Federal judge blocks US trading ban on Xiaomi

Xiaomi is China’s largest smartphone company, and with its roster of competitively priced smartphones, it overtook Apple last year as the world’s third-largest phone manufacturer. But a ban enacted late in the Trump administration was about to block all American investment in the Chinese smartphone giant.

Now a US federal judge has blocked that ban, paving the way for domestic companies to continue investing in Xiaomi. As a result, the company’s stock price spiked by at least 10% Monday.

In early January, in the final month of the Trump administration, the US Department of Defense put Xiaomi on a list of “Communist Chinese military companies,” also known as CCMC — companies that reportedly have links to the Chinese military.

That designation triggered restrictions that were to go into effect next week. American investors and companies would no longer be allowed to trade shares of Xiaomi.

However, US District Judge Rudolph Contreras issued an injunction over the weekend, temporarily stopping Xiaomi’s inclusion on the CCMC list.

Siding with Xiaomi in a lawsuit, the judge wrote that the Defense Department’s move was “arbitrary and capricious” and deprived the company of its due process rights. He also noted Xiaomi was likely to suffer “irreparable harm” without the injunction.

Contreras noted that since the CCMC designation, Xiaomi’s stock price dropped nearly 10%, it lost contracts worldwide, and major banks suspended its stock trading.

Although the judge’s injunction is temporary, he added that Xiaomi was likely to win a full reversal of the ban, as its lawsuit against the Defense Department continues to be litigated in court.

Contreras wrote that the Defense Department’s decision against Xiaomi was on “shaky ground” and that he was “skeptical that weighty national security interests are actually implicated here.”