Department of War Updates Section 1260H Chinese Military Companies List

The U.S. Department of War (DOW) on June 8, 2026, added 65 entities (17 parent companies and 48 subsidiaries) to its Chinese Military Companies list, also known as the Section 1260H List. Notable additions include Alibaba Group Holding Limited (Alibaba), Baidu, Inc. (Baidu), BYD Company Limited (BYD) and WuXi AppTec Co. Ltd. (WuXi AppTec). The update also removed 10 companies from the list, including several entities associated with major conglomerates China National Offshore Oil Corp. (CNOOC) and COSCO Shipping. This update came less than a month before a ban on DOW procuring goods and services from companies on the Section 1260H List became effective and follows a related, already-effective prohibition on contracting with entities who employ lobbyists for Section 1260H companies.

Doing business with parties on the Section 1260H List presents several types of risk for U.S. government contractors and their vendors, as well as for companies that work with lobbying firms that represent companies on the list. It also creates risk for parties supplying listed entities with items subject to the U.S. Export Administration Regulations (EAR) and increases the likelihood that the listed entities will be added to the U.S. Department of the Treasury's Non-SDN Chinese Military-Industrial Complex Companies List (NS-CMIC List), triggering restrictions for U.S. investors.

Background on the Section 1260H List

The Section 1260H List was established under Section 1260H of the William M. (Mac) Thornberry National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2021 (FY 2021 NDAA), which requires the Secretary of War to identify each Chinese Military Company operating directly or indirectly in the United States and publish updates annually. The term "Chinese Military Company" is broadly defined to include any entity that is engaged in commercial services, manufacturing or exporting, and is either 1) directly or indirectly owned or controlled by, affiliated with or acting on behalf of certain Chinese military, security or other government bodies, or 2) a "military-civil fusion" contributor to the Chinese defense industrial base.¹

Though Section 1260H of the FY 2021 NDAA did not specify any immediate consequences of designation as a Chinese Military Company, parties doing business with entities on the Section 1260H List may be exposed to risks under 1) rules relating to contracting with the U.S. federal government, 2) restrictions on transfer of items subject to the EAR to Military End Users in certain countries, including China, and 3) an increased likelihood that the entity will be added to the NS-CMIC List, triggering restrictions on U.S. investors. Further details about these risks are provided in Section III.

Notable Additions to and Removals from the Section 1260H List

DOW's June 8, 2026, update designated the following notable companies as Chinese Military Companies.

• Technology Companies
  • Alibaba
  • Baidu
• Biotechnology Companies
  • WuXi AppTec
  • Novogene Co. Ltd.
• Electric Vehicle and Battery Manufacturers
  • BYD
  • CALB Group Co. Ltd.
  • EVE Energy Co. Ltd.
  • NIO Inc.
• Solar Manufacturers
  • JA Solar Technology Co. Ltd.
  • Trina Solar Co. Ltd.
• Display and Optical-Component Manufacturers
  • Tianma Microelectronics Co. Ltd.
  • Zhongji Innolight Co. Ltd.
• Drone and Robotics Companies
  • Autel Intelligent Technology Corp. Ltd.
  • Hangzhou Yushu Technology Co. Ltd. (Unitree Robotics)
  • Robosense Technology Co. Ltd.

In brief commentary included with the updated Section 1260H List, the DOW indicated that Alibaba, Baidu and BYD were designated based on indirect affiliation with China's State-owned Assets Supervision and Administration Commission (SASAC) and military-civil fusion contributions through projects with the Ministry of Industry and Information Technology (MIIT). DOW also indicated that WuXi AppTec is indirectly owned by SASAC and affiliated with both the State Administration for Science, Technology and Industry for National Defense (SASTIND) and the People's Liberation Army (PLA).

The June 8 update also removed the following companies from the Section 1260H List:

• Anhui Sun Create Electronics Co. Ltd. – Electronic components, electronic systems and radio frequency (RF) technology
• China International Information Services Ltd. – Information services, media and data analytics
• China National Chemical Engineering Co. Ltd. – Chemical engineering, petrochemical construction and industrial infrastructure
• China Traffic Construction USA Inc. – Transportation infrastructure construction and engineering
• CNOOC China Ltd. – Offshore oil and gas exploration, production and energy services
• CNOOC International Trading Co. Ltd. – Energy commodities trading and international petroleum commerce
• COSCO SHIPPING Finance Co. Ltd. – Shipping finance, maritime financial services and corporate treasury
• Costar Group Co. Ltd. – Electronic components, connectors and precision manufacturing
• GLARUN Technology Co. Ltd. – Telecommunications technology, network equipment and information technology (IT) solutions
• Taiji Computer Co. Ltd. – Computer systems, IT services and government IT

Consequences of the Designations

Risks for Federal Government Contractors

Government contractors doing business with entities on the Section 1260H List should evaluate their exposure to several forthcoming procurement restrictions tied to the Section 1260H List and should carefully monitor for further Section 1260H-related developments.

DOW Procurement Ban

Effective June 30, 2026, Section 805 of the FY 2024 NDAA (Section 805) provides that DOW may not "enter into, renew, or extend a contract for the procurement of goods, services, or technology" with any entity that is either on or controlled by an entity on the Section 1260H List.

In its initial phase, the restriction will only apply to direct procurement from listed parties, whether via prime contract or subcontract. (DOW is expected to implement the prohibition through updates to the Defense Federal Acquisition Regulation Supplement (DFARS) not yet published.) However, effective June 30, 2027, the prohibition will expand to cover contracts "for the procurement of goods or services that include goods or services produced or developed by" entities on the Section 1260H List. This second phase dramatically increases risks for contractors by reaching into supply chains. It remains to be seen whether implementing regulations will only cover components or extend to subcomponents produced by entities included on the Section 1260H List.

Supplying noncompliant goods or services to DOW after the effective dates creates a risk of liability under the False Claims Act (FCA).

Mapping and, if needed, modifying supply chains to eliminate goods and services from entities on the Section 1260H List may take significant time, so contractors may need to begin work now to ensure compliance by the June 2027 deadline.

DOW AI Ban

Effective January 17, 2026, Section 1532 of the FY 2026 NDAA prohibits contractors from using artificial intelligence (AI) products developed by entities on the Section 1260H List during the performance of a DOW contract, unless granted a waiver by the Secretary of War.

The addition of Alibaba and Baidu significantly increases the burden and risk presented by this rule. Contractors can request waivers on a case-by-case basis but must demonstrate that no reasonable alternative exists and adequate risk mitigation measures are in place.

DOW contractors currently using AI products from either of these companies should immediately audit systems to ensure that neither product is being used to perform on a DOW contract or has access to DOW systems or devices.

BIOSECURE Act Procurement Ban

As discussed in a previous Holland & Knight alert, under Section 851 of the FY 2026 NDAA (BIOSECURE Act), all U.S. executive agencies will soon be prohibited from procuring or awarding grants related to any biotechnology product or service produced by a "biotechnology company of concern," which includes entities on the Section 1260H List.

Many U.S. biotech and pharma companies currently partner with WuXi AppTec, so its addition to the Section 1260H List presents a considerable compliance risk. Biotech and pharma companies contracting with or receiving grants from federal agencies should carefully review their supply chains for related risk now, ahead of implementation of the BIOSECURE Act, which is currently estimated to occur by June 2027.

3D Printer, Computer and Printer Procurement Bans

Effective December 18, 2026, Section 849 of the FY 2026 NDAA prohibits DOW from procuring additive manufacturing machines, also known as 3D printers, that are produced by entities on the Section 1260H List (with the exception of procurements for "intelligence, electronic warfare, or information warfare operations, testing, analysis, or training").

In addition, under Section 850 of the FY 2026 NDAA, DOW is required to phase out the procurement and acquisition of computers and printers produced by entities on the Section 1260H List and their subsidiaries. The phase out is graduated, allowing up to 90 percent of DOW computers and printers to be sourced from entities on the Section 1260H List in the first year, followed by reduction to 75 percent in 2027, 50 percent in 2028 and zero percent in 2029.

Prohibition on Contracting with Entities Employing Lobbyists for Section 1260H Companies (Section 851, FY 2025 NDAA)

Section 851 of the James M. Inhofe NDAA for FY 2025 (Section 851) prohibits DOW from entering into a contract with any entity – or the parent or subsidiary of any entity – that contracts with a person or firm that engages in lobbying activities on behalf of a Chinese military company identified on DOW's Section 1260H list. The provision targets the practice of Chinese military-linked companies retaining U.S. lobbying firms to influence U.S. policy and imposes liability not only on the lobbying firm itself but also on the lobbying firm's corporate parent and subsidiaries.

Under Section 851, the prohibition applies to contracts entered into after the date of enactment (December 23, 2024). DOW is required to maintain and publish a list of entities engaged in lobbying activities on behalf of Section 1260H companies. Contractors and lobbying firms should note that the prohibition extends beyond direct lobbying engagements: Any company whose parent or subsidiary lobbies on behalf of a Section 1260H entity may be disqualified from DOW contracts. Class Deviation 2026-O0025, effective June 29, 2026, implements the prohibition on DOW from contracting with companies that retain or contract with lobbyists representing Chinese military companies. The deviation creates a new DFARS Subpart 240.70 and contract clause, DFARS 252.240-7995 Prohibition on Contract Awards with Entities That Contract with Lobbyists for Chinese Military Companies – Representation.

The practical implications of Section 851 are significant. Government contractors should review whether any of their lobbying firms, public affairs consultants or government relations advisors – or the parent companies or subsidiaries of those firms – represent any entity on the Section 1260H list. Contractors should also include appropriate representations and certifications in their engagement agreements with lobbying firms to ensure ongoing compliance. Lobbying and government relations firms, in turn, should evaluate their client rosters for Section 1260H exposure, as accepting such engagements may render the firm and its affiliates ineligible for DOW contracts.

Risks for Parties Transferring Items Subject to the EAR

The EAR restricts the transfer of a range of hardware, software and technology subject to the EAR to military end users or for military end uses in certain countries, including China.²

The EAR definition of military end user differs from DOW's 1260H-related definition of Chinese military company, so inclusion on the 1260H List does not automatically mean that listed parties are military end users subject to the relevant restrictions under the EAR. However, designation of a party to the 1260H List is a red flag for potential status as a military end user for EAR purposes and therefore triggers a requirement to perform due diligence to evaluate the applicability of the EAR restrictions before providing the party with any item subject to the EAR.³

U.S. and foreign companies may be affected by EAR military end user and end use restrictions, since many foreign-produced items are also subject to the EAR, and risks may arise not only in sales to Section 1260H entities but also in other contexts, such as transferring specifications for purchase of custom-made items from Section 1260H entities or engaging in research collaboration or other partnerships.

Risks for U.S. Investors in Securities/Derivatives of Listed Companies

Addition of an entity to the Section 1260H List increases the risk that the U.S. Department of the Treasury will add the entity to its NS-CMIC List.

U.S. persons are prohibited from purchasing or selling any publicly traded securities of any party on the NS-CMIC List, along with any publicly traded securities that are derivative of such securities or are designed to provide investment exposure to such securities.

Though continuing to hold securities purchased before the designation is not prohibited, onward sale will not be possible absent authorization from the U.S. government, so investors should evaluate the risk of being unable to divest.

Key Takeaways

• Companies doing business with DOW should prepare now for the June 30, 2027, expansion of the procurement ban to goods or services that include Section 1260H List entity goods or services. Early identification of listed entities in the supply chain is critical to provide sufficient lead time to source alternative suppliers before the prohibition takes effect. Preparatory actions could include 1) supply chain audits that map not only direct (Tier 1) suppliers but also Tier 2 and Tier 3 suppliers to identify any entities on the Section 1260H List, 2) updating procurement questionnaires and existing contracts, subcontracts and supplier agreements to incorporate Section 1260H compliance representations and certifications, and 3) adding flow-down clauses requiring lower-tier subcontractors to certify that they are not providing goods or services produced by entities on the Section 1260H List. Contractors that identify noncompliance with Section 805 or related restrictions should timely consult with counsel regarding voluntary disclosure, which may mitigate potential suspension, debarment or FCA exposure.
• Biotech and pharma companies that contract with or receive grants from federal agencies should check whether they partner with WuXi AppTec or other 1260H entities, monitor the forthcoming "biotechnology company of concern" designations under the BIOSECURE Act and engage in contingency planning.
• Parties with customer or supplier relationships with Section 1260H entities should carefully consider whether those relationships entail transfer to the Section 1260H entities of items that are or may be subject to the EAR, implement a process for determining whether such items fall within the scope of the EAR military end user/end use restrictions and, if so, evaluate whether the Section 1260H entity falls within the EAR definition of "military end user." In the case of transfers that may have violated EAR requirements, prompt consultation with counsel regarding potential voluntary self-disclosure may mitigate potential liability.
• Investors should assess their current or future exposure to securities or derivatives in Section 1260H entities and carefully monitor changes to the Treasury Department's NS-CMIC List.
• DOW contractors and others with exposure to Section 1260H entities should confirm that their restricted party screening processes include the Section 1260H List, consider establishing internal processes for monitoring updates to the Section 1260H List on a regular basis and designate a compliance lead responsible for tracking changes and coordinating remediation efforts across affected business units.
• DOW contractors may also find it useful to consult with legal counsel to evaluate eligibility for waivers, assess exposure under overlapping China-related restriction regimes and develop a comprehensive compliance strategy.
• Government contractors and lobbying firms should evaluate exposure under Section 851 of the FY 2025 NDAA. Contractors should confirm that none of their lobbying firms, public affairs consultants or government relations advisors – or affiliates of those firms – represent any entity on the Section 1260H list. Lobbying and government relations firms should review their client rosters and implement screening processes to avoid inadvertently disqualifying themselves or their affiliates from DOW contracts.

Conclusion

U.S. government procurement restrictions related to Chinese military companies are expanding rapidly. With Section 805's supply chain prohibition taking effect on June 30, 2027, the Section 851 lobbying ban already in force and additional restrictions on AI, biotech and hardware procurement approaching, companies with any nexus to DOW contracting or Section 1260H entities should act now to audit supply chains, screen business relationships and establish compliance infrastructure.

Holland & Knight's Government Contracts Group continues to monitor these developments and is available to assist with compliance planning, voluntary disclosures and waiver applications. If you have any questions or for assistance with impacts to your business, contact the authors.

Notes

¹ "Military-civil fusion" refers to China's national strategy – formally elevated as state policy under Xi Jinping – to eliminate barriers between China's civilian commercial sector and its military and defense-technology sectors. The goal is to leverage private-sector innovations, academic research and commercial infrastructure to strengthen the PLA and China's broader defense capabilities. This includes efforts such as 1) directing civilian companies to conduct research with military applications, 2) encouraging or requiring technology transfer from commercial entities to defense programs, and 3) integrating civilian supply chains into military logistics and procurement.

² See 15 C.F.R. § 744.21.

³ Cf. e.g., 85 FR 83793, 83794 (Dec. 23, 2020) ("[Parties] included on the lists made public pursuant to Section 1237 of the NDAA of FY 1999, 50 U.S.C. 1701 note, would raise a Red Flag under the EAR and would require additional due diligence by the exporter, reexporter, or transferor to determine whether a license is required under § 744.21.").