Court ruling suspends US ban on investment in Xiaomi

WASHINGTON: A United States federal judge on Friday (Mar 12) temporarily blocked the Department of Defense from forcing American investors to divest holdings in Chinese smartphone maker Xiaomi on the grounds that the company has ties to China’s military.

Six days before Donald Trump left office last year, his administration cemented its trade war legacy against Beijing with a series of announcements targeting Chinese firms including Xiaomi, state oil giant CNOOC and social media darling TikTok.

Xiaomi was one of nine firms classified by the Pentagon as “Communist Chinese military companies”, with the Defense Department adding them to a list that requires Americans to sell their interests in the firms by a deadline. The restrictions were set to go into effect next week.

Xiaomi in late January filed a complaint in a Washington court seeking to be removed from the list, calling its inclusion “unlawful and unconstitutional” and arguing that it was not controlled by the People’s Liberation Army.

In the appeal, Xiaomi – which overtook Apple last year to become the world’s third-largest smartphone manufacturer – also said Washington’s moves were “incorrect” and had “deprived the company of legal due process”.

READ: Chinese giant DJI hit by US tensions, staff defections

READ: India likely to block China’s Huawei over security fears

US District Judge Rudolph Contreras in Washington said on Friday that the court “concludes that defendants have not made the case that the national security interests at stake here are compelling”.

He issued a preliminary injunction removing Xiaomi from the blacklist and suspending the ban on US investors buying the company’s securities.

Xiaomi and the Defense Department did not immediately respond to requests for comment.

Contreras’s decision came on the same day that US regulators listed Huawei and ZTE among Chinese telecom gear firms deemed a threat to national security, signalling that a hoped-for softening of relations is not on the cards.

Huawei chief and founder Ren Zhengfei last month called for a reset with the US under President Joe Biden, after the firm was battered by sanctions imposed by Trump’s administration.

The telecoms giant has been at the centre of the Sino-American rivalry in recent years, against a backdrop of a trade and technology war between the superpowers.

Washington claims Huawei has close ties to China’s military and that Beijing could use its equipment for espionage – accusations the company denies.

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