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Pentagon backs away from labeling smartphone maker Xiaomi a military org run by China's communist elite

Biz to be removed from naughty list following out-of-court settlement

The Pentagon has agreed it will no longer label Xiaomi a Communist 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 companies overseen by the Chinese Communist Party. Being on that list is bad news: it's rather hard to do business in or with America if you're branded this level of a security risk.

Xiaomi challenged its inclusion on the list at 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 Chinese military entities 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 provides services, manufactures stuff, and/or exports gear.

Xiaomi, however, denied it was run by the Chinese military. The Beijing-based consumer tech giant 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.

Yeah, tell that to Jack Ma.

Xiaomi and the US government still have a week or so to negotiate the specific terms of their agreement. The Register has asked the pair for further details and comment. ®

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