Opinion: Impact Expected From Commerce Department’s Rules on Largest Chinese Video Surveillance and AI Providers

Contributing author Steve Surfaro notes potential effects upon chip makers, investments in artificial intelligence.

On Oct. 9, 2019, the U.S. Department of Commerce issued a final rule amending the Export Administration Regulations to add 28 Chinese governmental and commercial organizations to its Entity List determined to be “acting contrary to the foreign policy interests of the United States.”

“The U.S. Government and Department of Commerce cannot and will not tolerate the brutal suppression of ethnic minorities within China,” said Secretary of Commerce Wilbur Ross in an Oct. 7, 2019, press release. “This action will ensure that our technologies, fostered in an environment of individual liberty and free enterprise, are not used to repress defenseless minority populations.”

The “trade blacklist” as commonly referred, include Hangzhou Hikvision Digital Technology Co. and Zhejiang Dahua Technology Co., two of the largest companies manufacturing IP video surveillance devices in the world. The SenseTime Group which Bloomberg calls the most valuable artificial intelligence (AI) startup, and Megvii Technology are both on the list and are notable for both being backed by Chinese e-commerce giant Alibaba. This could mean trouble for companies like Megvii (which has filed for an initial public offering (IPO)) and SenseTime (which has floated the possibility of an IPO) that are already having trouble securing financing during an economic downturn; the U.S. government action has spooked investors interested in riding the AI market tsunami.

As if AI-based object recognition were not enough, voice recognition software maker iFlytek, data forensics company Xiamen Meiya Pico Information and nanotech firm Yixin Science and Technology Company are also listed.

Overall, my forecast for the impact on the industry is moderate to high. AI chipsets took a market hit in general; Nvidia Corp., for one, is a key supplier to both AI firms.

Both Hikvision and Dahua feature facial recognition capability on their cameras that are equipped with Huawei AI chipsets. As reported in CES 2019 coverage from SecurityInfoWatch, the latest Huawei chipset, which is commonly used in higher-end Hikvision and Dahua cameras, can locate 256 faces in a crowd, in a single frame, in real time.

While major exporters are not expected to be able to easily obtain export licenses for the 28 entities, the indirect impact may be more significant. Isaac Stone Fish, a senior fellow with the Asia Society’s Center on U.S.-China Relations states in a Bloomberg article, “This will make people think twice about working with these companies even if there are no legal reasons preventing them from doing so. Reputational costs will be greater than financial costs.”

The complete list of new entities subject to restrictions is as follows:

• Aksu District Public Security Bureau, including one alias (Aqsu District Public Security Bureau);
• Altay Municipality Public Security Bureau;
• Bayingolin Mongolian Autonomous Prefecture Public Security Bureau;
• Boertala Mongolian Autonomous Prefecture Public Security Bureau, including one alias (Bortala Mongolian Autonomous Prefecture Public Security Bureau);
• Changji Hui Autonomous Prefecture Public Security Bureau;
• Dahua Technology;
• Hami Municipality Public Security Bureau, including two aliases (Kumul Municipality Public Security Bureau; and Qumul Municipality Public Security Bureau);
• Hetian Prefecture Public Security Bureau;
• Hikvision;
• IFLYTEK;
• Kashgar Prefecture Public Security Bureau;
• Kelamayi Municipality Public Security Bureau;
• Kezilesu Kyrgyz Autonomous Prefecture Public Security Bureau, including one alias (Kizilsu Autonomous Prefecture Public Security Bureau);
• Megvii Technology;
• Sense Time;
• Shihezi Municipality Public Security Bureau;
• Tacheng Prefecture Public Security Bureau;
• Tumushuke Municipal Public Security Bureau, including one alias (Tumxuk Municipal Public Security Bureau);
• Turfan Municipality Public Security Bureau, including one alias (Turpan Municipality Public Security Bureau);
• Urumqi Municipal Public Security Bureau;
• Wujiaqu Municipality Public Security Bureau;
• Xiamen Meiya Pico Information Co. Ltd.;
• Xinjiang Police College;
• Xinjiang Production and Construction Corps (XPCC) Public Security Bureau;
• Xinjiang Uighur Autonomous Region (XUAR) People’s Government Public Security Bureau;
• Yili Kazakh Autonomous Prefecture Public Security Bureau, including one alias (Ili Kazakh Autonomous Prefecture Public Security Bureau);
• Yitu Technologies;
• Yixin Science and Technology Co. Ltd., including four aliases (Yixin Technology; Yuxin Technology; Yuxin Science and Technology; and Ecguard).

The text of the final rule adding the 28 new entities is available here.

The views and opinions expressed in guest posts and/or profiles are those of the authors or sources and do not necessarily reflect the official policy or position of the Security Industry Association (SIA).