The Pentagon's addition of Baidu to its Chinese military companies list threatens to deepen US-China tech decoupling and has already drawn a sharp legal response from the search giant.
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Baidu rejects US military label as short selling hits 30%
The US Department of Defense added Baidu to its roster of Chinese military companies on Monday, triggering a swift denial from the search-engine operator and pushing short selling in its Hong Kong shares to 30.7% of turnover.
"There is no proper justification for placing Baidu on the list, and the allegation that Baidu is a military-industrial enterprise is entirely groundless," a company spokesperson said, adding that it will use all available means to seek removal.
The designation under Section 1260H of the National Defense Authorization Act also swept up Alibaba Group Holding Ltd., BYD Co., Qihoo 360 Technology Co. and drone maker Aerospace CH UAV Co. The Pentagon identified the companies as "military-civil fusion contributors" to China's defense industrial base. Two memory-chip makers — ChangXin Memory Technologies and Yangtze Memory Technologies — were reinstated after a brief removal from an earlier version of the list in February.
While the blacklist does not impose immediate financial sanctions, it bars the DoD from entering into or renewing procurement contracts with the designated firms and their affiliates. The move comes weeks after President Donald Trump met Chinese leader Xi Jinping in Beijing, with Xi invited for a reciprocal visit to Washington in September.
Baidu's Hong Kong-listed shares rose 0.9% on Tuesday, but short selling accounted for HK$142.6 million, or 30.7% of total trading volume — a level that signals bearish positioning among institutional investors. The company's American depositary receipts trade on Nasdaq under the ticker BIDU.
Alibaba also pushed back, calling its inclusion "a mistake" and threatening legal action. "There is no basis to conclude that Alibaba Group should be placed on the CMC List," the company said in a statement. BYD, the world's largest electric-vehicle maker by sales, did not immediately comment.
The Pentagon's list now includes more than a dozen Chinese technology companies spanning e-commerce, artificial intelligence, autonomous driving, cybersecurity and advanced manufacturing. Representative John Moolenaar, the Republican chair of the House Select Committee on China, urged US companies to "stop doing business with these threats to our national security."
The last major US escalation against Chinese technology firms came in October 2022, when the Biden administration imposed sweeping export controls on semiconductor equipment and advanced chips. That round erased more than $50 billion in market value from Chinese tech stocks within a week and accelerated Beijing's push for domestic chip self-sufficiency.
For Baidu, the designation adds regulatory overhang to a company already navigating a slowing advertising market and heavy investment in its Ernie AI chatbot platform. The company generated 133.1 billion yuan ($18.4 billion) in revenue last year, with roughly 60% coming from its core search business. Any restriction on US institutional investment in its ADRs could compress its valuation multiple, which currently trades at about 11 times forward earnings — a discount to US peers such as Alphabet Inc. at 22 times.
The Pentagon update is the first under the Trump administration's second term and signals continuity in the US approach to Chinese technology companies despite the recent high-level diplomatic engagement. Markets will watch for any follow-on action from the Treasury Department, which has the authority to impose additional sanctions on listed entities.
This article is for informational purposes only and does not constitute investment advice.
[1] BIDU-SW (09888.HK): Allegation of Being a Military-Industrial Enterprise Is Groundless, Will Use All Means to Seek Removal from List[2] BYD, BABA, BIDU In Focus — Pentagon Accuses Firms Of Aiding China's Military[3] Pentagon says Alibaba, Baidu and other tech firms aiding China's military[4] Baidu Responds to Inclusion on U.S. CMC List[5] Alibaba, Baidu and BYD are now US-designated military companies in a blacklist – What does this mean?
