U.S. adds eight Chinese firms to trade blacklist

by Reuters
Wednesday, 9 October 2019 05:33 GMT

(Updates with more recent valuation for SenseTime)

Oct 8 (Reuters) - The U.S. government expanded its trade blacklist on Monday to include some of China's top artificial intelligence (AI) startups over Beijing's treatment of Muslim minorities.

Below are details of major companies placed on the blacklist, which effectively bans them from buying components from U.S. companies. The move is likely to impact not just them but also their suppliers, customers and financial backers.

HIKVISION

Formally known as Hangzhou Hikvision Digital Technology Co Ltd, the firm is the world's largest purveyor of video surveillance systems.

It is also a vendor to police agencies in Xinjiang, where a sweeping crackdown on Uighurs has drawn international condemnation.

Hikvision has not been allowed to sell to U.S. federal government agencies since mid-August thanks to a law that blocked five Chinese firms as possible security threats because their products could allow access to sensitive systems.

The company, which has a market value of about $42 billion, is 42% owned by Chinese state investors and its two key founders. It pulls nearly 30% of its 50 billion yuan ($7 billion) in annual revenue from overseas.

Hikvision does not disclose suppliers, but Japan's video interface firm Techpoint Inc said in a regulatory filing in March that Hikvision accounted for 62% of its annual revenue in 2018.

Losing business with Hikvision could have a material and adverse effect on its business, the Japanese firm said.

John Honovich, founder of surveillance video research company IPVM, said Hikvision and Dahua, another blacklisted company, both use Intel Corp, Nvidia Corp, Ambarella Inc, Western Digital and Seagate Technology as suppliers.

The impact of the blacklisting on the Chinese companies would be "devastating", he said.

SENSETIME GROUP LTD

Incorporated in 2014 after receiving investment from IDG Capital, SenseTime is one of the fastest growing AI startups in China.

Dual-based in Beijing and Hong Kong, SenseTime develops applications for facial recognition, video analysis and other areas including autonomous driving.

Its technology employs AI to identify individuals and analyse those identities using cameras, and has been used by Chinese authorities to track and capture suspects in public spaces such as airports and festivals.

It says it is valued at more than $7.5 billion. Fresh investment has come from SoftBank Group Corp, a person familiar with the matter said. Other backers include Fidelity International, Hopu Capital, Silver Lake, and Tiger Global.

The firm has also received funding from e-commerce firms Alibaba and Suning.Com Co Ltd, state-backed fund Sailing Capital and U.S. chipmaker Qualcomm Inc.

SenseTime counts China's Ministry of Public Security and local heavyweights such as China Mobile, HNA Group and Huawei Technologies as its major clients.

Its facial recognition unlocking and related technologies are offered to smartphone brands OPPO and Vivo.

The firm said in February it will create an alliance with the Massachusetts Institute of Technology (MIT) to advance research into AI.

MEGVII TECHNOLOGY LTD

Founded in 2011 by Chief Executive Yin Qi and two friends from Tsinghua University, the company is preparing an initial public offering in Hong Kong to raise at least $500 million.

Widely known for facial recognition platform Face++, Megvii will become the first Chinese AI firm to go public if the deal goes ahead.

The company provides facial recognition and other AI technology to governments and companies including Alibaba, Ant Financial, Lenovo Group Ltd and Huawei.

Its $750 million fundraising in May 2018 valued the firm at slightly over $4 billion.

It raised funds from Alibaba, Ant Financial, Foxconn Technology, Bank of China Group Investment (BOCGI) Ltd, the state bank's private equity arm, Macquarie Group, and ICBC Asset Management (Global) Co.

The Abu Dhabi Investment Authority, one of the world's biggest sovereign wealth funds, also took part in a fund raising.

IFLYTEK CO LTD

Founded in 1999, the speech recognition firm is a national champion in voice-related AI.

State-owned China Mobile is iFlytek's largest shareholder with a 12.85% stake, according to its 2018 annual report.

The MIT last year announced a five-year agreement with IFlytek under which the Chinese firm would help underwrite three research projects at the university's renowned Computer Science and Artificial Intelligence Laboratory (CSAIL).

The projects relate to AI in health care, speech recognition, and what CSAIL described in its announcement as creating "more human-like AI".

A 2016 government procurement announcement named an iFlytek subsidiary as the sole supplier of 25 "voiceprint" collection systems to police in Kashgar, a city in Xinjiang, Reuters reported earlier.

Another iFlytek unit signed a deal with Xinjiang's prison administration bureau.

ZHEJIANG DAHUA TECHNOLOGY

The video surveillance equipment maker went public in 2008 and is among five firms which had been barred from selling to U.S. government agencies, along with Hikvision.

The company, which claims to be the world's second largest surveillance provider, says its products and services are applied over 180 countries and regions.

Its products have been used in events such as the Rio Olympics, the G20 Hangzhou Summit, and a subway project in Brazil.

XIAMEN MEIYA PICO INFORMATION CO

Established in 1999, the company is a data recovery expert and says it provides products and services for law enforcement and government agencies all over the world.

Its digital forensics services include extracting evidence from digital media such as computers, mobile phones and data storage cards.

The company says it provided security support for events such as the Beijing Olympic Games, Guangzhou Asian Games and Shanghai World Expo.

YITU TECHNOLOGY

The facial recognition technology firm was founded in 2012 and raised funds from investors including Sequoia Capital, Jack Ma's private equity fund Yunfeng Capital, and Hillhouse Capital Group.

The company claims its facial recognition platform is capable of identifying over 1 billion faces within one second.

It said in 2015 its technology is used at China Merchants Bank's 1,500 outlets. It worked with Alibaba Cloud to build a cloud platform for smart transportation management.

($1 = 7.1234 Chinese yuan) (Reporting by Miyoung Kim in Singapore, Josh Horwitz in Shanghai, Munsif Vengattil in Bengaluru; Editing by Jan Harvey)

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