The US and China are in a trade war, and a big part of that trade war centers on technology companies. With the US alarmed about technology transfer to China, Chinese investment in US tech companies has been shut down for several years. Or has it?

The Financial Times published a piece this week claiming that investors backed by China’s state-run semis investment fund have recently taken stakes in three US semiconductor companies. This is surprising because the US has theoretically blocked all such investments by Chinese companies in policies that go back to the Obama administration. Almost every Chinese company we have spoken to is afraid to invest in the US for fear of being “Grndr-ed”, forced to divest their holdings by government fiat. This attitude extends to venture investments as well. It even extends to Taiwanese companies, which in theory should not face any problems, but are in practice afraid of being painted with the same brush as Mainland companies.

The FT says three firms received China investment dollars:

• Pixelworks – a maker of image processing semis.
• Black Sesame – a maker of AI accelerators for autonomous vehicles.
• LightIC – which appears to make Lidar chips.

The Pixelworks investment is the most straightforward. Pixelworks is a public company (Ticker: PXLW) and they publicly announced the investment in October. This appears to be a straightforward sale of equity to MTM-Xinhe, $6.6 million for 7% of the company. MTM-Xinhe is described as a consortium of strategic investors and appears to be affiliated with Tsinghua Unigroup, the flagship of China’s Semis Policy.

Black Sesame and LightIC are both private and the investment details are less clear. Black Sesame was founded by two Tsinghua alum, who both worked for US/EU companies. The situation for LightIC is much less clear. The company has a minimal online presence, with very little information on its website and apparently not even a listing in Crunchbase. The FT has both companies taking venture dollars from China-government backed funds.

In practice, most Chinese investors we have spoken with have been wary of getting entangled in the US’s CFIUS process. CFIUS is a US government body which in theory has authority over all foreign investments or purchase of US assets. Merely having to enter the CFIUS process scares away a lot of investors. We recently spoke with a European investment firm that had large, valuable stakes in Chinese companies, and even they were afraid of investing in the US for fear of drawing any scrutiny from CFIUS.

CFIUS rules are (deliberately) somewhat vague, with language about “a controlling interest’. So it is possible that these latest investors believe that since they are buying sub 20% stakes they are not subject to CFIUS. Or at least they gotten their lawyer to tell them that.

It is beyond our ability to judge what exactly is happening in any of these investments, but it does raise the question as to what exactly the rules are.

Add to this mystery the continuous rumors we hear about US companies selling components to Huawei through various legal mechanisms. Several people in China have told us that Huawei is still making phones, even 5G phones, despite the restrictions imposed on them by the US government. Our long held view is that the biggest weakness with these restrictions is the approach that US companies take towards them.

Of course, nailing down details on all of this is hard to do. China’s opaque business environment, coupled with Covid travel restrictions make it very hard to say anything definitively. That being said, it is clear that there is a lot of squishiness around the Trade War measures taken by both sides.