Some US media have exposed that some Chinese military entities listed on the military blacklist are attempting to continue operating in the US by changing their names and using authorization and licensing agreements.
According to a report by The Wall Street Journal on Wednesday, a laser radar manufacturer, Hesai Technology, registered a company named American Lidar in Michigan, United States, in December 2023. The headquarters of this planned company is located close to the three major US auto manufacturers.
However, the registration information for American Lidar did not mention Hesai at all.
On January 31, 2024, the US Department of Defense, under the National Defense Authorization Act Section 1260H, added Hesai Technology and several other Chinese companies to the list of “Chinese Military-Linked Companies”.
After being placed on this list, while their products are not immediately banned in the US – non-public-listed companies and automotive manufacturers can continue to purchase them, US entities and companies see this as a warning of the risks of doing business with them.
In April, lawmakers urged the Pentagon to ban the use of Chinese-manufactured technologies such as lidar on US military bases.
Following their inclusion on the Defense Department blacklist, Hesai’s stock price plummeted by 30% in one day and has not yet recovered. Nearly one-fifth of Hesai Technology’s revenue comes from the US.
The US Department of Defense did not respond to requests for comment from the media. Hesai also did not respond before the deadline.
A spokesperson for Hesai told Huari that American Lidar is a pseudonym, and the message the company wanted to convey is that their products would be manufactured and sold in the US.
However, Hesai Technology later halted the construction plans for American Lidar and blamed it on being added to the US blacklist.
In May, Hesai Technology filed a lawsuit against the US Department of Defense, arguing that it should be removed from the military-linked list as the company has no affiliation with any military and is not controlled by the Chinese government.
Hesai was listed on the Nasdaq in the US in 2023 and was the company that raised the most funds in that year’s initial public offering.
Previously, there were allegations that Hesai’s laser sensors could be used to collect sensitive data in the US. Laser sensors are crucial for the US automotive industry and military. Lidar enables cars to identify their surroundings and perform functions like lane-keeping and automatic braking.
Hesai Technology stated that its lidar does not have wireless image storage or transmission capabilities, and therefore does not pose a threat.
According to the 2023 report of the US-China Economic and Security Review Commission (USCC), Hesai’s core product is the LiDAR laser sensor system used in autonomous vehicles, a technology that the US military has deemed to have broad battlefield applications.
“The so-called privately-owned companies in China are subject to pressure and control from the government,” the report stated.
In 2017, China enacted the National Intelligence Law, which requires organizations and citizens to support and cooperate with national intelligence work. The Cybersecurity Law of 2017 in China requires companies to provide technical support and assistance to public security authorities.
The “Opinions on Strengthening the United Front Work of the Private Economy in the New Era” released by the Chinese government in September 2020 emphasized the importance of control the Communist Party has over the private economy (including private enterprises).
USCC cited Beijing political analyst Wu Qiang’s analysis, saying that this opinion is a reminder to these companies that they are always affiliated with the Party and are under its firm control.
“A common practice for companies facing regulatory or reputational issues is to establish subsidiaries or affiliated companies under different names,” the Huari report said.
For example: Chinese biotechnology company Wuhan Group recently renamed its subsidiary in Massachusetts to exclude Wuhan. The world’s largest drone manufacturer, DJI, reached an agreement with a US startup to sell drones in the US before a possible ban. Years ago, the Chinese telecommunications company Huawei established a US subsidiary called Futurewei before being sanctioned by the US.
Some policymakers and national security experts indicate that as the US government expands restrictions on Chinese companies doing business in the US through entity lists, Chinese companies are resorting to changing names and establishing US-based companies to continue selling products.
Derek Scissors, a resident researcher at the American Enterprise Institute, told Huari, “Chinese companies are being impacted and subsequently adjusting their business strategies, hopes to continue moving forward.”
An assistant in the US House of Representatives researching Chinese companies operating in the US stated that as the US government uses the blacklist to identify problematic Chinese companies and impose restrictions, it is expected that Chinese companies will increasingly engage in name changes.
Some lawyers believe that the actions of Chinese companies relocating production, changing names to register as US companies, or establishing subsidiaries under new names are legal. However, once these actions are exposed, raising national security concerns could eventually lead to substantial bans.
TikTok attempted to distance itself from its parent company ByteDance located in China by setting up a US headquarters and exploring ways to rename the app in the US over the course of several years.
Despite taking these measures, under a new law, this video application may face a ban. TikTok has sued the US government over this potential ban.