Yangtze Memory Technologies Corp, a leading Chinese flash memory manufacturer, has filed a lawsuit in a U.S. federal court challenging the U.S. government’s designation of the company as a Chinese military company, arguing that the label is arbitrary and unlawful. The suit, lodged in the U.S. Court of Federal Claims, seeks to overturn the determination that restricts YMTC’s access to U.S. markets and technology and marks a significant escalation in the company’s efforts to combat export controls imposed under national security pretexts.
Background on YMTC
Yangtze Memory Technologies Corp, formally known as Yangtze Memory Technologies Corp, has emerged as a major Chinese producer of NAND flash memory chips, created to advance China’s semiconductor self-sufficiency at a time of intense global supply chain tensions. The company’s core products, high density NAND devices used in smartphones, laptops and data center servers, are central to Beijing’s ambition to reduce reliance on foreign chipmakers and to build a domestic ecosystem that can support everything from consumer electronics to cloud computing infrastructure. For Chinese policymakers and corporate customers, YMTC’s rise represents a strategic hedge against disruptions in access to memory chips that are foundational to modern digital economies.
Regulatory pressure from Washington has steadily reshaped that trajectory. Since 2021, YMTC has faced escalating U.S. restrictions, including placement on the U.S. Entity List, which sharply limits its ability to procure American technology and components that are essential for advanced chip production. Those constraints have complicated the company’s access to cutting edge lithography tools, design software and specialized materials, raising costs and slowing its ability to compete with rivals such as Samsung Electronics and Micron Technology in the global flash memory market. For suppliers and customers on both sides of the Pacific, the tightening controls have turned YMTC into a test case for how far U.S. export policy will go in curbing China’s semiconductor ambitions.
The U.S. Military Company Designation
According to a detailed account from reporting on Chinese flash memory maker YMTC suing the U.S. over a military designation, the U.S. Department of Defense in late 2024 added YMTC to its list of Chinese military companies, a move that bars U.S. persons from investing in or contracting with the firm after a specified period. The Pentagon’s list is designed to identify entities that it believes support China’s military, intelligence or security apparatus, and inclusion can trigger a cascade of financial and commercial restrictions that go beyond traditional export controls. For YMTC, the label threatens not only its access to U.S. capital but also its ability to maintain relationships with American customers, equipment vendors and service providers that are wary of running afoul of sanctions.
The designation stems from broader U.S. policies under Section 1260H of the National Defense Authorization Act, which aims to counter perceived threats from Chinese entities tied to military civil fusion strategies that blur the line between civilian and defense sectors. By invoking Section 1260H, the Department of Defense signaled that it views YMTC as part of a network of companies that could channel advanced technology into China’s armed forces, even if their primary business appears commercial. That interpretation has significant implications for global investors, technology partners and allied governments, since it effectively treats YMTC as a security risk rather than a standard commercial chipmaker and encourages others to reassess their own exposure to the company.
Details of the Lawsuit
In its complaint filed on December 8, 2025, in the U.S. Court of Federal Claims, YMTC contends that the military designation lacks substantial evidence and violates due process by imposing severe economic harm without adequate justification. The company argues that U.S. officials failed to provide a clear factual basis for concluding that it is a Chinese military company, and that the process for placing it on the list did not give YMTC a meaningful opportunity to respond to or rebut the allegations. By framing the dispute as a matter of administrative law and constitutional fairness, YMTC is asking the court to scrutinize the government’s internal decision making rather than simply deferring to national security claims.
The suit requests a preliminary injunction to halt enforcement of the designation and demands its permanent removal, citing YMTC’s civilian focused operations and lack of direct military ties. In its filing, the company emphasizes that its NAND flash memory chips are designed and marketed for commercial applications such as consumer electronics, enterprise storage and cloud computing, and that it does not develop weapons systems or classified technologies for the People’s Liberation Army. If the court grants an injunction, it would temporarily shield YMTC from the most immediate investment and contracting bans, giving the company breathing room to maintain existing relationships while the legal challenge proceeds. For U.S. agencies, a court ordered pause would also test how far judges are willing to question executive branch judgments that are framed as essential to national security.
Legal Arguments and U.S. Government Rationale
YMTC’s legal strategy centers on the claim that the Chinese military company label is arbitrary and capricious, a standard that U.S. courts use to evaluate whether agencies have acted within the bounds of reasoned decision making. By asserting that the Department of Defense did not present substantial evidence linking its operations to China’s military, YMTC is effectively asking the Court of Federal Claims to require a more transparent record of how the government applied Section 1260H to a complex, globally integrated semiconductor firm. The company also raises due process concerns, arguing that the severe economic consequences of the designation, including loss of investment and reputational damage, demand a more robust procedural safeguard than what it was afforded.
For its part, the U.S. government is expected to defend the designation by pointing to the broad discretion Congress granted under the National Defense Authorization Act to identify entities that support or enable China’s military civil fusion strategy. Officials have long argued that Chinese technology companies can be compelled to assist the state’s security apparatus, even if their public facing business is civilian, and that this structural risk justifies preemptive restrictions on investment and technology transfer. In court, government lawyers are likely to stress that national security assessments often rely on classified intelligence and that requiring full disclosure of that material could itself harm U.S. interests, a stance that sets up a direct clash between transparency demands from YMTC and secrecy claims from the Pentagon.
Potential Impacts and Next Steps
For YMTC, overturning the designation could restore access to U.S. suppliers and markets, potentially boosting its global competitiveness in a flash memory sector valued at billions of dollars annually. A favorable ruling would help the company reassure customers that it can continue to source critical tools and intellectual property from American partners, and it could also reopen channels to U.S. institutional investors that had stepped back in response to the military company label. Even the prospect of judicial relief may influence negotiations with equipment makers and design software vendors, who must weigh the risk of future penalties against the commercial benefits of working with a large and technologically sophisticated Chinese buyer.
The case also highlights evolving U.S. China tech frictions, with outcomes likely to influence future export controls and investment screening decisions. A hearing anticipated in early 2026 signals a shift from YMTC’s prior administrative challenges to direct litigation, a move that could encourage other Chinese firms facing similar designations to test their options in U.S. courts rather than relying solely on diplomatic channels or quiet lobbying. For policymakers in Washington, the lawsuit will serve as a barometer of how much judicial oversight they can expect when using national security tools to reshape global technology supply chains, while for allies and competitors, the proceedings will offer a rare window into how the United States balances security concerns with the commercial realities of the semiconductor industry.
