By Chong Koh Ping

Smartphone giant Xiaomi Corp. became the latest Chinese technology group to be targeted by the Trump administration, with its surprise addition to a U.S. investment blacklist sending its shares sharply lower.

The addition of Xiaomi wrong-footed analysts and investors. Xiaomi, a consumer electronics company that focuses on mobile phones and household appliances, had managed to avoid U.S. pressure even as Washington tightened the screws on Chinese tech groups including Huawei Technologies Co., seeking to curb their access to American technology and funding.

Xiaomi's stock has more than doubled in the past 12 months and the company has been rapidly gaining market share. In the third quarter of 2020, it overtook Apple Inc. to become the world's third-largest smartphone maker, according to Gartner.

On Thursday, the U.S. Department of Defense added Xiaomi to a list of companies it says support China's military. Under the terms of an executive order issued by President Trump, the designation means that after 60 days, U.S. investors won't be able to buy Xiaomi stock, and they have a year to sell existing holdings.

Xiaomi's Hong Kong-listed shares fell almost 14% Friday before closing 10% lower.

The company said Friday it provides products and services for civilian and commercial use, and wasn't owned, controlled or affiliated with the Chinese military. In a filing to the stock exchange, it also said it wasn't a "Communist Chinese military company" under the U.S. definition.

Xiaomi said it would take appropriate action to protect itself and its shareholders.

"It hadn't crossed my mind that it'd be classified as a Chinese military company," said Kevin Chen, a tech hardware and telecommunications analyst at China Merchant Securities. "But at least it isn't on the entity list," he said.

Because Xiaomi isn't on the Commerce Department's so-called entity list, which restricts companies from exporting U.S.-origin technology to firms without a license, Mr. Chen said the company would be able to continue using chips from Qualcomm and the Android operating system from Alphabet Inc.

That is in contrast to Huawei, whose overseas sales have fallen because of U.S. supply restrictions. Mr. Chen said Xiaomi has a good chance of picking up Huawei's smartphone market share in Europe.

Paul Triolo, an analyst at political-risk consulting firm Eurasia Group, said Xiaomi's blacklisting was a mystery, and it didn't have known major links to China's People's Liberation Army. "The criteria for inclusion remains opaque," he said.

In addition to Xiaomi, Shanghai-listed Advanced Micro-Fabrication Equipment Inc., state-owned passenger-jet maker Commercial Aircraft Corp. of China, or Comac, and six other companies were added to the list Thursday.

Before the addition of the nine companies Thursday, the investment ban already covered 35 companies, many of them large conglomerates with numerous publicly traded units. The Treasury Department has said it would add company subsidiaries to the list, and has also said the ban extends to some units whose names closely match those of banned entities.

This week, The Wall Street Journal reported that the U.S. government was expected to let Americans continue to invest in Chinese technology giants Alibaba Group Holding Ltd., Tencent Holdings Ltd. and Baidu Inc., after weighing their potential addition to the blacklist, but was set to add nine other companies.

Mr. Triolo said the latest list was "almost certainly the last salvo" in the Trump administration's last days. He said the incoming Biden administration was likely to review the most recent additions in the 60 days before curbs take effect, and could subsequently roll back or modify the actions.

Write to Chong Koh Ping at chong.kohping@wsj.com

(END) Dow Jones Newswires

01-15-21 0402ET