Frankfurt, Düsseldorf After Huawei, the Chinese technology group Xiaomi has also been sanctioned by the US government. The US Department of Defense lists the Beijing company on a list of “Communist-Chinese military companies”. The Xiaomi share then sagged on the Hong Kong Stock Exchange by more than ten percent. It also went downhill for papers from suppliers.
However, the sanctions against Xiaomi do not go as far as in the case of Huawei. While the US government has largely cut off the network equipment supplier from suppliers, Xiaomi initially asked US investors to sell their shares by November at the latest. In addition to Xiaomi, eight other Chinese companies are on the list (PDF document). The move is one of the last steps taken by US President Donald Trump.
A Xiaomi spokesman contradicted the assessment of the US authorities to the Handelsblatt. “The company is not affiliated with, nor is it owned or controlled by the Chinese military,” he said.
The company is preparing countermeasures, the spokesman announced, without giving any further details. Xiaomi expanded to Germany at the end of 2019 and opened a flagship store in Düsseldorf last summer.
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The Chinese government condemned the US actions. “The Chinese side will take necessary measures to protect the interests of Chinese companies,” said a Foreign Ministry spokesman.
Over the years, Trump has portrayed China as the greatest international threat to the USA and, among other things, claimed during the election campaign without any evidence that his competitor Joe Biden had been bought by Beijing. His government took action against various Chinese companies.
The hardest hit was Huawei. The network equipment supplier and smartphone manufacturer lost access to US technology – on account of the allegation that the Chinese government could force it into far-reaching cooperation. Huawei rejects this.
Before the sanctions, Huawei started to jump to the top of the world market in smartphone sales. Since the US bans, however, the group has not been able to sell any new models with pre-installed Google services. But these are extremely important for buyers in the West. Sales of smartphones in China remained unaffected, but Xiaomi has recently established itself as number three in the market after Samsung and Apple.
The U.S. Department of Commerce also blacklisted China’s third-largest state-owned oil company, CNOOC, which makes it harder for U.S. firms to do business with the company. As early as December, the USA had imposed restrictions on 60 other Chinese companies.
Xiaomi grew up selling cheap but technically sophisticated smartphones on the Internet. The company now also has all kinds of networked devices on offer, from televisions to rice cookers.
Effects for international investors
The fact that US investors will no longer be allowed to invest in the company’s securities in future means a major turning point for international investors. The share had risen by over 26 percent since mid-November, and by over 130 percent since January 2020. Now the upward trend should at least be dampened.
Trump’s actions also have consequences for investors outside the US. So-called ADRs, with which investors abroad can trade Xiaomi securities, have meanwhile collapsed by over ten percent. These American Depositary Receipts are US dollar-denominated share certificates or depository receipts that represent a certain number of shares in a foreign company and that can be traded on US stock exchanges in their place.
In addition, the shares of major Xiaomi suppliers also lost on Friday: FIH Mobile, a company that helps assemble smartphones, fell by almost 14 percent after a strong rally in recent days. The shares of the supplier Largan Precision, Sunny Optical Technology and AAC Technologies Holdings also fell. According to loan dealers, spreads on Xiaomi’s dollar bonds increased by as much as 60 basis points on Friday.
Financial analysts on site were surprised by the decision. Kevin Chen of the Hong Kong securities trading firm China Merchants Securities described the news as “very surprising”. Many investors should now reap profits from last year’s rally, according to Chen. Nevertheless, he explains that the downturns on the stock market could be “short-lived” and that no fundamental damage should arise for Xiaomi.
Trump had also tried since the summer to force a sale of at least the US business of the popular video app Tiktok to American investors. However, the Chinese government torpedoed the plans with export restrictions on software. Regardless of this fiasco, however, Trump’s government began to force eight more apps out of the US market in early January, including the payment services Alipay and Wechat Pay, which are popular in China.
In the closing stages of Trump’s term in office, his government made several major decisions in foreign policy that set Biden in front of a fait accompli. A few days ago, for example, Cuba was put back on the US terrorist list. In Yemen, the US government targeted the Houthi rebels, an ally of Iran in the civil war country. Washington had previously recognized Morocco’s sovereignty over the Western Sahara, surprisingly.
With agency material
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