Is A Prohibited Chinese Military Company Part Of Your Supply Chain?

This year, we all heard about TikTok and its influence on young Americans, US elections, and possible data leaks on the platform. The TikTok phenomenon has dominated US news cycles, but a lesser-known US Government directive is much broader and directly impacts many US companies.

The Mandate

The United States National Defense Authorization Act (NDAA) mandates an annual update to a list of Chinese military companies doing business in the US, even if that company provides commercial services or commercial manufacturing as part of its business model. From an international trade perspective, any Chinese company doing business in the US exporting products from the US is subject to placement on this List. You will be surprised at the breadth of this List.

What Is A Chinese Military Company

For this article, a “Chinese Military Company” is a company:

1. Operating in the US that receives assistance from the Chinese government or any other Chinese entity that the US Secretary of Defense adds to the List, or,
2. That is directly or tangentially owned, controlled, or beneficially owned by, or in an official or unofficial capacity acting as an agent of or on behalf of, the People’s Liberation Army or any other entity subordinate to the Central Military Commission of the Chinese Communist Party, and,
3. Engage in providing, producing, manufacturing, or exporting a commercial product or service.

The Required Nexus

There must be a nexus to the US, like a facility in the US or merely exporting product from the US to any foreign country. Note the breath of this nexus.

The List was first published in 2021 as the 1260H List found at Public Law 116-283 under the NDAA for that fiscal year. A few popular names are on that List, including Huawei and its subsidiaries and holding companies, various SMIC Corporation entities, Wuhan Navigation, China Telecom, China SpaceSat, and Aviation Industry Corporation and its many subsidiaries.

Thirteen obscure entities were added to the List in 2022; none were added in 2023, but 16 entities were added in 2024. Check the List before you engage a Chinese company with a nexus to the US to be part of your supply chain. You may be prohibited from doing business with that company not by specific authorization but through Section 805 of the fiscal year 2024 NDAA, which forbids the US Department of Defense from contracting with an entity on the 1260H List, or purchasing goods or services from a company on that List by contract, vendor or subcontract (any direct or indirect purchase).

Timeline and Exclusion

To give US companies time to adjust supply chains, Section 805 Entity prohibition becomes effective on June 30, 2026, and its goods and services prohibition becomes effective on June 30, 2027.

Excluded from the prohibitions are items supplied to the federal government as part of an end item or another component. The ban only applies to the extent the goods, services, or products developed by a 1260H entity are the end items acquired by the DoD customer, but excluded are components supplied by one of the entities if that component will be integrated into a higher-level product.

Check The List

From an international trade perspective, the US government is putting pressure on US companies not to engage with Chinese government-affiliated companies. You need to check the List often to ensure that your company is not doing business with a listed entity directly, or as a seemingly inconsequential part of your supply chain. If you are doing business with a listed company, then determine if the exclusion mentioned above is applicable to the transaction.