Popular Chinese smartphone maker Xiaomi is suing the Department of Defense, the U.S. Treasury, and both agencies’ top officials, after having been deemed a security threat by the U.S. government and cut off from American investments.
Last November, then-President Donald Trump passed Executive Order 13959, which essentially sought to “defund” companies with alleged ties to the Chinese military. This order requires U.S. entities and investors to begin divesting in the blacklisted companies by March 15 of this year.
Xiaomi, a global electronics firm with a well-known array of products, was added to this list in January. Founded just 10 years ago, the company has had a meteoric climb, quickly rising to become one of the world’s most popular smartphone makers. In 2018, the company was listed on the NASDAQ and, as of last year, had become the youngest member of the global Fortune 500 companies.
The company’s phone and tablet design is notably quirky (just check out its dual-folding prototype phone and you’ll see what we mean). Xiaomi’s CEO, billionaire Lei June, also has something of a Steve Jobs fixation, which explains his company’s Apple-ish design and approach as well as his personal interest in black turtlenecks and blue jeans.
Yet, according to the Defense Department, Xiaomi has something to hide. Its designation as a “Communist Chinese military company” (CCMC) means that, according to the law, the firm is “owned or controlled by, or affiliated with, the People’s Liberation Army or a ministry of the government of the People’s Republic of China or that is owned or controlled by an entity affiliated with the defense industrial base of the People’s Republic of China.”
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Naturally, Xiaomi has disputed this label. In a lawsuit filed Friday, the tech giant called its recent designation as a CCMC “unconstitutional” and accused the U.S. of providing zero evidence to support its allegations. It insists on being taken off the list and claims that the Pentagon “did not provide any explanation for its decision to designate Xiaomi as a CCMC, let alone identify the factual basis on which the Designation was based,” nor did it give Xiaomi an opportunity to refute the claims.
The company categorically denies that it has any ties to the Chinese military, writing in the lawsuit that Xiaomi is “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. 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.” The lawsuit further states that the order will cause “immediate and irreparable harm to Xiaomi.”
Huawei, another China-based technology giant, has also sued the U.S. over similar restrictions.
According to Trump’s executive order, the U.S. sees alleged CCMCs as part of a strategy by China to pump up its military through “civilian” companies that somehow “support its military and intelligence activities.” The U.S. accuses these companies of exploiting U.S. investors for access to capital that can then be used to “finance the development and modernization of its military.” The order reads:
Through the national strategy of Military-Civil Fusion, the PRC increases the size of the country’s military-industrial complex by compelling civilian Chinese companies to support its military and intelligence activities. Those companies, though remaining ostensibly private and civilian, directly support the PRC’s military, intelligence, and security apparatuses and aid in their development and modernization.
Some security concerns have popped up with Xiaomi in the past, though nothing on the scale of the current accusations. Issues have included the discovery of a glaring vulnerability in the company’s pre-installed security app, Guard Provider, as well as concerns over the company’s apparent monitoring of “private” web browsing.