Only a few days left before leaving office, the Trump administration included China’s No. 2 smartphone maker Xiaomi into a trade blacklist causing its shares to drop by as much as 10 percent at the Hong Kong trading floors on Friday.
Together with eight other Chinese companies, the US Defense Department included Xiaomi as among those earlier tagged to be with ties to the Chinese military.
Its fiercest rival in the mobile phone manufacturing industry, Huawei, had earlier faced challenges in trading with American companies so as other Chinese tech firms like Tencent, Bytedance, and Alibaba including their subsidiaries all faced similar sanctions from the United States.
In just a few hours after the Pentagon added the company to the list of firms with suspected ties to the Chinese military, Xiaomi stocks dropped by as much as 10.3 percent.
The Trump administration’s latest move will block US investors from buying Xiaomi shares in the next two months and will require Americans to eventually sell their holdings. Other prominent companies in Pentagon’s additional list included the state-owned Commercial Aircraft Corporation of China.
“The Department is determined to highlight and counter the People’s Republic of China’s (PRC) Military-Civil Fusion development strategy, which supports the modernization goals of the People’s Liberation Army (PLA) 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,” the DoD statement said.
In recent months, Xiaomi has been at a receiving end of Huawei’s inclusion in the trade blacklist, as purchases of its smartphones soared in 2020 surpassing that of Apple and making it the world’s number three phone maker.
In 2020, Xiaomi shares soared by as much as 220 percent boosting its market value to $108 billion in the last quarter of 2020.
It is still unclear what will be the long-term effects of the latest actions from the Pentagon on the Chinese smartphone maker but several American fund managers like BlackRock, Vanguard, Fidelity, and State Street, are invested in the company. It is expected that these investors will be divesting their shares from the company by November 11 this year.
The Defense blacklist is different from the Commerce Department’s so-called ‘Entity List’, which famously banned Huawei and other Chinese firms from dealing with U.S. suppliers over national security concerns.
The military blacklist, however, limits US investors from investing in Xiaomi. Investors will not be able to purchase securities of blacklisted companies that now include Xiaomi, Huawei, and China’s largest chipmaker Semiconductor Manufacturing International Company.
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