The Chinese Military Network Behind the World’s Third-Largest Cell Phone Maker

Xiaomi was blacklisted by the Trump administration as a military-owned company controlled by the CCP

A man holds a smartphone in a file photograph. (Gabriel Bouys/AFP via Getty Images)

Xiaomi, the world’s third-largest cell phone maker and China’s second-largest, denied its connections to the military after it was blacklisted by the Trump administration as a military-owned company controlled by the CCP, but a closer look at the background and connections of its founder and CEO, Lei Jun, led to the discovery of a huge and tightly interwoven network of ties with the Chinese Communist Party's (CCP) military.

Xiaomi: Blacklisted and Denial

On 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."

Xiaomi has attempted to develop its own chips but has not been successful. Despite that, its global expansion has been very rapid, with major markets in India, Southeast Asia, and Europe.

Digging Deeper: The People Behind Xiaomi

A 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 from China was the founder of Kingsoft.

Zhang Kaiqing: Bypassing Western Restrictions and Shipping Chips to China

According 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.

During that time, Western countries were restricting technology exports to China under the Coordinating Committee for Export to Communist Countries agreement (pdf). As a result, the CCP couldn’t buy chips directly from the West. But Zhang Kaiqing used his personal connections to ship chips to China from abroad, according to Sohu.

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.

In March 1998, through an organizational reshuffle, the former COSTIND was reorganized as the Ministry of General Armaments, and a separate COSTIND that belongs to the government branch was established.

Zhang Xuanlong: A Favorite of Hu Jintao and Jiang Zemin

In 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.

Zhang Xuanlong became so successful that he was accompanied by both CCP heads Jiang Zemin and Hu Jintao when they went overseas to attend Asia-Pacific Economic Cooperation (APEC) as members of the entrepreneurial delegation.

Qiu Bojun: Winning an Award Personally Delivered by Jiang Zemin

In 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.

Qiu Bojun graduated from the National University of Defense Science and Technology of the People's Liberation Army (PLA). In 2001, he won the second prize National Science and Technology Progress Award and was personally received by Jiang Zemin. This was the highest national honor ever awarded to the software industry.

Lei Jun and Qiu Bojun: Brothers and Comrades of 30 years

In 1992, Qiu Bojun recruited one of his big fans, then-23-year-old Lei Jun, to become the sixth employee of Kingsoft.

Since then Qiu Bojun and Xiaomi’s Lei Jun have been as close as “brothers” and “comrades.” In an article entitled “Thirty Years of Qiu Bojun and Lei Jun,” Lei Jun was quoted as posting on his Weibo social media account: “30 years of my life, 30 years of brotherhood, all are so dear to my heart. How many 30 years can one have in one’s life, and how many such comrades can one obtain in his entire life?”

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.

Lei Jun has been the Chairman and Chief Executive Officer of Xiaomi since 2010.

Xiaomi and Kingsoft: An Interwoven Military Background

In 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.

The above facts show that Xiaomi’s founder, Lei Jun, has deep ties with Kingsoft, which has a strong military background and was established at the request of COSTIND, the CCP’s military commission.

Lei Jun and GalaxySpace

However, 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.”

Interestingly, Lei Jun’s name is only listed on the “about” page of the Chinese version of GalaxySpace, as one of the only three most important figures, but not on the English version of its “about” page. One would wonder what the company wants to hide from the English-speaking readers.

The other two most important figures on GalaxySpace's Chinese "about" page are its Chairman and Founder Xu Ming and Chairman of the Technical Committee Deng Zongquan, who is an academician from the Chinese Academy of Engineering.

National Defense Project 973

Deng 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?

According to the Chinese search engine Baidu, the full name of the National Defense Project 973 is the National Security Major Basic Research Program, also known as Military 973. National Defense Project 973 initiatives are strategic, fundamental, and forward-looking projects. They are national-level key basic research projects selected by the Ministry of General Armaments of the CCP in conjunction with the trend of future equipment technology development, and are conducted in cooperation with leading research institutions in related fields in China.

As a matter of fact, most of the projects in this category are confidential and are not disclosed to the public. The predecessor of the Ministry of General Armament is COSTIND, the CCP agency behind Kingsoft.

GalaxySpace's Starlink Benchmark

The background of GalaxySpace is even more mysterious.

According to its own website, “GalaxySpace was founded in 2016. We are committed to mass produce low-cost, high-performance small satellite through agile and fast-iterative development mode, and build the world's leading LEO broadband satellite constellation and a global coverage with 5G communication network.”

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.

One of GalaxySpace’s missions is to provide “global coverage with 5G communication network.” This mission is similar to SpaceX's Starlink program, which the CCP is closely watching and cares about a lot. According to a report in Chinese media, “the main target competitor for GalaxySpace's business is SpaceX's ‘Starlink’ program.”

According to a report (pdf) by China Galaxy Securities published on Dec. 31, 2020, Xu Ming, the CEO of GalaxySpace, said in February 2020 that after GalaxySpace launched its first satellite, it compared its technical indicators with those of the public tests of Starlink and came to two conclusions: firstly, it is possible to create satellite internet through low-orbit satellites that provide 4G and 5G network connections; secondly, Chinese satellite internet companies can fully use Starlink as a benchmark in terms of technology.

Shortening the Gap With the US Within 2 Years

On 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."

According to the article, GalaxySpace's second independently developed broadband communications satellite has now entered the final assembly stage. Xu Ming was quoted as saying, "Next, GalaxySpace will focus on building a super factory in Nantong to produce 300 to 500 satellites per year. Upon completion, the factory will be the first smart production line in China's commercial space industry to match the Starlink program, and is expected to shorten the gap between China's next-generation satellite production capacity and that of the United States to within two years.”

Xu Ming: Connecting GalaxySpace and Kingsoft

According 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.

According to Cheetah Mobile’s website, in 2010, “Kingsoft Security merges with Conew Image to create Kingsoft Network (later renamed Cheetah Mobile).”

From this, one can see that Xu Ming also has ties with Kingsoft, which has strong military ties.

Satellite Internet: New Infrastructure for the CCP

In April 2020, the Development and Reform Commission of the Central Committee of the CCP also included satellite internet in the scope of "new infrastructure."

At present, the CCP’s official national teams represented by the CCP's Space Science and Technology and Aerospace Science and Industry Group have proposed the "Hong Yun Project" and "Hong Yan Constellation" respectively.

In the meantime, private enterprises represented by GalaxySpace have also joined the CCP's satellite internet industry.

Starlink Targeted by the CCP as a Core Strategic Interest of the US

Starlink 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.

The CCP’s media has repeatedly and publicly claimed that the CCP's development of satellite internet is in the context of the CCP's national defense and that it targets the United States' Starlink program. What it wants to challenge is the core strategic interests of the United States.

Lei Jun and Shunwei Capital’s Role in the CCP's Satellite Internet Program

As 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."

Lei Jun also used his Shunwei Capital venture capital firm to directly invest in a number of aerospace enterprises.

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.

Public information shows that Shunwei Capital was founded by Lei Jun and  Xu Dalai in 2011. It manages a $2.96 billion fund and a 2 billion RMB fund.

According to China’s National Business Daily, Shunwei Capital started paying attention to the commercial space field in 2015 and 2016. From 2017, it has invested in four commercial space companies, including Interstellar Glory and Deep Blue AeroSpace in the rocket field, and Qiansheng Exploration and GalaxySpace in the satellite field.

Just one day before Xiaomi was blacklisted by the United States government, Beijing Securities Regulatory Bureau announced on Jan. 13 that Interstellar Glory planned to become a listed company on The Science and Technology Innovation Board of China. If the company is successfully listed, it will become the first private rocket stock.

According to public information, Interstellar Glory was founded in October 2016 and is the first private enterprise in China to complete the launch of a carrier rocket into orbit. The company's self-developed small scale solid carrier rocket was successfully launched from the Jiuquan Satellite Launch Center in China on July 25, 2019.

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.

In 2015, Chinese leader Xi Jinping proposed for the first time to elevate "military-civilian integration and development" to a national strategy for the CCP.

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.