US commerce secretary Wilbur Ross. Picture: REUTERS/ANUSHREE FADNAVIS
US commerce secretary Wilbur Ross. Picture: REUTERS/ANUSHREE FADNAVIS

Washington/Shanghai — The US government has expanded its trade blacklist to include some of China’s top artificial intelligence (AI) start-ups, punishing Beijing for its treatment of Muslim minorities and ratcheting up tension ahead of high-level trade talks in Washington this week.

The decision, almost certain to draw a sharp response from Beijing, targets 20 Chinese public security bureaus and eight companies including video surveillance firm Hikvision, as well as leaders in facial recognition technology SenseTime Group and Megvii Technology.

The action bars the firms from buying components from US companies without US government approval — a potentially crippling move. It follows the same blueprint used by Washington in its attempt to limit the influence of Huawei Technologies for what it says are national security reasons.

US officials said the action was not tied to this week’s resumption of trade talks with China, but it signals no let-up in US President Donald Trump's hard-line stance as the two biggest economies seek to end their 15-month trade war.

The US commerce department said in a filing the “entities have been implicated in human rights violations and abuses in the implementation of China’s campaign of repression, mass arbitrary detention, and high-technology surveillance against Uighurs, Kazakhs, and other members of Muslim minority groups.

“The US government and department of commerce cannot and will not tolerate the brutal suppression of ethnic minorities within China,” said secretary of commerce Wilbur Ross.

China’s commerce ministry did not immediately respond to a request for comment.

Hikvision, with a market value of about $42bn, calls itself the world’s largest maker of video surveillance gear.

SenseTime, valued at about $4.5bn in a May 2018 fundraising, is one of the world’s most valuable AI unicorns, while Megvii, backed by e-commerce giant Alibaba, is valued at about $4bn and is preparing an initial public offering to raise at least $500m in Hong Kong.

The other companies on the list are speech recognition firm iFlytek, surveillance equipment maker Zhejiang Dahua Technology, digital data forensics products maker Xiamen Meiya Pico Information and Yixin Science and Technology.

Overseas revenue

A US Hikvision spokesperson said the company “strongly opposes” the decision and noted that in January it retained a human rights expert and former US ambassador to advise the company on human rights compliance.

“Punishing Hikvision, despite these engagements, will deter global companies from communicating with the US government, hurt Hikvision’s US businesses partners and negatively impact the US economy,” the company said.

John Honovich, founder of surveillance video research company IPVM, said Hikvision and Dahua both use Intel, Nvidia, Ambarella, Western Digital and Seagate Technology as suppliers and that the effect on the Chinese companies would be “devastating”.

The blacklisting of Huawei has hurt many of its US suppliers that depended on the world’s largest telecommunications company for revenue and made it difficult for Huawei to sell new products.

Reuters reported in August Hikvision receives nearly 30% of its 50-billion yuan ($7bn) in revenue from overseas.

SenseTime said in a statement it was deeply disappointed by the US move, that it abides by all relevant laws of the jurisdictions in which its operates and that it has been developing an AI code of ethics to ensure its technologies are used responsibly.

IFlytek said its placement on the blacklist would not affect its daily operations. “We have already anticipated this situation and will continue to provide excellent products and services for our customers,” it said.

Xiamen Meiya said its overseas revenue was less than 1% of total revenue and that most of its suppliers were domestic companies.

Hikvision’s stock was untraded while Xiamen Meiya was down a mild 1.6% in Tuesday trade. Shares in US supplier Ambarella fell 12% in after-hours trading on the news.

China faces growing condemnation from Western capitals and rights groups for setting up facilities that UN experts describe as mass detention centres holding more than 1-million ethnic Uighurs and other Muslims.

In April, a bipartisan group of US legislators urged the move against Chinese companies it called “complicit in human rights abuses” and specifically cited Hikvision and Dahua.

US secretary of state Mike Pompeo said last week at the Vatican that “when the state rules absolutely, it demands its citizens worship government, not God. That’s why China has put more than 1-million Uighur Muslims ... in internment camps and is why it throws Christian pastors in jail”.

In August, the Trump administration released an interim rule banning federal purchases of telecommunications equipment from five Chinese companies, including Huawei and Hikvision.

The ban was included in the National Defence Authorisation Act passed in 2018, and restricted the use of federal money to purchase telecommunications equipment and services and video surveillance equipment from “covered” telecommunications companies, citing national security concerns.

Huawei has repeatedly denied it is controlled by the Chinese government, military or intelligence services and has filed a lawsuit against the US government’s restrictions.