In China’s Far West, Companies Cash in on Surveillance Program That Targets Muslims
The firms profiting from China's rights abuses are often backed by Western investors.
Illustration by Joe Magee for Foreign Policy
International funds representing millions of clients
Hikvision and Dahua are not the only Chinese companies with ties to Xinjiang. Global smartphone and electronics maker Huawei, for example, is reportedly taking part in a controversial security research lab with authorities in Xinjiang.
But within the security camera industry, Hikvision and Dahua have the most ties outside China — particularly with the investor community. Ever since a trading link opened between Hong Kong and Shenzhen in December 2016, non-Chinese investors have clamored for pieces of both companies. Bloomberg even declared in April that “Foreigners Can’t Get Enough” of Hikvision’s stock thanks to the firm’s high profit margins, without expanding on exactly how such margins were attained. A wide array of institutional funds representing millions of clients from firms like Vanguard, JPMorgan, and Fidelity have also invested in the firms. Since the trade link opened in 2016, Hikvision and Dahua’s stock prices are up 55 percent and almost 70 percent respectively. And the firms’ exposure to global investors is only increasing. Hikvision and Dahua were among the Chinese companies recently introduced on the widely followed MSCI Emerging Markets Index, compelling asset managers to weigh investing in them.
Most funds credit the surveillance companies’ growth vaguely to market forces — a “strong demand across a wide range of industries,” as JPMorgan did last year for Hikvision. But the role these companies play in the surveillance boom in Xinjiang is no secret. Chinese analysts have published detailed reports on the growth prospects for surveillance firms offered by the Xinjiang security expansion, and a Deutsche Bank research note explicitly mentioned Dahua’s bid for the huge $686 million “safe county” project in Xinjiang as a main factor in its decision to give Dahua a “buy” rating. The bank estimated that project alone could make up 4 to 12 percent of the company’s entire revenue. (As of November 2017, one of Deutsche’s exchange-traded funds owns stock in both Dahua and Hikvision. Deutsche declined to comment.)
Sarah Cook, a senior research analyst at Freedom House, raised concerns that people are inadvertently profiting off Hikvision and Dahua’s activities in Xinjiang thanks to the presence of these mainstream institutional funds. “It’s so many multiple times removed” people are likely unaware of the “real ethical concerns,” she said. To a certain extent, any involvement in Chinese tech stocks exposes investors to charges of abetting an authoritarian surveillance regime, Cook said. But Xinjiang is especially troubling. “It’s such a high-tech surveillance state that it’s much less justifiable to support any kind of involvement there.”
Dahua and Hikvision’s ties to the West aren’t just financial. Both firms are working with companies like Intel and Nvidia to refine their artificial intelligence capabilities. For example, Intel and Nvidia are both reportedly supplying Dahua with advanced hardware to build an AI-powered video recorder called DeepSense, which can perform a real-time comparison of 100,000 faces. (Nvidia, which declined to comment for this article, is particularly keen on harnessing video surveillance data to promote “AI cities” across the globe.)
American tech has helped build up Chinese surveillance systems in the past. Cisco, for example, supplied Hikvision with key networking equipment for a huge video surveillance project in the city of Chongqing in 2011. Asked about the deal, a Cisco spokesperson said the firm only supplies standard “off-the-shelf” network communications products in China, prohibiting the “sale of video surveillance cameras or surveillance management software in China for other than specialized venues or any customization of products that would assist in censorship.”
The United States has long banned exports of crime-control products to China after the Tiananmen Square massacre, but most video surveillance products aren’t included because they also have non-security-related functions like traffic control. (Intel, Cisco, and Nvidia have never been charged with violating these export controls.) But those regulations may be tightened as fears about Xinjiang’s spreading surveillance state.
Last month, U.S. Sen. Marco Rubio (R-Fla.) and Rep. Chris Smith (R-N.J.) wrote a letter to Commerce Secretary Wilbur Ross urging the U.S. government to track the exports of American companies supplying technology used for human rights-abusing state surveillance in China. The members of Congress cited Xinjiang as a “clear example of how the government is using technology, including U.S. made, to systematically crackdown on its people.” The Dahua spokesperson stressed that there are no U.S. sanctions which prohibit doing business in Xinjiang, and that Dahua is an “equipment provider” which complies with all countries’ rules and regulations.
Still, unprecedented business opportunities have emerged from China’s massive surveillance-state expansion and its national push into AI. In just the latest example, Alibaba and Western investors have poured more than $1 billion in the Chinese facial-recognition firm SenseTime, a company that experts say derives much of its revenue from authorities, although its involvement in Xinjiang is unknown (SenseTime did not reply to a request for comment.) As the web of companies involved in Xinjiang’s repression expands, the endeavor to invest ethically becomes more complicated. “I think it’s increasingly difficult to stay clean,” said Cook, the Freedom House researcher.
Nvidia, Vanguard, and Deutsche Bank declined to comment for this article. No response was received from Hikvision, JP Morgan, Fidelity, Huawei, Intel, or SenseTime.