A US federal judge has temporarily blocked the Department of Defense from forcing American investors to divest from Chinese smartphone maker Xiaomi on the grounds that the company has ties to Chinese military.
In the final days of the Trump administration, the Defense Department placed Xiaomi on a list of companies with alleged links to the Chinese military, triggering financial restrictions that were scheduled to go into effect next week.
But now, the US District Judge Rudolph Contreras has put a temporary halt to the ban, siding with Xiaomi in a lawsuit that argued that the move was “arbitrary and capricious” and deprived the company of its due process rights.
Mr. Contreras said Xiaomi was likely to win a full reversal of the ban as the litigation moves ahead and issued an initial injunction to prevent the company from suffering “irreparable harm.” After the ban was announced, the smartphone manufacturer faced the prospect of being delisted from US exchanges and deleted from global benchmark indexes.
Xiaomi is the third-largest smartphone manufacturer in the world by volume. In the third quarter of 2020, it surpassed American iPhone maker Apple in smartphone sales, according to the International Data Corporation.
In November, former President Donald Trump signed an order barring American investment in Chinese firms owned or controlled by the military in a bid to pressure the Asian country over what the US has described as abusive business practices. The US has also implemented bans on popular Chinese-owned apps like WeChat and TikTok, invoking threats to national security.
But Mr. Contreras brushed those concerns aside in his latest ruling. “The court is somewhat skeptical that weighty national security interests are actually implicated here,” he wrote.
In a statement, a Xiaomi spokesperson welcomed the ruling. “Xiaomi plans to continue to request that the court declare the designation unlawful and to permanently remove the designation,” the spokesperson said.