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US-China tensions

Chinese smartphone maker Xiaomi follows Huawei onto US blacklist

Chip equipment maker Amec also targeted as Trump administration winds down

Smartphone maker Xiaomi is among the nine Chinese companies added to a U.S. trade blacklist in the final days of the Trump administration. (Photo by Karina Nooka)   © Reuters

TAIPEI -- Chinese smartphone maker Xiaomi has been added to a U.S. blacklist that will restrict American investment into the company, as the outgoing Trump administration ratchets up tension with Beijing by intensifying its crackdown on Chinese corporate interests.

The U.S. Department of Defense on Thursday added Xiaomi to its list of companies with alleged links to the Chinese military. The addition follows a crackdown on Xiaomi's compatriot Huawei, the world's No. 2 smartphone maker, that has restricted its access to U.S. technologies. China's top chipmaker Semiconductor Manufacturing International Corp. has also been added to multiple blacklists to restrict its business with American suppliers and force U.S. investors to sell their shares in the company.

The blacklisting comes as Xiaomi makes an ambitious bid for global growth. It surpassed Apple for the first time to become the world's third-largest smartphone maker by shipments in the July-September quarter last year, edging the American tech giant out of global top three for the first time in 10 years. The Chinese smartphone maker has also placed aggressive orders with its suppliers in hopes of grabbing market share that Huawei has lost amid the U.S. crackdown, Nikkei earlier reported.

Xiaomi said in a statement on Friday that it "is not owned by, controlled by or affiliated with the Chinese military" and said it did not meet the definition of a Chinese military company under U.S. law.

Founded in 2010 and nicknamed "China's Apple'' in its early days, the Beijing-based smartphone maker has since made a name for itself by offering products with premium specifications at affordable prices. It holds top positions in several emerging handset markets, such as India.

Xiaomi is also one of the leading clients to the world's two biggest mobile chip developers -- Qualcomm of the U.S. and Mediatek of Taiwan. Its latest flagship smartphone Mi 11, unveiled in December, used Qualcomm's most premium mobile processor, the Snapdragon 888 5G system-on-chip.

President Donald Trump in an executive order last November accused China of increasingly exploiting U.S. capital to enable the development and modernization of its military.

That order, which took effect on Jan. 11, prohibits "any United States person" from holding securities, directly or through funds, in companies deemed to have links to China's military. Investors already holding such assets will have until November 2021 to shed them. 

Xiaomi is traded in Hong Kong and several top U.S. funds, such as the Vanguard Group, BlackRock Institutional Trust Company, Wells Capital Management and Geode Capital Management, are among its leading investors. Its share price was down more than 9% in Hong Kong in morning trading on Friday.

Jeff Pu, a smartphone analyst with GF Securities said, the addition would not have an immediate impact on Xiaomi's businesses and operations, but would restrict U.S. capital from flowing into the rising Chinese handset maker. 

In addition to Xiaomi, the Department of Defense on Thursday also named several other Chinese companies as "Communist Chinese military companies". 

They include Advanced Micro-Equipment Fabrication Co.-- known as AMEC -- which is one of China's national champions in building chip equipment. The company has been listed on Shanghai's tech-heavy STAR board since 2019.

The chip equipment sector is a key area for China's ambition to develop a self-sufficient semiconductor industry, as the sector is dominated by American companies.

Other Chinese companies added to the list include Commercial Aircraft Corporation of China, a top Chinese builder of aircraft that aims to eventually compete with Boeing and Airbus.

SMIC, and China's memory chip champion Yangtze Memory Technologies, have accelerated their use of homegrown chip equipment like that produced by AMEC to reduce their reliance on American equipment, Nikkei reported earlier.

More than 40 Chinese entities have been named as Chinese military companies so far. That includes the country's top mobile carriers China Mobile and China Telecom, which were delisted from New York from Jan. 11, as well as Hikvision, the world's top surveillance camera maker, and Inspur, a leading Chinese server maker. Huawei and SMIC are both on the list.

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