China’s Hesai to sue Pentagon after being reinstated to blacklist

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China’s Hesai plans to sue the US government after the Pentagon put the world’s biggest producer of laser sensors for electric vehicles back on its blacklist of Chinese companies affiliated with the military.

David Li, Hesai’s co-founder and chief executive, told the Financial Times the company planned to challenge the Pentagon’s decision in court.

“We are not a military company . . . we don’t contribute to or have any connection with the Chinese military or military body,” he said. “We operate independently, free of government control or military involvement.”

As relations between the two superpowers have deteriorated to historic lows, Washington has intensified scrutiny of Chinese technology groups that support the People’s Liberation Army or could pose a threat to US national security.

Measures have included cutting China’s access to advanced chip technology and restricting Chinese involvement in critical US infrastructure. The moves have hit China’s tech sector, giving new impetus to Chinese leader Xi Jinping’s push for technological self-reliance.

While inclusion on the defence department blacklist does not stop Hesai from selling products in the US, the company’s Nasdaq-listed shares have been hit, falling by almost half since January when it was first placed on the list.

Li said being blacklisted was causing “huge, significant harm” to the company’s reputation. While the company is trusted by existing customers, acquiring new global customers is “becoming more challenging”, he said.

Hesai is one of a growing number of Chinese tech companies taking legal action in the US to fight what they say are false accusations about their ties to the Chinese state and military.

Shenzhen-based DJI, the world’s biggest dronemaker, and Shanghai chip equipment group Advanced Micro-Fabrication Equipment are also suing the defence department over their inclusion on the same blacklist as Hesai.

The legal challenges are expected to test whether the Chinese private sector companies can convince US courts that they are not linked to China’s state and military.

Hesai was first placed on the Pentagon’s list of “Chinese military companies” in January. The company began legal proceedings against the Pentagon in May, saying there was no evidence it was connected to the PLA.

Three months later, executives thought they had won a reprieve when the FT reported that the defence department decided Hesai did not meet the legal criteria for inclusion on the blacklist.

Last week, the Pentagon officially delisted Hesai on the original grounds but immediately relisted the company based on new information.

A US defence official said “Hesai continues to meet the requirements for inclusion” but declined to give further information.

Li said the reasons given by US officials for being added back on the blacklist were “vague claims” that Hesai supported China’s military-civil fusion programme.

“We look forward to proving that these allegations are as unsubstantiated and weak as the original ones that [the defence department] recently refused to defend in court,” he said.

Hesai’s efforts to talk to US officials directly about their concerns have been unsuccessful, said Li.

Congress passed legislation in 2021 requiring the Pentagon to compile a list of “Chinese Military Companies”.

Among the key US concerns is the potential for China to exploit so-called dual-use technologies originally developed by the private sector for civilian applications but can later be harnessed for military purposes.

In an August court filing, DJI said it had sought to engage the defence department for more than 16 months, but it “refused to meaningfully engage”, declining to provide its rationale for DJI’s designation and ignoring the company’s requests for a meeting.

Hesai reported annual revenue of Rmb1.9bn ($264mn) in 2023, with about 40 per cent attributed to the US market. The company encompasses about 40 per cent of the global market for car lidar, including for advanced driving and robotaxis, according to research company Yole Group.

Additional reporting by Felicia Schwartz in Washington