The U.S. Defense Department has updated its list of Chinese companies allegedly linked to the People's Liberation Army (PLA). The most notable new names on the list are memory maker Changxin Memory Technologies (CXMT), battery maker CATL, and cloud and gaming giant Tencent, reports Nikkei.
The U.S. Defense Department's 'Section 1260H' list has expanded to 134 companies, including major chipmakers SMIC and YMTC, high-tech giant Huawei, and server maker Inspur. Tencent Holdings, a leader in cloud and gaming and the parent company of WeChat, is among the new additions. Joining it are drone manufacturer Autel Robotics, China's leading DRAM maker CXMT, major battery producer CATL, and telecommunications equipment provider Quectel Wireless.
Quectel Wireless has publicly denied any connection to military activities and announced its intention to challenge its inclusion on the list. Other newly added companies have yet to comment on the matter.
The updated list also removed six entities, including AI developer Beijing Megvii Technology, China Railway Construction, China State Construction Group, and China Telecommunications, citing that they no longer meet the criteria for inclusion.
Inclusion on the U.S. Defense Department's Section 1260H list indicates that a company is believed to have ties to China's military. While it does not impose immediate legal or economic restrictions, the designation carries several significant implications as it could pressure the U.S. Treasury Department to impose restrictions, such as banning transactions or investments involving the listed companies. In addition, it can trigger the U.S. Commerce Department's Bureau of Industry and Security to add a listed company to its Entity List, which would block access of this company to American technologies, which includes advanced fab tools or software. Also, companies on the Section 1260H list may face increased scrutiny in their operations, heightened due diligence requirements from partners, and potential disruptions in accessing international markets.
While the inclusion on the DoD's list clearly inflicts some reputational damage, it is unlikely that CXMT's, CATL's, or Tencent's partners will cease to do business with these companies. It should be noted that all Chinese companies are banned from accessing advanced fab tools and leading-edge GPUs for AI and HPC, which further lowers the significance of inclusion into the Section 1260H list.
