China & US data regulations make TuSimple’s dual-nation operations no simple

March 30, 2022 0 Comments

Data security risks posed by the China-US technology entanglement have forced the self-driving truck start-up TuSimple, which leads the commercialisation of autonomous trucking in the US, to consider cutting off its operations in China. As the bilateral battle over data security issues heats up, more companies are expected to face similar challenges.

Citing people familiar with the matter, Reuters reported on March 16 that California-based TuSimple decided to sell its China unit, with a starting price of $1 billion, and has approached several potential Chinese buyers. The decision to sell the Chinese portion of the business was the result of “tightening regulations” between China and the US.

Founded by two Chinese entrepreneurs, TuSimple has about 500 employees and operates in both countries. Since filing its prospectus last March, it has been on the radar of the Committee on Foreign Investment in the United States (CFIUS) due to its ties with China. CFIUS is an interagency committee authorised to review certain transactions involving foreign investments to determine their impact on US national security. 

The company, which has a greater presence in the US, has been working closely with regulators to better adhere to national interest requirements.

Shortly after its IPO last April, its largest shareholder Sun Dream lowered its stake by selling approximately 6.76 million TuSimple shares and agreed to refrain from adding to its current stake as part of CFIUS concluding with its probe. Sun Dream is an affiliate of Sina, China’s Twitter-like social network.

Last month, TuSimple reached an agreement with the authorities, which including giving them some regulatory oversight over the technology behind its self-driving truck operations and keeping core US-developed technology out of China. Additionally, it announced that two board members affiliated with Sina would resign when their terms end later this year.

After selling the Chinese division, TuSimple could have done enough to satisfy regulators and continue to grow independently. According to the company’s annual report, it operates about 100 Level 4 autonomous semi-trucks, 75 in the US and 25 in China. 

TuSimple’s troublesome experience should serve as a cautionary tale to other Chinese self-driving firms conducting road tests in the US, where they have set up R&D operations, collecting troves of data.

Backed by big tech companies, venture capital, and the government, California’s moniker of being a world-class autonomous driving testing hub is well-deserved. In this tech-savvy state, 8 of 55 companies that have active permits to test driverless vehicles in California are Chinese, including Didi, AutoX,, WeRide, QCraft, and others.  

According to George Downs from WSJ, last year, Chinese self-driving companies collectively raked up over 450,000 miles on Californian roads, with accounting for the majority of them.

California is as important to self-driving start-ups as New York Fashion Week is to designers, which is why Chinese players are flocking to the state. “Although China may be a bigger market for robo-taxis, Chinese companies may still need to be seen in California in order to be taken seriously by global investors,” said Bill Russo, founder, and CEO of Automobility. “If you want to raise the awareness of your company and get the valuation high, you need to find a way to attract global capital investors. You’re not going to do that if you’re not in the US.” 

However, as ties between Beijing and Washington deteriorate, sending protected data back to China becomes more complicated for these companies. In the meantime, foreign investors will also need to reassess the risks of investing in them.

Previously, the Trump administration has sought to ban TikTok from operating in the US and limit the activities of WeChat and Alipay, highlighting the concerns about Chinese access to its data. To keep foreign adversaries like China and Russia from gaining access to large amounts of personal and proprietary business information, the Biden Administration signed an executive order last June, directing the Department of Commerce to make recommendations to protect the US against harm from the sale, transfer of, or access to sensitive data.

In an effort to address lingering concerns about its Chinese roots, TikTok recently struck a deal with Oracle to store its US user information, which would separate the platform’s US and Chinese databases.

Now, the challenge of how to deal with data collected in conflicting nations falls on self-driving enterprises with dual operations in China and the US. In addition, as China also tightened data security and overseas listing regulations last year, the chilling effect of the bevy of regulatory difficulties on capital markets can be felt by all.

After failing to win approval from Beijing last August,, which has dual headquarters in China and Silicon Valley, had to suspend its SPAC listing, which valued it at $12 billion. Instead, the cash-hungry start-up had to turn to private funding, which it recently secured at an $8.5 billion valuation.

“The big picture is that both China and the US feel uncomfortable letting the other have access to sensitive data on each other’s businesses and consumers. For TuSimple, the key concern is that they have large volumes of data that show how goods are being moved around the country” said Bamboo Works, a Hong Kong-based consulting agency.

For a company with a significant presence in overseas markets, it makes sense to spin off its China operations, allowing it to move forward with far less regulatory risk than its global operations currently face. “The China business could then operate as a separate company, perhaps pursuing its own listing in Hong Kong or on a Chinese mainland stock exchange, which would also put Beijing regulators more at ease,” said the agency.

According to the Chinese auto news outlet CyberCar, Chen Mo, co-founder of TuSimple, is seeking a management buyout of the company’s China unit. CITIC Capital has reportedly filed a proposal that would allow Chen to buy back the Chinese unit from the investment management firm in the future and have it listed in Hong Kong.

The data war is only getting started, as China remains one of the US government’s top priorities for national security regulatory actions. “We anticipate a similar approach in 2022, with the administration continuing a relatively aggressive but more nuanced approach to national security regulation,” said New York-based law firm Skadden.

Image: TuSimple

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