Xiaomi: Blacklisted and DenialOn Jan. 14, the Trump administration added nine Chinese firms, including Xiaomi, to a list of companies that are owned or controlled by the CCP's military. Businesses on the list are subject to restrictions, including a ban on American investment.
Xiaomi Group's share price immediately plunged after this announcement, with its share price in Hong Kong falling 13.6 percent at one point.
Xiaomi quickly issued a statement on the following day, stating that "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."
Digging Deeper: The People Behind XiaomiA surface look at the business operations or shareholding structure of Xiaomi does not reveal direct ties to the CCP’s military. However, an investigation into a more important factor—the people who founded, control, and run the company—reaches a different conclusion.
Xiaomi’s founder Lei Jun is a senior executive and shareholder of Chinese software company Kingsoft. He joined the company in January 1992 and became the general manager as a young man of only 25 years old in 1994. In 2007, under his leadership, Kingsoft became a listed company in Hong Kong.
Zhang Kaiqing: Bypassing Western Restrictions and Shipping Chips to ChinaAccording to a feature story published in 2019 by Tencent, a Chinese multinational technology conglomerate, Zhang Kaiqing was born in Mauritius and moved to China in 1935. After graduating from Tongji University in Shanghai, he joined the communist army's Southward Service Corps in Fujian, where he was in charge of education and culture at the Quanzhou Military Management Committee and later served as the director of the teaching department at the Quanzhou School of Health.
In 1972, Zhang Kaiqing’s mother died in Hong Kong. He went to Hong Kong hoping to inherit some of her wealth, but ended up not getting anything. After that, he stayed in Hong Kong and entered the chip business.
Later, the CCP’s Commission for Science, Technology and Industry for National Defense (COSTIND) asked Zhang Kaiqing to set up a company so they could buy chips from him in the future.
The chips obtained through Zhang Kaiqing were used by the CCP to build submarines, satellites, and other applications.
COSTIND directly belongs to the Central Military Commission of the CCP, but was under the dual leadership of both the State Council and the Central Military Commission. It managed the CCP’s defense scientific research and the production and foreign trade of military products on behalf of the Central Military Commission.
Zhang Xuanlong: A Favorite of Hu Jintao and Jiang ZeminIn 1978, after supplying chips to the CCP for several years, a new Kingsoft was set up. Three years later, in 1981, Zhang Kaiqing’s son Zhang Xuanlong took over the company and specialized in the chip business.
In 1984, Zhang Xuanlong moved to Zhongguancun in Beijing, where he successfully worked with big companies like Sitong (known as Stone in 1984), Peking University’s Founder Group, and Lenovo. He eventually won himself the title “Godfather of Zhongguancun.” Zhongguancun is a technology hub in Haidian District in Beijing. Many high tech companies are located there.
Qiu Bojun: Winning an Award Personally Delivered by Jiang ZeminIn the late 1980s, Zhang Xuanlong decided to build and sell his own software. He opened an office in Shenzhen and recruited then 24-year-old Qiu Bojun, who developed WPS, a Chinese word processing software similar to Microsoft.
Kingsoft was later moved to Beijing in 1988 and handed over to Qiu Bojun.
Lei Jun and Qiu Bojun: Brothers and Comrades of 30 yearsIn 1992, Qiu Bojun recruited one of his big fans, then-23-year-old Lei Jun, to become the sixth employee of Kingsoft.
Lei Jun and Qiu Bojun experienced together and managed to pass through some very difficult times in the early 1990s.
In 1998, Kingsoft was able to obtain a $4.5 million investment from Lenovo, and 28-year old Lei Jun was promoted to CEO.
Lei Jun resigned as the CEO of Kingsoft in 2007 and was then re-designated from an executive director to a non-executive one in August 2008.
Xiaomi and Kingsoft: An Interwoven Military BackgroundIn 2011, when Kingsoft Office Limited was established, Lei Jun became the executive director. He is currently the director of the issuer and the honorary chairman of the board.
Lei Jun and GalaxySpaceHowever, Lei Jun’s ties to the CCP's military don't stop at Kingsoft. He is also an investor in GalaxySpace, whose mission is to “mass produce low-cost, high-performance small satellites” and create a "global converged 5G communication network.”
National Defense Project 973Deng also has the following titles: Director of Aerospace Institutions and Control Technology National Defense Key Discipline Laboratory; and National Defense 973 Project Chief Scientist, Head of The National "111" Project.
Then what is the National Defense Project 973?
GalaxySpace's Starlink BenchmarkThe background of GalaxySpace is even more mysterious.
After only over a year, GalaxySpace had developed China's first low-orbit broadband communication satellite with a communication capacity of 10 gigabits per second. The satellite was launched on Jan. 16, 2020, at the Jiuquan Satellite Launch Center. The rocket was a Kuaizhou 1A developed by China Aerospace Science and Industry Corporation. The satellite successfully entered its intended orbit.
Shortening the Gap With the US Within 2 YearsOn Nov. 11, 2020, the Chinese version of the Global Times published an article titled “GalaxySpace Receives New Financing. CEO Xu Ming: Building China's Internet Satellite."
Xu Ming: Connecting GalaxySpace and KingsoftAccording to GalaxySpace, Xu Ming is also the co-founder and former president of Cheetah Mobile, as well as the former technical director of Qihoo 360.
Satellite Internet: New Infrastructure for the CCPIn April 2020, the Development and Reform Commission of the Central Committee of the CCP also included satellite internet in the scope of "new infrastructure."
Starlink Targeted by the CCP as a Core Strategic Interest of the USStarlink is a satellite internet constellation project first proposed by SpaceX in January 2015 to provide high-speed internet access worldwide through satellites in near-Earth orbit. The company plans to launch approximately 12,000 satellites into near-Earth orbit between 2019 and 2024, building a giant three-layer satellite network that will eventually link all satellites into a giant "constellation" to provide 24/7 high-speed and low-cost global satellite internet coverage.
With more than 700 satellites already launched and deployed, Starlink plans to provide services that can almost cover the entire earth by the end of 2021 and will consider expanding to 42,000 satellites in the future.
In November of last year, the U.S. Indo-Pacific Command revealed the U.S. Space Force's Starlink program, stating that the U.S. Space Force was working with SpaceX to deploy a massive space satellite network chain, adding military satellites to the Starlink program.
Lei Jun and Shunwei Capital’s Role in the CCP's Satellite Internet ProgramAs a member of the CCP’s National People's Congress, Lei Jun has put forward proposals at the CCP's Two Sessions meetings for two consecutive years. At the 2019 National People's Congress, Lei proposed "Proposals on Improving Innovation Capability and Vigorously Developing the Industrial Space Industry." In the 2020 session, he proposed "A Proposal on Promoting the Development of Satellite Internet Industry."
After GalaxySpace successfully launched its first satellite, Lei Jun said on Weibo, "We at Shunwei Capital are very fortunate to have invested in GalaxySpace early and become a major investor in GalaxySpace.”
Lei Jun said, from 2018 to 2019, Shunwei Capital had survived based on its investments in GalaxySpace.
How Much Have Americans Invested in Xiaomi?Currently, the United States government is using two different blacklists of sanctions against Chinese companies with ties to the CCP regime: a list of entities compiled by the Department of Commerce and a list of the CCP’s military companies compiled by the Department of Defense. There are different sanctions for each type of target company. Xiaomi and Huawei are both on the Pentagon's list, while Huawei is also on the Department of Commerce's list.
Companies listed on the Department of Commerce's list are prohibited from doing business with United States companies without permission from the United States government, while companies on the Department of Defense's list of Communist Chinese Military Companies are prohibited from receiving investment from U.S. persons.
According to information on the Hong Kong CCASS (Central Clearing and Settlement System) website, as of Feb. 9, U.S. firms hold a large proportion of Xiaomi's shares.
Among them, JP Morgan holds 2.468 billion shares, accounting for 9.79 percent of the issued share capital; Citibank holds 2.327 billion shares, accounting for 9.23 percent; Goldman Sachs holds 722 million shares, accounting for 2.86 percent; and Morgan Stanley holds 469.8 million shares, accounting for 1.86 percent.
Altogether, these four United States companies hold 23.74 percent of Xiaomi’s shares.
Under former President Donald Trump's executive order issued on Jan. 14, United States investors are required to divest their securities in nine Chinese entities, including Xiaomi, by Nov. 11, 2021.
The Trump administration has argued that United States investment in Chinese companies supports the development and expansion of the CCP’s military, which has been pursuing a strategy of integrated civil-military development. This strategy supports the CCP’s military modernization goals by ensuring that the military has access to Chinese companies, universities, and research programs that appear to be civilian entities, in order to acquire and develop advanced technology and expertise.
According to Reuters, a senior administration official said that the Jan. 14 executive order “ensures that the United States retains a key tool to protect U.S. investors from funding Chinese military modernization.”
The executive order was amended by President Joe Biden to push back the Jan. 28 cutoff date when no further investments would be allowed.
On Jan. 27, in a statement posted on the U.S. Treasury Department website, the Biden administration said most investments in companies “whose name closely matches, but does not exactly match, the name of a Communist Chinese military company” would be allowed until May 27.