Chinese biotech firm wins initial court case against Pentagon blacklisting

Chinese biotech company WuXi AppTec has won a temporary reprieve after a federal judge in the United States blocked the Pentagon from enforcing its decision to add the company to a list of entities allegedly supporting China's military, stating that the US Defense Department appeared to have misinterpreted key evidence.

On Friday, US District Judge James Boasberg issued an order preventing the Pentagon from implementing its June decision to designate WuXi AppTec as a "Chinese military company" while the company's lawsuit against the department proceeds.

Boasberg questioned the Pentagon's interpretation of evidence used to support its decision, including claims that WuXi AppTec was indirectly affiliated with China's State-owned Assets Supervision and Administration Commission (SASAC), as well as the country's defense industry regulators and the People's Liberation Army.

In one example cited in the ruling, a fund linked to the Aviation Industry Corporation of China (AVIC) had 5.32 percent of its investment portfolio allocated to WuXi AppTec and, according to the court document, the Pentagon treated that figure as if the fund held a 5.32 percent ownership stake in the company.

"That is simply wrong," Boasberg wrote, comparing the mistake to a family investing 5 percent of its savings in a blue-chip company, which would not mean the family owns 5 percent of that company.

The judge said similar issues applied to the Pentagon's claims regarding WuXi AppTec's alleged links to China's military, adding that such errors "call into question the rigor of the agency's decision-making process".

The ruling also highlighted the commercial impact of being placed on the list. Boasberg said the designation conveys a message to businesses that they should "steer clear" of the company. Since WuXi AppTec was added to the list, some customers and suppliers have canceled contracts or ended long-term partnerships, shifting business to competitors, the judge noted.

While the ruling does not permanently remove WuXi AppTec from the Pentagon's list, with Boasberg saying the department could make a new determination based on more complete evidence, WuXi AppTec welcomed the decision.

A company statement said the order "removes the immediate adverse consequences" WuXi AppTec faced as a result of the Pentagon's designation while the litigation continues.

The company told the court that it employs about 450 people in the United States, generates roughly 70 percent of its revenue from US customers, and that a majority of its board members and senior executives are US citizens.

The Pentagon expanded its list on June 8 to include WuXi AppTec, Alibaba Group and electric vehicle maker BYD, among others. Inclusion on the list does not automatically incur sanctions, but US government agencies are barred from entering into contracts with listed companies. Starting next year, restrictions will also extend to certain purchases of listed companies' products and services through third parties.

WuXi AppTec filed a lawsuit against the US Defense Department seeking to overturn the designation on June 11, while Alibaba filed a similar lawsuit on June 23.

To date, several Chinese companies previously placed on the Pentagon's list have successfully challenged their designations in court. Xiaomi and Hesai Technology succeeded in having their names removed through legal proceedings.