The Pentagon has agreed it will no longer label Xiaomi a Communist-run Chinese military company after the smartphone maker sued Uncle Sam to overturn the designation.
In mid-January, the Dept of Defense, under America’s previous administration, added Xiaomi to its list of military-related companies closely associated with the Chinese Communist Party. Being on that list is bad news: it’s rather hard to do business in America if you’re branded a security risk because you’re seen as too close to the Beijing leadership.
Xiaomi challenged its inclusion on the list in a Washington DC federal district court, and now the matter has been settled with the government agreeing to an order throwing out the earlier designation.
“The parties have agreed upon a path forward that would resolve this litigation without the need for contested briefing,” read a court document filed this week by both sides [PDF]. “Defendants have agreed that a final order vacating the January 14, 2021 designation of Xiaomi Corporation as a [Communist Chinese Military Company] … would be appropriate.”
Companies labelled as military entities working on behalf of the Chinese Communist Party are subject to restrictions in the United States. They will struggle to supply equipment and services to Dept of Defense and its contractors. The previous president signed an executive order that effectively forbid US persons from investing in these companies via the stock market.
They may also be targeted by the US Department of Commerce, resulting in them unable to do business with American organizations. They may be shunned by potential partners simply for being labeled a danger. Xiaomi was concerned that being dubbed a foreign enemy would limit its access to smartphone chips designed by US giant Qualcomm.
In order to be marked as a Chinese Communist-controlled military company, a business has to meet two criteria: it is owned or controlled by China’s People’s Liberation Army, and it is providing services, manufacturing, producing, or exporting technologies to support the regime.
Xiaomi, however, denied working for the Chinese military. And it said it was “not owned or controlled by, or otherwise affiliated with the Chinese government or military, or owned or controlled by any entity affiliated with the Chinese defense industrial base” in its lawsuit filed at the end of January.
“Nor does the Chinese government or military, or any entity affiliated with the defense industrial base, possess the ability to exert control over the management or affairs of the company,” it added.
Xiaomi and the US government still have a week or so to negotiate the specific terms of their agreement, according to the most recent court filing. The Register has asked Xiaomi and the Pentagon for comment. ®