The United States Department of Defense (DoD) has removed Chinese tech firm Hesai from its blacklist of companies, The Financial Times first reported this week. The move came after it was determined that the world’s largest maker of laser sensors for electric vehicles failed to meet the criteria for inclusion on the list.
The Shanghai-based Hesai was only added to the Pentagon’s “Chinese military companies” blacklist in January. Congress passed legislation in 2021 that required the DoD to maintain the list, which was designed to increase the scrutiny of groups with ties to Beijing that operated in the United States and allegedly helped modernize the People’s Liberation Army (PLA) via its “military-civil fusion” program.
After being placed on the blacklist, the company – which is publicly traded on Nasdaq – sued the DoD in May, arguing there was no evidence it maintained ties with the PLA. Hesai is just the latest company to successfully challenge the blacklist.
As noted by The Financial Times, Chinese smartphone maker Xiamoi was also removed from the list after a court ruled there was insufficient evidence to justify its inclusion.
The Pentagon declined to comment, citing the ongoing litigation, but the Chinese embassy in Washington said it was “happy to see the US correct the discriminatory practices and provide a fair, just and non-discriminatory business environment for Chinese companies.”
Lawmakers Responded
Several lawmakers were quick to vent following the news that Hesai was removed from the DoD’s blacklist, including Florida’s Republican Senator Marco Rubio, who said in a post on X (the social media platform formerly known as Twitter), “The Biden-Harris Administration should be doing more to restrict Chinese lidar companies, not giving China’s national champion the green light to infiltrate our military.”
Last December, Rubio was joined by Rick Scott, his fellow GOP Senator from the Sunshine State, in urging U.S. Secretary of Defense Lloyd Austin to add the Chinese firm to the DoD’s 1260H entry list. The Pentagon did so in January.
In May, Democratic Senator Bob Casey of Pennsylvania joined Rubio and Scott in calling for Nasdaq to revoke Hesai’s status as a publicly traded company to “prevent further investment in a company that is supporting the Chinese military.”
Irreplaceable Technology?
For its part, Hesai has maintained its LiDAR, a sensor technology that could be employed in the development of self-driving – or autonomous – vehicles, wasn’t being sold to the military.
“Our products are strictly for commercial and civilian use, and we have no connection to any military bodies. We are not a vendor to any military bodies,” the company said in a statement earlier this year.
However, lawmakers have still voiced concerns that the technology shouldn’t be controlled by a foreign-based company, especially one located in a potentially hostile nation.
“LiDAR is a foundational technology of the future and one we cannot let our adversaries control,” Rep. John Moolenaar (R-Mich.) told the Financial Times. “If the United States allows Chinese Communist party-affiliated firms like Hesai to dominate our market, we will cede our vehicles, factories, ports, and other critical infrastructure to direct CCP surveillance and manipulation.”
Irreplaceable Technology
Some Chinese officials have seen the about-face by the Pentagon as an admission that the U.S. is dependent on technology developed in China.
“The latest development shows that the U.S. market has demand for the company’s products, which remain irreplaceable for U.S. companies and consumers,” Lü Xiang, a research fellow at the Chinese Academy of Social Sciences, told the Chinese state-run Global Times on Tuesday.
That is a stretch, countered technology industry analyst Roger Entner of Recon Analytics.
“It says nothing about the irreplaceability of Chinese technology. That’s a propaganda interpretation of the change,” Entner told ClearanceJobs.
“The Pentagon is concerned with security and if its determinations hold up in court. If technology is not secure it will not and should not use it,” Entner continued. “There is no compromising on security.”
On the Blacklist and Off
The misstep may have been in putting the company on the list, only to then backpedal.
“This appears to have resulted from Hesai’s filing of a complaint about being blacklisted, they are a sensor company and their argument they shouldn’t have been blacklisted was compelling,” explained Rob Enderle, founder and principal analyst at the Enderle Group.
“Blanket blacklists are ill-advised because there are dependencies on technologies especially those that may be unique to a particular region or company,” Enderle, who is also focused on the tech sector, told ClearanceJobs. “Xiaomi also filed an appeal and was removed from the blacklist making the process appear capricious and poorly managed, which doesn’t reflect well on the U.S. government.”
The U.S. has sought to accuse all firms based in China of spying for Beijing, without proof. And while lawmakers warn that Chinese law could compel the companies to share their findings with the PLA, the lack of evidence remains a problem.
“Punishment should follow the evidence of a crime, not proceed with it yet that has not been how blacklisting has been done suggesting this entire process needs to be rethought and corrected so it does the protection job it is intended for and doesn’t make government regulators appear incompetent,” suggested Enderle.
“Hesai sued the DoD regarding being on the blacklist. The United States, unlike some other countries, has the rule of law and that means our government has to follow the law,” added Entner. “If they think they’d lose in court it is wise to adjust the decision ahead of such a decision.”
