VC-backed Chinese AI companies hit by US blacklisting
Eight Chinese artificial intelligence (AI) start-ups have been blacklisted by the US government. Several have received PE and VC funding, including SenseTime and Megvii Technology.
The action bars these companies from buying components from US companies without government approval. It comes ahead of high-level trade talks in Washington this week, prompting comparisons to the sanctions imposed on Huawei Technologies in May.
The US Commerce Department said in a filing that these 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.”
SenseTime, Megvii and a third AI machine vision player named among the eight, Yitu Technology, have together raised more than $3 billion from private investors. SenseTime and Megvii achieved valuations of $4.5 billion and $4 billion, respectively, in their latest funding rounds.
The other blacklisted companies are speech recognition specialist iFlytek, data recovery business Xiamen Meiya Pico Information, and surveillance equipment manufacturers Yixin Science & Technology, Hikvision, and Zhejiang Dahua Technology. Hikvision and Dahua are both listed; their shares have been suspended from trading.
Megvii, best known for its Face++ platform, filed for a Hong Kong IPO in August. Its backers include Abu Dhabi Investment Authority (ADIA), China State-owned Venture Capital Fund, the Russia-China Investment Fund, Alibaba Group’s Ant Financial, Taiwan’s Foxconn Technology, BHR Partners, Qiming Venture Partners, and Sinovation Ventures.
Megvii strongly objected to the Commerce Department's move, saying there are "no grounds" for such a designation. While Human Rights Watch claimed in May that Face++ was being used for surveillance purposes in Xinjiang, the company noted that the accusation was retracted and it did not appear in a revised version of the activist organization's report.
“Any direct business impact from this designation is expected to be minimal. As of now, there are no changes to Megvii’s ongoing plans,” it said in a statement.
SenseTime, which counts Alibaba, Temasek Holdings, Tiger Global Management, SoftBank, Hopu Investments, Silver Lake, CDH Investments, and Morningside Venture Capital among its investors, also expressed disappointment at the US action. The company said it abides by all relevant laws of the jurisdictions in which it operates and that it has been actively developing an AI code of ethics to ensure its technologies are used responsibly.
Hikvision added that these punishments would "deter global companies from communicating with the US government, hurt Hikvision’s US business partners and negatively impact the US economy." Dahua said it was confident it could easily replace some components and would explore ways to keep servicing clients.
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