Xiaomi corp’s shares plunged 11 per cent post the Trump Administration blacklisting of China’s Number 2 smartphone maker and 10 other companies, in an effort to undercut the expansion of China’s technology sector. In case you are unaware, the US has targeted multiple Chinese companies for the stated purpose of protecting national security, but this sudden attack on Xiaomi was unexpected as well as sudden, to say the least.
Viewed as China’s version of Apple, the company is well known for producing smartphones that draw loyal fans with each and every releases. The company, which was ranked 3rd in the world when it came to shipments in 2020 also makes electric scooters, earphones and smart rice cookers.
Talking about this sudden advancement, Kevin Chen, a Hong Kong-based analyst at China Merchants Securities Co said The news was “really surprising to me,”
Why This Sudden Development? What Does it Mean?
The US Defense Department identified Xiaomi as one of nine companies with alleged ties to the Chinese military, which means American investors will be prohibited from buying their securities and will have to divest any holdings that they have in Xiaomi by November 2021.
Other firms targeted include Luokong Technology Corp, Global Tone Communication Technology Co. and Advanced Micro-Fabrication Equipment Inc. Gowin Semiconductor Corp. Index stalwarts such as China’s three biggest telecom firms are also a part of the list.
Unless the ban is reversed, the smartphone maker risks being delisted from US exchanges and deleted from global benchmark indexes, which is not something that an up and coming tech brand with the hopes of becoming No.1 in the world wishes for. The likes of China Mobile Ltd, China Telecom Corp and China Unicom Hong Kong Ltd were removed by MSCI Inc. last week.
The Trump administration’s blacklistings have been focused on Chinese companies with military ties and strategic value to the industry’s growth. Semiconductor Manufacturing International Corp., China’s largest chipmaker, which is also a critical part of the country’s ability to build a self-sufficient tech industry, was included in the list back in December.
In a statement released on Friday, Xiaomi said the following: “The company has been in compliance with law and operating in compliance with the relevant laws and regulations of jurisdictions where it conducts its businesses. The company reiterates that it provides products and services for civilian and commercial use. The company confirms that it is not owned, controlled, or affiliated with the Chinese military, and is not a “Communist Chinese Military Company” defined under the NDAA. The company will take an appropriate course of actions to protect the interests of the company and its shareholders.
The company is reviewing the potential consequences of this to develop a fuller understanding of its impact on the Group. The company will make further announcements as and when appropriate.”
What are the Experts Saying?
Despite Friday’s selloff, some investors are holding out in the hope that the incoming US administration will reverse actions taken in the twilight days of Donald Trump’s presidency.
Speaking on this matter, Vanessa Martinez, a partner at Lerner Group, told Bloomberg TV. “This is just like that last parting shot against China by the Trump administration.” “This is not going to be a priority for the Biden administration. This ruling will be reversed before November, so we are going to hold, and not just hold but be a buyer on this weakness,”
Chen of China Merchants Securities also argued the fallout for Xiaomi might be limited. “Many investors would choose to lock in profit since the stock rallied a lot in the past year”. “But I think the impact on Xiaomi would be more sentimental than fundamental. These declines could be short-lived.”
Is This Similar to Huawei?
No, since this is not the same list to which Donald Trump added Huawei’s name in 2019. That list is related to firms that have supposed ties to the Chinese government directly, forbidding US-based firms from working with those who are part of the list. This particular list, to which Xiaomi has been added is related specifically to the Chinese military. Apparently, the Trump administration thinks Xiaomi’s ties to the military are close enough that Xiaomi poses a potential threat to the US and thus, belongs to the group in question.