Navigating Risks with 1260H-Listed Companies
The Department of Defense’s (DoD’s) annual publication of the Section 1260H List of Chinese Military Companies (CMCs) is a critical part of U.S. national security policy. Mandated by the Fiscal Year (FY) 2021 National Defense Authorization Act (NDAA), the list aims to publicly identify entities linked to China’s military-industrial complex, thereby seeking to discourage businesses from engaging with CMCs and preventing the Chinese military from leveraging the U.S. economy. While the 1260H List does not impose direct prohibitions, various state and federal laws increasingly rely on the list as a foundation for restrictive actions. Companies that do not monitor the list —and the evolving legal landscape surrounding it— risk substantial reputational, financial, and legal consequences.
What is Section 1260H?
Section 1260H requires the DoD to identify and publish, at least annually, entities operating “directly or indirectly” in the United States that are linked to China’s military objectives. The list serves two primary purposes:
Expose companies associated with China’s military, thereby informing businesses of potential risks.
Encourage strategic decoupling by discouraging U.S. companies from relying on or conducting business with these entities to protect national security interests.
Under the statute, a “Chinese military company” is broadly defined to include entities that are:
Owned (directly or indirectly) controlled, or acting as an agent of the People’s Liberation Army (PLA) or the Central Military Commission of the Chinese Communist Party.
Any “military-civil fusion contributor” to the Chinese defense industrial base, broadly defined to include “any other entities the Secretary determines are appropriate.”
How the 1260H List Has Evolved?
Since its introduction in June 2021, the 1260H List has been published annually as statutorily required. The initial list identified 47 entities; in October 2022, 13 more were added. By January 2024, the list grew by 16 new entities, while three were removed because of a lack of U.S. nexus or changes in ownership.
In December 2024, Advanced Micro-Fabrication Equipment Inc. China (AMEC) successfully contested its designation in court, resulting in its removal. The most recent update, published in January 2025, expanded the list to 76 entities, adding major Chinese companies such as Tencent Holdings, CATL, SenseTime, and Autel Robotics.
Likely in response to legal challenges brought by AMEC and Hesai, the January 2025 list also introduced a reconsideration process requiring the DoD to provide written justifications for additions or removals and to allow entities to contest their inclusion by submitting supporting evidence.
Compliance Risks You Should Consider
Although Section 1260H does not explicitly prohibit dealings with listed entities, its secondary effects are extensive. Businesses should note the following:
Section 805 DoD Contracting Restriction:
Direct Prohibition (Effective June 30, 2026): DoD is barred from entering into any contract with a 1260H-listed entity.
Indirect Prohibition (Effective June 30, 2027): DoD cannot procure goods or services that incorporate products from listed entities, except when they are components within a higher-level assembly.
State-Level Actions: Certain states have integrated the 1260H List into local laws. For example, Utah prohibits listed entities from purchasing land or engaging in specific business activities under Section 63L-13-201.
Research and Development Funding: A June 2023 DoD memo requires federally funded research institutions to implement mitigation measures if those institutions are associated with entities on the 1260H List. This can significantly affect research partnerships and funding.
Restrictions on Lobbying Connections: Section 851 of the FY2025 NDAA prohibits the DoD from contracting with companies maintaining lobbying ties to listed entities, tightening compliance requirements effective June 30, 2026.
Department of Homeland Security Appropriations Restrictions: Section 536 of the Further Consolidated Appropriations Act of 2024 prohibits federal funds from being used by the Department of Homeland Security to contract with, issue grants to, or otherwise support any 1260H-listed entity.
Overlap with Other Restricted Party Lists: Some entities on the 1260H List also appear on other U.S. restricted lists, such as the BIS Entity List or Treasury’s NS-CMIC List, triggering additional restrictions, such as access to U.S. technology and capital.
Transactional and Reputational Risks: Inclusion on the 1260H List can lead to indirect restrictions beyond formal regulations. Business partners may insist on severing ties to mitigate reputational risks. Transactions involving these entities frequently raise compliance concerns, as many screening providers flag them. This can result in delays while compliance teams investigate the issue.
Preparing Your Business for Compliance
Effectively managing compliance risks associated with the 1260H List demands a proactive, strategic approach:
Monitor Annual Updates: Regularly review changes to the 1260H List and other restricted party lists to remain informed and ensure compliance. Promptly integrate updates into your compliance system.
Implement Supply Chain Screening: Establish robust screening processes to identify any listed entities in contracts, subcontracts, and sourcing arrangements. Leverage technology to automate and enhance accuracy, reducing the risk of manual errors.
Anticipate Indirect Consequences: Recognize that the list reflects federal priorities, which can shape business decisions. For instance, some exporters may classify 1260H-listed entities as “military end-users” under the Export Administration Regulations (EAR).
Assess Transactional Risks: Prepare for compliance inquiries and reputational challenges arising from dealings with listed entities. Be ready for heightened scrutiny in transactions involving these parties, and train staff to identify and mitigate potential risks.
Plan for Deadlines: Adjust supply chains and contractual relationships to prepare for phased procurement bans starting in June 2026 and June 2027. Stay alert for potential new restrictions as U.S.-China tensions continue to escalate.
Consider Policy Harmonization: Stay alert for regulations that integrate the 1260H List with other restricted party lists, such as the BIS Entity List or Treasury’s NS-CMIC List.
The Bigger Picture: Why it Matters
China’s defense industry has taken advantage of its integration with a rapidly expanding civilian economy, particularly in science and technology sectors, to gain access to foreign capital and technologies. The Section 1260H List seeks to address these concerns by restricting connections that could bolster China’s military-industrial complex. While its immediate effects may seem limited to reputational risks, the list’s broader implications extend to federal contracting, research funding, and state-level regulations. Further U.S. lawmakers are increasingly aligning restricted lists with trade control policies to further limit listed entities’ access to U.S. technology, markets, capital, and expertise. To navigate this evolving regulatory landscape, businesses must adopt a proactive strategy—monitoring the 1260H List, screening supply chains, and preparing for future restrictions.
Disclaimer: The views expressed here are solely my own and do not represent the positions of my employer. They do not constitute legal advice nor create an attorney–client relationship.