weibo Corp.
, Wang Chuanfu of car manufacturer BYD Co.
A second reason cited by the Department of Defense was Xiaomi’s plans to invest 50 billion yuan, equivalent to $ 7.7 billion, over five years in 5G technology and artificial intelligence. Mr. Lei outlined investment plans in a New Year message to the team in January 2020. In its filing, the Department of Defense said: “Both technologies are of fundamental interest to the PRC and are the focus of the strategy of Military-Civil Fusion ”, calling China by its full name, People’s Republic of China.
On Thursday, Luokung Technology Corp.
, a Chinese big data company added to the Department of Defense list alongside Xiaomi in January, also filed a lawsuit in the United States seeking its removal.
—Jing Yang contributed to this article.
Write to Dan Strumpf at [email protected]
Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8