On January 2, 2025, the U.S. Department of Defense (DoD) made a significant update to its 1260H List of entities identified as “Chinese military companies” (CMC). This essential update, required under Section 1260H of the National Defense Authorization Act (NDAA) for Fiscal Year 2021, has now expanded the list to include 76 entities, reflecting ongoing concerns about national security and foreign influence in the defense sector.
Who is a DoD Designated “Chinese Military Company”?
According to Section 1260H, a “Chinese military company” is defined in two major categories: firstly, an entity that is owned or controlled by, or acts as an agent of the People’s Liberation Army (PLA) or any component of the Central Military Commission of the Chinese Communist Party. Secondly, it includes entities contributing to the “military-civil fusion” of the Chinese defense industrial base. This fusion refers to the collaboration between civilian and military sectors in China, promoting technology transfer and enhancing military capabilities. To be designated, these entities must provide services related to commercial activities, manufacturing, production, or exporting.
Since the initial publication of the 1260H List in June 2021, the DoD has added numerous entities while also removing a select few, reflecting the fluid nature of international relations and corporate affiliations with the Chinese government. The latest update marks the addition of at least 70 entities and the removal of six, highlighting the dynamic assessments made by the DoD regarding potential threats.
New Restrictions and Processes
One of the most notable aspects of the January 2025 update is the introduction of a new process allowing entities to challenge their designation on the 1260H List. This process, likely a response to recent legal challenges, requires entities seeking reconsideration to submit a detailed account and supporting evidence for their removal from the list. This step is part of compliance with new expectations for transparency and justification in the designation of entities, as mandated by Section 1346 of the FY 2025 NDAA.
What Happens if an Entity is on the 1260H List?
Being designated on the 1260H List does not in itself impose prohibitions; however, it initiates a cascade of regulations and restrictions that have significant ramifications for the entities involved:
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Effects for Research Institutions: In a memo issued in June 2023, the DoD notified research institutions—such as universities and labs—that receiving DoD funding for fundamental research projects would now entail implementing mitigation measures if any associations or affiliations existed with entities on the 1260H List. This increased scrutiny ensures that funded research remains free from foreign influence that could compromise U.S. national security.
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Prohibition on DoD Procurement: With the implementation of Section 805 of the FY 2024 NDAA, the DoD will be prohibited from procuring products and services from listed entities starting June 30, 2026. The prohibitions will extend from direct procurement initially, then indirectly a year later, marking a strict stance against supporting entities associated with the military ambitions of the Chinese state.
- Contractual Restrictions: Additionally, Section 851 of the FY 2025 NDAA explicitly prohibits the DoD from contracting with companies that lobby for entities on the 1260H List, effective June 30, 2026. This clause reinforces the legislative intent behind the list, promoting higher ethical standards and risk management.
While these efforts put increased pressure on entities associated with the 1260H List, it is essential to note that companies and industries involved in dealings with these entities may also face additional compliance scrutiny, highlighting the broader implications for U.S. corporate practices.
Future Implications and Considerations
Looking forward, it is anticipated that Congress will continue its scrutiny of entities on the 1260H List. Proposals to harmonize the list with existing sanctions and export restrictions reflect an ongoing effort to mitigate risks associated with foreign influence, particularly from China. Previous discussions in Congress have indicated a willingness to consider stronger measures, such as potential asset freezes or restrictions on financial transactions involving designated entities, indicating that these matters will remain at the forefront of national security discussions.
In conclusion, the updated 1260H List represents a significant move by the U.S. government to safeguard its defense industry from foreign military influences. As regulations become more stringent and transparent processes are introduced for entities wishing to challenge their status, the implications for U.S.-China relations remain essential to monitor. The ongoing legislative landscape will likely evolve, demanding vigilance and strategy from both corporations and government bodies as they navigate this complex and increasingly fraught geopolitical arena.