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Blacklisted Chinese firms to move US courts after Xiaomi wins lawsuit

WASHINGTON, DC, USA: Several Chinese companies affected by a sweeping investment ban imposed by former US President Donald Trump are reportedly considering suing the US government after a federal judge suspended a similar blacklisting for smartphone maker Xiaomi.

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

The Trump administration’s move to blacklist Xiaomi Corp, which knocked $10 billion off its market value and sent its shares down 9.5% 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 Wendy Wysong, managing partner of the Hong Kong office of Steptoe & Johnson, a worldwide law firm headquartered in Washington, DC. Wysong and a person familiar with Hogan Lovells, another global law firm, declined to name the companies involved in discussions.

Contreras flagged the US government’s “deeply flawed” process for including the company in the investment ban, based on two key criteria: its development of 5G mobile network technology and artificial intelligence.

The Department of Defense alleges these technologies are “essential to modern military operations”.

The judge noted that 5G and AI technologies were fast becoming standard in consumer electronics.

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

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

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 Department of Defense to publish a compilation of companies “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, Trump signed an executive order that was later expanded to bar all US investors from holding securities in the named companies beginning on November 11, 2021.

Other companies listed include video surveillance giant Hikvision, China National Offshore Oil Corp (CNOOC) and China’s top chipmaker, Semiconductor Manufacturing International Corp (SMIC).

SMIC, Hikvision and CNOOC did not immediately respond to requests for comment.

Luokung Technology Corp, a mapping technology company on the list, also sued the US government earlier this month and is expected to seek preliminary relief similar to that awarded to Xiaomi.