A US federal court has temporarily blocked the Department of Defense from placing restrictions on the ability for domestic companies to invest in Xiaomi.
The presiding judge, District Judge Rudolph Contreras, issued an initial injunction [PDF] over the weekend to temporarily stop Xiaomi from being added to the Communist Chinese military companies (CCMC) list.
Companies placed on the CCMC list are subject to a Donald Trump executive order that came into force in November last year. The executive order prohibits US persons from trading and investing in any of the listed companies and bans trading in any new companies once the US has placed the CCMC label on them.
The injunction was handed out as the judge found that Xiaomi was likely to suffer “irreparable harm” in the absence of the relief.
In making his decision, Contreras explained that the factors of Xiaomi’s stock price dropping by 9.5% since the CCMC designation, various banks including Morgan Stanley, JP Morgan Chase, and Goldman Sachs suspending trading of Xiaomi shares, and the company losing contracts around the world, when viewed together, indicated the company had already suffered “irreparable harm” as a result of the designation.
Contreras added that Defense’s memorandum, which is what led to Xiaomi being added to the CCMC list, was made on “shaky ground”.
“[The memorandum] does not explicitly identify the agency’s source of authority that governs the CCMC designation process, and when the memo does invoke the relevant statutory language, the excerpted language is quoted incorrectly. These errors do not inspire confidence in the fastidiousness of the agency’s decision-making process,” he said.
Xiaomi was placed onto the CCMC list in mid-January after Defense accused the company of “appearing to be [a] civilian entity” in order to procure advanced technologies in support of the modernisation goals of the Chinese military.
Referring to these national security concerns, Contreras said he was “somewhat skeptical that weighty national security interests are actually implicated here”.
“Taken together, the Court concludes that Defendants have not made the case that the national security interests at stake here are compelling,” he wrote.
Since the new year, US entities, such as the New York Stock Exchange, have struggled to handle the consequences and interpretation of the CCMC list. Across the month of January, the exchange said it would delist a trio of Chinese telcos, before changing its mind, and then it reverted to its original decision.
Other Chinese companies currently on the list include Huawei, Hikvision, Inspur, Panda Electronics, and Semiconductor Manufacturing International Corporation.
In a statement, Xiaomi said it was pleased with the outcome, but would continue its legal fight with the Department of Defense until Xiaomi was officially taken off the CCMC list.
“We believe that the inclusion of Xiaomi in the list of Chinese military-related enterprises is an arbitrary and arbitrary decision, and the judge also agreed with it. We will continue to ask the court to finally rule that the decree is invalid for Xiaomi,” it said.