Xiaomi rallies on US trading ban reprieve

Xiaomi shares climbed by more than a 10th after a US court granted the Chinese smartphone maker a reprieve from Trump-imposed restrictions on American investment.

Shares in the company, which has overtaken Apple as the world’s third-biggest smartphone maker, rose as much as 12 per cent in Hong Kong on Monday. 

US district judge Rudolph Contreras on Friday granted a temporary halt to the trading ban. He said the US case against Xiaomi was “deeply flawed” and that the smartphone maker would probably succeed in its lawsuit to remove its designation as a Chinese military-linked company.

The decision marked the latest instance of a US court blocking sanctions imposed by former president Donald Trump on Chinese companies.

A coalition of users of Tencent’s WeChat app succeeded in overturning a ban on the popular messaging app, while short video company ByteDance has also fended off government action.

The Trump administration used a collection of executive orders and at least two separate blacklists maintained by the Pentagon and the commerce department to target Chinese companies. 

It placed several dozen Chinese groups on the Pentagon list owing to alleged ties to the People’s Liberation Army, and dozens more on the commerce department’s “entity list”. The restrictions that make it very difficult for US companies to export technology to them without special permission.

Xiaomi sued the US government in January over its inclusion, which in conjunction with a separate Trump executive order would have barred US investors from owning its shares, potentially triggering its delisting from US exchanges and deletion from global benchmark indices.

“There were so many Chinese companies put on all of these lists so fast, the US agencies might not have fully developed the evidence against them,” said Wendy Wysong at law firm Steptoe & Johnson.

“Now the government is being asked to show the evidence. The ruling in Xiaomi’s case will inspire other listed companies to ask the courts to review the grounds on which they have been placed on these lists,” she said.

Washington cited Xiaomi founder Lei Jun’s recognition as an “Outstanding Builder of Socialism with Chinese Characteristics” by a Chinese ministry and the company’s investment in 5G and artificial intelligence as the main grounds for alleging the group had ties with the PLA.

In his ruling, Contreras noted that more than 500 entrepreneurs had received the same award, including “leaders of a Chinese powdered milk and infant formula company, the maker of a well-known chilli sauce brand and a barley wine producer”.

“There is plainly a lack of substantial evidence to adequately support a finding that Xiaomi is a [Communist Chinese military company],” he said.

Xiaomi said it would continue to pursue its case with the aim of having the court permanently remove its label as a Chinese military-linked company.