Chinese technology giant Xiaomi saw its shares climb by 7% on Monday after a US court granted a preliminary injunction against a pending government ban which had threatened to restrict investment in the world’s third-largest smartphone vendor.
In the waning days of the Trump administration, the Department of Defense (DoD) officially designated Xiaomi as a “Communist Chinese military company” and issued an order forbidding Americans from investing in the firm. The proposed rules also establish an ultimatum by which existing investors are required to have sold their holdings. In January, Xiaomi filed a complaint in the US District Court in Washington, D.C., seeking to overturn the blacklisting. The order was set to go into effect this week.
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US District Judge Rudolph Contreras said on Friday that the case would likely result in a victory for Xiaomi, also calling a halt to the Trump-era restrictions in order to prevent “irreparable harm” to the company.
According to Bloomberg, Xiaomi faces serious risks under the proposed rules, including being delisted from US exchanges and eliminated from global benchmark indexes, losing as much as $44 billion in its market value.
Contreras contended that the DoD had failed to provide persuasive evidence which could prove Xiaomi’s ties with the Chinese military. To support its allegations, the DoD had previously cited an award presented in 2019 to the firm’s founder and chairman, Lei Jun, for his service to the Chinese state, in addition to the firm’s enthusiasm for 5G and artificial intelligence technologies. However, the court pointed out the fact that more than 500 entrepreneurs had received a similar award, adding that 5G and artificial intelligence “are quickly becoming industry standard for consumer electronics devices” and are not necessarily related to construction of military facilities.
“The court is somewhat skeptical that weighty national security interests are actually implicated here,” Contreras wrote.
The Hong Kong-listed company’s stock price has surged from 22.75 HKD ($2.93) to 24.45 HKD ($3.15) on Monday. Meanwhile, the smartphone manufacturer’s share price has fallen by 22.5% since the pending ban was announced on January 15.
In a statement, a Xiaomi spokeswoman welcomed the court ruling and argued that DoD’s designation was “arbitrary and capricious”.
“Xiaomi plans to continue to request that the court declare the designation unlawful, and permanently remove the designation,” said the spokeswoman. “Xiaomi reiterates that it is a widely held, publicly traded and independently managed corporation that offers consumer electronics products solely for civilian and commercial use.”
In January, the New York Stock Exchange delisted 31 companies alleged by the DoD to share links with the Chinese military, in response to an executive order signed by then President Trump last November. The list comprised some of China’s biggest telecommunications companies, including China Telecom, China Mobile and China Unicom.
Founded in 2010 by billionaire entrepreneur Lei Jun, Xiaomi focuses on developing smartphones and smart home devices connected by an Internet of Things platform. According to statistics from International Data Corporation, Xiaomi saw its share of the global smartphone market rise to 11.2% in the fourth quarter of last year, trailing only Apple and Samsung.