Background:

On January 7, 2025 (U.S. time), the U.S. Department of Defense released the latest Notice of Availability of Designation of Chinese Military Companies [1], adding new companies such as Tencent and CATL to the Chinese Military Companies list. There are now 134 enterprises on the list, nearly doubling the 73 entities published in January 2024.

Tencent responded swiftly, stating that Tencent is neither a Chinese military company nor a military-civil fusion enterprise within China’s defense industry, and therefore its inclusion on the Chinese Military Companies list is a mistake. Tencent further stated that, unlike other lists established by the U.S. government to implement sanctions or export control measures, inclusion on the Chinese Military Companies list is only related to U.S. defense procurement matters and will not affect the Tencent Group’s business operations. In response to the DoD’s error, Tencent intends to initiate a reconsideration procedure to correct this mistake and, if necessary, take litigation actions to remove Tencent from the Chinese Military Companies list.

Suspected to be affected by this, although Tencent issued an announcement emphasizing that its business would not be impacted, its stock price still plummeted by about 10% over two trading days. In recent years, an increasing number of Chinese enterprises have repeatedly been placed on a dazzling array of restriction lists by the U.S. government under various pretexts. The capital market has become highly jittery, and ordinary investors have suffered significantly. To contain China’s development, the U.S. has established various restriction lists, the most notorious of which are the Entity List of the U.S. Department of Commerce and the Specially Designated Nationals and Blocked Persons List (SDN List) of the U.S. Department of the Treasury. The “Chinese Military Companies List” to which Tencent was added is administered by the U.S. Department of Defense.

Tencent’s encounter easily calls to mind the history of Xiaomi being placed on the Communist Chinese Military Companies (CCMC) list by the Trump administration in 2021, leading to expectations that Tencent, like Xiaomi, can correct the U.S. government’s mistake through litigation and other actions. Although both the CCMC list and the “Chinese Military Companies list” are published by the U.S. Department of Defense, their legal basis and impacts differ. This article intends to introduce the purpose, listing criteria, and impacts of the “Chinese Military Companies list,” and analyze the avenues for removal from the list by examining precedents such as the Xiaomi case.

[1] For the full text, see: https://public-inspection.federalregister.gov/2025-00070.pdf

I. The Purpose of the U.S. Department of Defense in Compiling and Updating the “Entities Identified as Chinese Military Companies Operating in the United States” List

This list is used by the U.S. government to identify Chinese enterprises that support the modernization of the Chinese People’s Liberation Army (PLA) through the integration of military and civilian technologies. According to the DoD’s own statements, the purpose is to highlight and counter China’s Military-Civil Fusion strategy. As the DoD understands it, this strategy supports the PLA’s modernization goals by ensuring that civilian entities, such as Chinese companies and universities, acquire and develop advanced technologies and expertise. To counter this strategy, Section 1260H of the National Defense Authorization Act for Fiscal Year 2021 directed the DoD to begin identifying military-civil fusion contributors operating directly or indirectly in the United States. Looking at the lists over the years, the coverage of the list updated by the DoD is becoming increasingly broad, involving Chinese enterprises in various fields, including artificial intelligence, aerospace, shipbuilding, and advanced materials. This also exposes that its purpose, aside from countering the military-civil fusion strategy, very likely includes suppressing technological advancement and development of Chinese enterprises in critical fields, regardless of whether these technologies are used for military purposes. [2]

[2] https://www.defense.gov/News/Releases/Release/article/3180636/dod-releases-list-of-peoples-republic-of-china-prc-military-companies-in-accord/

II. Criteria for Being Included on the “Chinese Military Companies” List

The U.S. Department of Defense has not publicly disclosed the exact criteria for adding enterprises to the “Chinese Military Companies” list (judging from the details of the Xiaomi case, the DoD’s inclusion decisions may possess a high degree of arbitrariness). Because the guiding principles and the source of authority for formulating and updating the “Chinese Military Companies” list derive from Section 1260H of the National Defense Authorization Act for Fiscal Year 2021, the criteria for inclusion can be examined through this Act and the publicly stated purposes of the U.S. government:

1. Ownership or Control

This is generally considered to be the primary factor the DoD considers when assessing whether to add a company to the “Chinese Military Companies” list. Basically, if the Chinese government or military holds significant shares in the company or exerts substantial control over its operations, the company is more likely to be designated as a “Chinese Military Company.” While this criterion seems clear, it actually has a large gray area, because there are no specific provisions or public documents indicating what degree of ownership or control might lead to inclusion on the list, and evaluations in practice may be full of subjective speculation.

2. Supporting the Modernization of the PLA

One of the DoD’s goals in creating this list is to identify and contain companies that can provide tangible support for the PLA’s goal of becoming a more advanced and powerful force. This category can cover a wide range of activities, from developing cutting-edge weapon systems to providing logistical support and training.

3. Participating in Military-Civil Fusion Activities

According to the U.S. government’s view, China implements a national strategy of blurring civilian and military research, development, and production, utilizing advancements in the civilian sector, such as artificial intelligence, biotechnology, or advanced materials, to promote military development. The DoD pays special attention to companies actively participating in the implementation of this strategy.

III. Adverse Impacts Faced by Enterprises Included on the “Chinese Military Companies” List

Being included on the “Chinese Military Companies” list may have adverse impacts on Chinese enterprises, and these impacts may be direct or indirect. Depending on the U.S. government’s influence in specific fields, there is also a significant difference in the degree of such adverse impacts. Generally speaking, potential adverse impacts include the following aspects:

1. Investment Restrictions

Companies placed on the list face restrictions on accessing the U.S. capital markets. Specifically, U.S. investors are generally prohibited from purchasing or selling the publicly traded securities of these companies, thereby hindering these companies from accessing this potential source of funding. These restrictions aim to limit the flow of U.S. capital to entities perceived as supporting China’s military, preventing U.S. investments from inadvertently facilitating the PLA’s modernization.

2. Export Controls

In terms of export controls, the U.S. government imposes stricter scrutiny on the transfer of goods, software, and technology to listed companies.

3. Potential Escalation of Sanctions in the Future

Companies added to the list do not necessarily face further sanctions; however, the U.S. government generally uses sanctions strategically to achieve specific goals or create a chilling effect. Therefore, the risk of suffering further restrictions does exist.

4. Reputational Impact

In the discourse system of the U.S. government and its supporters, an enterprise being labeled a “Chinese Military Company” by it brings a significant stigma that may damage the company’s brand image and stakeholders’ trust, potentially alienating customers and investors, which in turn leads to a deterioration in business operations. What the U.S. government may not realize is that if an enterprise is labeled a “Chinese Military Company” by it, in the eyes of the Chinese public, this is to some extent a “medal of military merit,” a reflection of technological advancement and the high social value of the enterprise itself.

IV. How Does the U.S. Government Enforce Its Sanctions and Investment Restrictions?

The U.S. government employs a multi-pronged approach, combining regulatory oversight, financial monitoring, and international cooperation to scrutinize transactions for suspicious activities and impose hefty fines, or even criminal penalties, on individuals and entities found to be violating restrictions. In addition, the U.S. government uses its powerful influence to demand that other countries share information and coordinate enforcement efforts, making it harder for listed enterprises to circumvent restrictions through shell companies or offshore accounts. Although the DoD is responsible for preparing and updating the “Chinese Military Companies” list, the investigation and punishment of acts violating U.S. sanctions and investment restrictions are spearheaded by the Office of Foreign Assets Control (OFAC) of the Department of the Treasury.

V. How Can Enterprises Included on the List Be Removed?

The U.S. Department of Defense has never publicly released specific criteria or procedures for removal from the list. Looking at its inclusion criteria, if an enterprise wishes to be removed from the list, it needs to prove that the initial inclusion was an error, or prove that it no longer meets the criteria for inclusion. If appealing to the DoD, the burden of proof rests almost entirely on the enterprise. The DoD’s review process is complex and opaque, and the outcome is likely to be influenced by multiple factors such as inter-agency coordination, partisan politics, interest groups, and the influence of lobbyists.

There are currently cases of companies being removed from the “Chinese Military Companies” list. Prominent examples are Advanced Micro-Fabrication Equipment Inc. China (AMEC) and IDG Capital, both of which were removed in December 2024. The specific reasons for the removal of AMEC and IDG Capital from the list have not been publicly disclosed in detail. This may be because disclosing specific details might leak confidential business information, or it may be because the U.S. government intentionally maintains a certain degree of ambiguity to provide greater flexibility (power) for its actions.

VI. How Long Does It Typically Take for an Enterprise to Be Removed from the List?

It cannot be generalized. The time required for removal from the list may vary wildly depending on a series of factors, such as the interplay of various forces, the complexity of the case, the initiative of the enterprise, and the workload and priorities of the DoD. Therefore, there is no exact timeline; it could be months or years.

VII. Avenues for Enterprise Relief

(I) Avenues for Relief

1. File an Appeal for Reconsideration with the DoD

This path is noted in the DoD’s notice publishing the list. However, regarding a unilateral reconsideration, there are no clear provisions on procedures, criteria, principles of review, deadlines, etc., so it is full of uncertainty, and its feasibility remains to be tested.

2. Litigation

This means seeking relief not within the internal procedural framework of the DoD, but by resorting to the judicial authorities. Judging from precedents, courts may conduct a review from the following aspects: (1) Due process: For example, did the enterprise have the opportunity to state its case before being added to the list? (2) Evidence: Was the DoD’s decision based on sufficient and reliable information? (3) Statutory authority: Did the DoD apply the law correctly when making the decision? Litigation outcomes vary. A court may support the enterprise, forcing the administrative agency to remove it. Or, it may support the DoD’s actions, dismissing the enterprise’s claims and leaving it to bear the legal costs. In addition, a court may also remand the case to the DoD, requiring it to provide more sufficient evidence or a more reasonable explanation.

(II) Successful Precedents

1. The AMEC Case:

AMEC is a chip equipment manufacturer that sued the DoD in August 2024, challenging its decision to add it to the list. Although the case did not go through a full trial, AMEC was ultimately removed in December 2024. It is difficult to determine whether the litigation led to the removal because the DoD did not explicitly state the reason for the removal. But the legal challenge very likely played a role, whether by prompting the DoD to re-evaluate its evidence or forcing it to choose to remake the decision to avoid a potentially unfavorable court ruling.

2. The Xiaomi Case [3]

The Xiaomi case is a classic example of an enterprise successfully challenging its inclusion on the U.S. government’s “Communist Chinese Military Companies” (CCMC) list. As detailed below, the CCMC list that Xiaomi was added to in 2021 is not the exact same list as the Chinese Military Companies list, but the two have many commonalities. Therefore, for enterprises included on the “Chinese Military Companies” list, the Xiaomi case is highly worthy of reference.

Xiaomi was added to the CCMC list by the Trump administration in January 2021. This action brought severe risks to Xiaomi, including potential investment restrictions and reputational damage. Xiaomi responded swiftly, suing the DoD and the Treasury Department, arguing that the decision was unlawful and lacked sufficient evidence. The U.S. government agreed to remove Xiaomi from the CCMC list in May 2021. Although the DoD did not explicitly admit the error, the settlement itself demonstrated that Xiaomi’s actions to defend its rights achieved immense success. Specifically, the following aspects of the Xiaomi case deserve high attention:

• The Xiaomi case had a significant impact on the legality of the CCMC list, raising questions about its accuracy, transparency, and due process. The Xiaomi case revealed that the DoD’s decisions may be arbitrary and politically motivated, rather than necessarily based on solid evidence. Xiaomi successfully argued that the DoD’s evidence designating it as a military enterprise was weak and unconvincing, relying heavily on vague connections to government awards without proving specific ties to military activities. This cast doubt on the rigor of the DoD’s assessment process and raised concerns about the reliability of its designations.

• The Xiaomi case exposed the opacity of the DoD’s decisions: Xiaomi’s legal challenge forced the DoD to defend its decision-making process in court, exposing its opacity and arbitrariness. The DoD initially refused to disclose its evidence, claiming national security concerns, but eventually had to reveal some details during the legal proceedings.

• The Xiaomi case raised due process concerns: Critics argue that enterprises are often added to the list without a sufficient opportunity to defend themselves or challenge the evidence against them. The materials in the Xiaomi case reflected that the U.S. government lacked sufficient justification for adding it to the CCMC list. Given that Xiaomi is a publicly traded company with global influence, and even it was unable to obtain a prior opportunity to defend itself, this raised concerns among critics about the potential arbitrary inclusion of other enterprises.

• Litigation may be more effective than reconsideration: Xiaomi’s ultimate successful removal from the list left a lasting mark on the credibility of the CCMC list. The Xiaomi case has become a cautionary tale, demonstrating the potentially positive effects of mounting a legal challenge against DoD decisions through litigation.

[3] Xiaomi Corporation, et al., v. Department of Defense, No. 21-280 (RC), 2021 WL 950144 (D.D.C. Mar. 12, 2021), https://casetext.com/case/xiaomi-corp-v-dept-of-def.

VIII. The Impact on Existing Investors of an Enterprise Being Added to the “Chinese Military Companies” List

Unlike some other restriction lists that require divestment within a specific timeframe, the “Chinese Military Companies” list itself does not impose holding periods on existing investors. It is primarily designed to deter future investment in enterprises linked to the Chinese military, rather than to retrospectively penalize existing investors. Therefore, theoretically, investors who have purchased shares of companies on the “Chinese Military Companies” list can hold them indefinitely. However, several key factors may influence investors’ (especially foreign investors’) decisions:

1. Future Restrictions

The “Chinese Military Companies” list itself does not impose restrictions, but it signals that more severe actions may be taken in the future. In capital markets, the chilling effect brought by this uncertainty is very significant. Forced divestment is one of the most severe actions the U.S. government could take against investors in companies on the “Chinese Military Companies” list. It is equivalent to the U.S. government demanding: “You must sell these stocks within a specified time, regardless of whether you want to.” Forced divestment typically involves legal orders or directives issued under existing laws (such as the International Emergency Economic Powers Act) or through new legislation specifically targeting companies on the “Chinese Military Companies” list. Theoretically, investors may have avenues to launch legal challenges against forced divestment orders, but such actions will undoubtedly face arduous challenges.

2. Sanctions

While the “Chinese Military Companies” list is not itself a sanctions list, companies on the list may be targeted by the U.S. government at a later date. The severity of sanctions is vastly different from merely being added to a list, having more direct and significant impacts on both the listed enterprises and their investors.

IX. Similarities and Differences Between the Xiaomi Case and the Tencent Case

As mentioned earlier, the CCMC list that Xiaomi was once added to and the “Chinese Military Companies” list that Tencent was added to are not the exact same list. However, the fundamental intention of the U.S. government in establishing these two lists is interconnected, and some enterprises are on both lists simultaneously. In this section, this article explains the key similarities and differences between the two lists.

1. Overview

The purpose of the U.S. government in creating both lists is to contain China’s military-civil fusion strategy and curb the development of the Chinese military. But there are also some important differences:

The Xiaomi Case: Xiaomi was designated as a Communist Chinese Military Company (CCMC) in January 2021. The CCMC list was created pursuant to Section 1237 of the National Defense Authorization Act for Fiscal Year 1999. It primarily focused on investment restrictions, prohibiting U.S. persons from purchasing or selling the securities of publicly traded companies included on that list. This list had a direct restriction on investment.

2. Details are shown in the table below:

Aspect of Impact	CCMC List (Xiaomi) (Communist Chinese Military Companies)	“Chinese Military Companies” List (Tencent) (Chinese Military Companies Operating in the U.S.)	Remarks
Investment	Direct: U.S. persons are prohibited from purchasing/selling securities. This may affect the company’s stock price and fundraising capabilities.	Indirect: Inclusion on the list does not itself restrict investment, but it may deter U.S. investors because they fear future actions.	The impact of the CCMC list is direct, whereas the “Chinese Military Companies” list is relatively indirect, mainly creating a perception of risk.
Reputation	Severe: In the mainstream discourse of the U.S. and countries influenced by it, being labeled under “military control” by China’s military damages an enterprise’s global image, making it harder to conduct business.	Significant: Raises alarms but is not as severe as “military control.” Still damages trust, especially for non-Chinese customers.	The degree of severity differs, but both lists may leave a certain negative impression on Western investors.
Future Restrictions	Possible: The company already faces investment bans, but further sanctions (e.g., export controls) may be imposed if the U.S. deems it necessary.	High: This list is often a precursor to future actions. Companies on the list are more likely to become targets of future restrictions.	Both lists increase the risk of escalation in U.S. actions.
Supply Chain	Indirect: If other companies fear being implicated through association, they may hesitate to cooperate with the listed company, disrupting its supply chain.	Indirect: The “guilt by association” effect also applies here. Companies reliant on U.S. partners are the most vulnerable.	-

In conclusion, although both lists aim to counter China’s military-civil fusion strategy and create a chilling effect, their legal origins are different, and their consequences are not entirely the same. The CCMC list that Xiaomi was once on directly affected investment, while the “Chinese Military Companies” list that Tencent is on serves more as a risk signal that could influence future policy decisions. Distinguishing the specific list a company is on is crucial for assessing potential risks and consequences.