Blacklisted Chinese Companies Rebrand as American to Dodge Crackdown

Chinese firms trying to buffer themselves from Washington’s anti-China policies are rebranding and creating U.S.-domiciled businesses to sell their wares as the Biden administration expands the government entity lists that restrict Chinese companies’ business dealings in the U.S., say policymakers and national-security experts. The blacklisting has also created opportunities for American entrepreneurs who want to work with Chinese companies that are popular with U.S. consumers.

“Chinese firms take a blow but then adjust business strategy and are able to move in another direction,” said Derek Scissors, a former commissioner on the U.S.-China Economic and Security Review Commission.

TikTok spent years trying to distance itself from its China-based parent, ByteDance, by establishing a U.S. headquarters and exploring ways to rebrand in America. Despite the moves, the video app faces a possible ban under a new law. TikTok has sued the U.S. government, accusing it of violating First Amendment rights.

Chinese companies’ efforts to shift production, rebrand as American or set up subsidiaries with new names are legal, lawyers say. Still, such moves irritate regulators who can’t enforce laws when it isn’t clear who is behind a company.

“As the U.S. government turns to blacklists as a means of identifying problematic Chinese companies and as a means for imposing restrictions, the shell game is going to intensify,” said a House of Representatives aide researching Chinese companies in the U.S.  

A Massachusetts affiliate of Chinese biotech company BGI Group recently rebranded, striking “BGI” from its name. SZ DJI Technology, the world’s largest drone maker, struck a deal with an American startup to sell drones in the U.S. ahead of a possible ban. Years ago, Chinese telecom company Huawei Technologies set up an American subsidiary, Futurewei, ahead of U.S. sanctions on the company.

Lidar debate

Lidar maker Hesai became a target in the U.S.-China tech-trade war after allegations that its laser sensors, which are important to the U.S. auto industry and military, could be used to collect sensitive American data. Lidar allows cars to recognize their surrounding environment, enabling features such as lane keeping and automatic braking.

A month after it set up American Lidar to be its manufacturing facility in the U.S. heartland, Hesai was added to the Defense Department list that designates companies as Chinese military entities operating in the U.S. Its stock fell 30% in a day after the list was published and hasn’t recovered. Almost one-fifth of Hesai’s revenue comes from the U.S.

The Pentagon’s designation prohibits the U.S. military from buying Hesai products. Automakers and other private companies can remain buyers. Hesai says its lidars don’t pose a threat because they can’t store or transmit images wirelessly.

A Hesai spokeswoman said the name American Lidar was a placeholder, but the company wanted to communicate that the products would be made and sold in the U.S. Hesai has since paused plans for the American Lidar facility, blaming the fallout from being labeled a Chinese military entity.

Hesai filed a lawsuit this month against the Defense Department, asserting it should be removed from the list because it has no affiliation with any military and isn’t controlled by the Chinese government.

BGI Genomics 300676 0.00%increase; green up pointing triangle, part of China’s BGI Group, was added to the Pentagon’s list of Chinese military companies in 2022. A year ago, one of its subsidiaries in Massachusetts changed its name to Innomics from BGI Americas.

In an April statement, a congressional select committee said the name change was an attempt “to avoid regulatory scrutiny” and asked the Pentagon to add Innomics to its Chinese military-entity list.

BGI Group said it doesn’t do work for the military and its subsidiaries in the U.S. don’t have access to Americans’ personal data. Innomics said it doesn’t belong on the Pentagon’s list because it has no connection with the Chinese military and no operations in China.

National-security experts and lawyers say singling out individual Chinese companies invites rebranding and obfuscation. 

“You should not be sanctioning individual firms, you should be sanctioning technology sectors,” said Scissors, the former commissioner who is also a senior fellow at the think tank American Enterprise Institute, which advocates for assertive policies to deal with China.

A business opportunity

A new proposed ban from Congress targets Chinese drone maker DJI. The legislation is, in effect, a broad prohibition on the use of DJI drones by consumers as well as governments. The U.S. has warned that DJI might be sending data from its drones to Beijing and that its drones aid in human-rights abuses in China. 

DJI says these allegations are false. 

For Randall Warnas, the proposed bill presented an opportunity. 

Early last year, he struck a deal with DJI to license its technology for at least two drone models and sell them in the U.S. through a new startup, Anzu Robotics. Warnas is an American citizen and Utah resident who previously worked for DJI and Autel Robotics, another large Chinese drone maker.

Warnas said he got the blueprints from DJI for a licensing fee. He hired a manufacturer in Malaysia to assemble the drones. 

Anzu’s drones use DJI software. Warnas said his startup answers concerns about data-sharing with Beijing by storing data from the drones in the U.S.

“The whole intention was to comply with the United States’ request to not have Chinese drones operating in the U.S.,” he said.

Some in Washington are worried that DJI is using the deal to get around sanctions. Rep. Elise Stefanik (R., N.Y.), an architect of the bill to ban DJI drones, called it a “desperate attempt.” 

“DJI and all of its shell companies will be held accountable,” she said.

DJI said it gets frequent requests for collaboration, including licensing agreements, that allow it to continue making its drones widely available to users.

Write to Heather Somerville at heather.somerville@wsj.com

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