XiaoMi Sanction: Bye-bye or Not-Yet?

On Jan 14 of 2021, Xiaomi Corporation was sanctioned by the Trump Administration along with 9 other Chinese companies. This new U.S. investment ban forces American investors to divest their holdings off the blacklisted firms by Nov 11 of 2021. Many people wonder the extent that Xiaomi would be affected, and whether they will face harsher treatments during Biden’s term.

Xiaomi Overview

Xiaomi surpassed Apple Inc. in smartphone sales in the third quarter of 2020, according to the International Data Corporation. It became the world’s third-largest smartphone maker by shipments, edging the U.S. tech company out of the global top three for the first time in 10 years. It also joined Hong Kong’s Hang Seng Index in September after grabbing market share from Huawei Technologies Co. as U.S. sanctions on Huawei intensified.

Impacts Limited?

Currently, Xiaomi is added to the ‘Blacklisted companies’ category under Trump Administration suspecting its military ties with the Chinese government (although not proven). Xiaomi may be potentially barred from conducting any business with U.S.-based companies. Any company using hardware or software developed primarily in the U.S., which includes many chip foundries and chip design firms, would also be subject to a trade ban with Xiaomi.

The ban itself only limits the investment from American citizens and corporations, the supply chain has not yet been stopped. However, the impacts on the capital markets seemed to be quite strong. The chart below screenshotted a 14%-price-drop after the news was announced.

But immediately following the drop, Chinese money (including Chinese securities firms such as CICC, CITIC, also some state-back companies, banks and funds) along with some foreign Hedge Funds started to purchase Xiaomi shares heavily. As a result, the price was pushed back up to its pre-sanction levels.

Xiaomi’s Response

“In any case, if in the future something happens, we have a plan B. Among other things, we are investing heavily in various semiconductor manufacturers in China, but we believe that our business strategy should not be conditioned by decisions made by politicians. Until now, we have opted for integrating the best components into our products, and we will continue to do so in the future”, Abi Go, Xiaomi’s global product manager said.

Further Readings :

US sanctions China National Offshore Oil Corp and Xiaomi

Xiaomi Takes $11 Billion Sanction Hit, Chinese Financials Pre-Announce Positive Earnings, Week In Review

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