Chinese firms seek to sue after Xiaomi win against Trump ban

Sources: They want to challenge previous US administration's investment blacklisting

WASHINGTON • Chinese firms targeted by a sweeping investment ban imposed by then President Donald Trump are considering suing the US government after a federal judge last week suspended a similar blacklisting for Beijing-based smartphone maker Xiaomi.

Lawyers familiar with the matter said some of the banned companies are in talks with law firms, including Steptoe & Johnson and Hogan Lovells, emboldened by US District Judge Rudolph Contreras' preliminary order halting Xiaomi's inclusion on a US list of alleged Chinese military companies that are subject to an investment ban.

The Trump administration's move to blacklist Xiaomi, which knocked US$10 billion (S$13.5 billion) off its market share and sent its shares down 9.5 per cent in January, would have forced investors to completely divest their stakes in the company.

"Companies are reaching out to lawyers to challenge the listings and the grounds for the listings," said Ms Wendy Wysong, managing partner of the Hong Kong office of Steptoe & Johnson, a worldwide law firm headquartered in Washington. Ms Wysong and a person familiar with Hogan Lovells, another global law firm that had been approached, declined to name the firms involved in discussions.

Judge Contreras flagged the US government's "deeply flawed" process for including Xiaomi in the investment ban, based on just two key criteria.

One is its development of 5G technology and artificial intelligence (AI), which the US Defence Department alleges are "essential to modern military operations".

The other is an award given to Xiaomi founder and chief executive Lei Jun from an organisation said to help the Chinese government eliminate barriers between commercial and military sectors.

The judge noted that 5G and AI technologies were fast becoming standard in consumer electronics, and that over 500 entrepreneurs had received the same award as Mr Lei since 2004, including the leaders of an infant formula company.

Said Washington lawyer Brian Egan, a former legal adviser in both the White House and State Department who also works at Steptoe & Johnson: "The facts that led to Xiaomi's designation are almost laughable. I think it absolutely is going to lead to additional companies seeking relief."

In a joint filing on Tuesday, the government said it had not decided on the "appropriate path forward" in the Xiaomi case in the light of the judge's decision.

A spokesman for the US Department of Justice, which is defending the case, declined to comment. A Department of Defence spokesman referred questions to the White House, which did not respond.

Xiaomi and 43 other companies were added in the waning months of the Trump administration to the blacklist, which was mandated by a 1999 law requiring the Defence Department to publish a compilation of firms "owned or controlled" by the Chinese military.

Seeking to cement a tough line on China and box his Democratic successor Joe Biden into hardline policies, Mr Trump signed an executive order that was later expanded to bar all US investors from holding securities in the named companies from Nov 11 this year.

Other companies listed include video surveillance giant Hikvision, China National Offshore Oil Corp and China's top chipmaker, Semiconductor Manufacturing International Corp.

Mapping firm Luokung Technology also sued the US government earlier this month, and is expected to seek preliminary relief similar to that awarded to Xiaomi.

REUTERS

A version of this article appeared in the print edition of The Straits Times on March 18, 2021, with the headline 'Chinese firms seek to sue after Xiaomi win against Trump ban'. Subscribe