Summary of Key Points
The latest version of the U.S. 1260H list includes well-known Chinese companies such as WuXi AppTec, Alibaba, and BYD. WuXi AppTec has responded firmly, stating that the designation is a "misunderstanding" and intends to pursue legal action to defend its rights. In the past few years, companies like Xiaomi and SMIC have successfully challenged this list through the U.S. legal system, indicating that Chinese enterprises are shifting from passively accepting restrictions to proactively using the rules to navigate the situation. Moreover, the 1260H list has expanded beyond traditional military-related sectors to encompass China's most competitive industries (such as AI and biotechnology), becoming a "map of strategic priorities" for the United States. The development of this ability to engage in rule-based negotiations is more significant than individual victories or defeats.
Understanding the 1260H List: It's Not a "Death Sentence"
Many companies panic when they see their names on the list, but the 1260H list is different from the so-called "entity lists":
- Entity Lists: These are equivalent to "technology blockade orders," directly restricting U.S. companies from exporting technology or components to you (for example, Huawei was affected by chip restrictions), and they are immediate and severe sanctions.
- 1260H List: This list primarily targets the U.S. Department of Defense's procurement system—meaning the Department cannot sign new contracts with the listed companies, and it may gradually restrict supply chains (for instance, preventing suppliers from providing products to the Department). It is more like a "long-term restriction warning" rather than an immediate cessation of all business activities, giving companies time to try to reverse the situation.
This is why WuXi AppTec dared to respond so forcefully: being on the list does not mean immediate doom; there is still room for legal action.
Change: Chinese Companies Are No Longer Passively Accepting Restrictions
Five years ago, when Xiaomi was included in the list, many thought it was impossible for a Chinese company to win against the U.S. Department of Defense. However, the situation has changed significantly:
- Xiaomi Set a Precedent: In 2021, Xiaomi was listed because Lei Jun had received an entrepreneurial award from the government. Instead of focusing on whether its activities were related to the military, Xiaomi argued that the U.S. Department of Defense's evidence was flawed (many other companies in the same category were also awarded). Using the U.S. Federal Administrative Procedure Act (which ensures that government actions follow rules), Xiaomi successfully won the case and was later removed from the list.
- SMIC Confirmed the Approach: SMIC, a semiconductor equipment company, was listed twice but was removed after providing legal documentation proving its non-military involvement.
- Hesai Took the Negotiation to the Next Level: Hesai, a lidar company, initially lost the lawsuit but appealed, questioning the fairness of the criteria used for inclusion. This moved the debate from "do I have a problem?" to "are the rules themselves reasonable?" WuXi AppTec's strong response builds on these precedents by quickly responding and initiating legal proceedings to try to reverse the restrictions before they take effect.
The List Is Expanding: The U.S. Is Targeting China's Competitive Industries
The 1260H list was initially designed to restrict Chinese military enterprises but has now become more like a "blacklist of China's competitive industries":
- Early targets included military and aerospace companies (such as Chengdu Aircraft Industry Group and Aerospace Science and Technology Corporation).
- Later additions included drone manufacturers (DJI), battery manufacturers (CATL), and internet companies (Alibaba, Baidu).
- Current targets include AI and new energy vehicles (BYD) as well as biotechnology companies (WuXi AppTec, BGI).
Why? These industries are where China has a global competitive advantage. For example, WuXi AppTec is a leader in global biotech outsourcing, and BYD's new energy vehicles are sold worldwide. The U.S. is concerned about China's leadership in these areas and uses the list to restrict our development. This list essentially reflects the U.S.'s strategic focus.
The Real Victory: Enterprises Have Gained New Skills in Rule-Based Negotiations
In the past, Chinese companies faced U.S. restrictions either through government mediation or by passively accepting them. Now, they:
- Know which U.S. lawyers to hire (those familiar with administrative law and the Department of Defense's procedures).
- Understand how to gather evidence (e.g., proving their non-military involvement).
- Know how to conduct multiple actions simultaneously, such as litigation, public relations, and communication with customers (e.g., informing investors that they are taking legal action).
This ability is not about winning a single lawsuit; it represents a significant "upgrade" in Chinese companies' globalization strategies. Previously, they competed on products and technology; now, they also need to understand and use the rules.
The Future: More Companies Will Be Added to the List, but They Are Better Prepared
The U.S. will likely continue to expand the list, but companies now have past experiences to guide them:
- WuXi AppTec is not the first nor the last to use legal means to defend itself; previous cases have established a framework: quick response → legal proceedings → questioning the criteria → communicating with all parties.
- Even if they lose a lawsuit, they can still contribute to making the rules more transparent (as shown by Hesai's appeal).
The future competition will not only be about products and technology but also about rules and systems. Chinese companies are learning to negotiate using U.S. regulations—a necessary skill for surviving in global competition.
In Conclusion: The U.S. list may change, but Chinese companies have moved from being passive victims to active participants in these rule-based negotiations. The development of this ability is more important than any single legal victory.