The Pentagon announced on January 31 that it has added over a dozen Chinese tech companies to its blacklist due to their connections with the Chinese military.
The updated list, an ongoing initiative, aims to counter the Chinese Communist Party’s military-civil fusion strategy, according to a press release by the Department of Defense (DOD).
The strategy supports the modernization goals of the People’s Liberation Army (PLA) by acquiring advanced technologies and expertise from seemingly civilian entities.
Newly Blacklisted Companies
Among the newly blacklisted companies are memory chip maker YMTC, artificial intelligence company Megvii, drone maker Chengdu JOUAV, lidar maker Hesai Technology, and tech company NetPosa, as reported by the DOD.
This brings the total to over 70 Chinese firms designated by the United States as having ties to the Chinese military.
Notable companies already on the list include Huawei, chipmaker SMIC, aviation company AVIC, BGI Genomics Co, China Mobile, energy company CNOOC, and China Railway Construction Corp.
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Legal Requirement and Congressional Pressure
The designation of these companies is mandated by Section 1260H of the National Defense Authorization Act, which directs the Secretary of Defense to annually update the list of Chinese military companies until December 31, 2030.
The Pentagon initiated the list in June 2020.
Recently, on January 29, GOP senators urged Secretary of Defense Lloyd Austin to release the list, expressing concerns about the Department of Defense’s delay in adhering to the legal requirement.
Risks and Reputational Impact
Being listed on Section 1260H poses reputational risks for Chinese companies, notes Craig Singleton, a senior fellow at the Foundation for Defense of Democracies.
While it does not result in immediate bans, it serves as a warning to U.S. entities about potential risks in conducting business with these companies.
Some Chinese firms have attempted to be removed from the list due to the associated reputational damage.
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Legislative Measures and Executive Orders
In addition to Section 1260H, the National Defense Authorization Act prohibits the DOD, under Section 805 of the law, from contracting with any of the designated companies in the coming years.
To prevent investments in companies tied to China’s military, former President Donald Trump issued Executive Order 13959 in November 2020.
President Joe Biden expanded on this order in June 2021 with Executive Order 14032, which prohibited U.S. investments in companies affiliated with China’s military or surveillance industries.
Ongoing Congressional Efforts
U.S. lawmakers have introduced measures to track and prevent U.S. investments in Chinese companies contributing to the strengthening of the Chinese military.
In July, Senators Bob Casey (D-Pa.) and John Cornyn (R-Texas) introduced the “Outbound Investment Transparency Act.”
The legislation requires American firms to notify the Treasury Department if they have investments in Chinese firms with sensitive technologies, citing national security concerns.
As the U.S. continues to scrutinize and address the complex intersections of technology, business, and military interests, these developments underscore the ongoing challenges in managing relations with China and protecting national security.
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