- The U.S. Department of Defense (DoD) has updated its list of Chinese military companies under section 1260H, adding tech and new energy giants such as Alibaba (BABA:US), BYD (002594:SZ), and NIO (NIO:US). The latest version includes 80 parent companies and 188 affiliated entities.
- This list does not directly prohibit securities trading or freeze assets. Its core restriction is that from June 30, 2026, the DoD will be prohibited from direct procurement, and from June 30, 2027, indirect procurement through third parties will be banned, serving as a signal mechanism for risk aversion in global supply chains.
- Listed companies generally responded that it does not affect normal business operations and reserved the right to legal recourse. Market analysis indicates that investors have become desensitized to such policies, and China's export diversification and internal supply chain substitution are reducing the marginal effects of these external barriers.
Policy Scope Significantly Expands to Emerging Technology Fields
On Monday, the U.S. Department of Defense officially released the latest revised list of Chinese military companies. Compared to the previous version, more than 20 industry-representative Chinese tech and manufacturing companies have been added. Beyond traditional defense communications, the revisions clearly lean towards emerging disruptive technology fields, focusing on areas such as AI large models, electric vehicles, power batteries, and robotics. Specifically, this includes Alibaba and Baidu (BIDU:US) in the network and AI fields, Unitree in robotics, BYD and NIO in new energy vehicles, and leading companies in the semiconductor and optoelectronics fields like BOE (000725:SZ) and InnoLight (300308:SZ), with Changxin Memory and Yangtze Memory also remaining on the list.
Phased Implementation of Procurement Ban and Impact Assessment
According to Section 1260H of the Fiscal Year 2021 National Defense Authorization Act, the list does not involve a direct ban on securities trading or automatic asset freezing, lacking direct legal capital sanction effects. Its binding force lies in the DoD's budget procurement: from June 30, 2026, the DoD is prohibited from directly procuring products from listed companies; from June 30, 2027, indirect procurement through third parties is banned. Market analysis suggests that since these companies have minimal direct defense procurement business in the U.S., the list is more inclined to serve as a political signal mechanism, potentially triggering risk aversion in global supply chains, but with limited impact on actual revenue.
Defensive Responses from Companies and Market Desensitization
In response to the U.S. actions, several listed companies quickly issued defensive statements on Tuesday. Alibaba announced on the Hong Kong Stock Exchange that its inclusion on the list was erroneous and that it would take all feasible legal actions. BYD stated that the list does not affect normal business or dealings with non-DoD entities. NIO, listed on the U.S. stock market, clarified that the list is not a sanctions list and does not restrict securities trading. Chu Yanmin, Chairman of KGI Securities, noted that similar U.S. actions have become normalized, with investor sentiment clearly desensitized, not resulting in the dramatic sell-offs seen in the past, reflecting a gradual desensitization of the market to geopolitical risks.
Acceleration of Supply Chain Diversification and Domestic Substitution
China's hard tech industry's overseas layout has shown strong geographical diversification characteristics. According to the latest data from China's General Administration of Customs, exports grew by 11.8% year-on-year in the first five months of this year, demonstrating the effectiveness of market diversification. Zhou Mi, a senior researcher at the Chinese Academy of International Trade and Economic Cooperation, analyzed that the U.S. expansion is essentially a defensive policy projection against China's growing technological competitiveness. He emphasized that domestic substitution chains have formed in the semiconductor, AI, and new energy fields, with key technology localization accelerating. If cross-border barriers continue to tighten, it may further compel the enhancement of local supply chain resilience and the differentiation of U.S.-China end supply chains.
