China AI Firm's IPO Stalls After U.S. Criticism

Chinamarkets

By: Mary Jander


In a move highlighting the ethical issues facing AI vendors, one of the world’s top machine vision companies has postponed its IPO after the U.S. government condemned its activities as “technology-enabled serious human rights abuse.”

China's seven-year-old SenseTime Group Ltd., in which SoftBank. Qualcomm Ventures, and Tiger Global Management have reportedly sunk $2.6 billion, had planned its IPO for months and was hoping to raise at least $767 million on the Hong Kong Stock Exchange and go public on December 17. SenseTime held to this plan despite its presence on the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) Entities List, which cites companies and groups believed to be threats to U.S. security and/or foreign policy.

But this past Friday, December 10, the Treasury Department’s Office of Foreign Assets Control (OFAC) issued a memo strengthening the U.S. government’s ban on American investment in the firm. The OFAC cited the “malign” use of SenseTime machine-vision technology in identifying and abetting the incarceration of over one million Muslim ethnic minority members, mostly Uyghurs, in the Xinjian region.

U.S. Condemns SenseTime

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According to the OFAC statement, SenseTime’s technology has been the basis for an “Integrated Joint Operations Platform (IJOP)” that “uses digital surveillance systems to track Uyghurs’ movements and activities, to include surveilling who they interact with and what they read… [and] … uses this data to determine which persons could be potential threats; according to reports, some of these individuals are subsequently detained and sent to detention camps, being held indefinitely without charges or trial.”

SenseTime fired back against the charges in its own statement, part of which reads as follows:

“We strongly oppose the designation and accusations that have been made in connection with it. The accusations are unfounded and reflect a fundamental misperception of our Company. We regret to have been caught in the middle of geopolitical tension.
”As a software company committed to promoting sustainable, responsible and ethical use of AI, we have complied with the applicable laws and regulations in relation to our business in all material respects in the jurisdictions where we conduct business….

Of course, the jurisdiction in which SenseTime functions is what concerns the OFAC. “Technology is a key tool used to advance the exercise of freedom of expression and the protection of other human rights globally,” stated the OFAC. “However, authoritarian states misuse technology to facilitate human rights abuse and repression, target members of racial and ethnic minority groups, manipulate information, and spread disinformation.”

In a separate statement postponing its IPO, SenseTime cited the Treasury Department ruling and said all initial offering applicants will be refunded their investment in the firm. The offering and listing will be renewed soon after a fresh prospectus is released, the company said.

SenseTime Part of Largest Potential Wireless Market

The ban on SenseTime comes amid growing demand for machine vision applications. Smart city traffic control, safety and inventory apps for warehouses and factories, legitimate security systems, and oil and gas flare tracking are just a few of the emerging areas seeing growth in machine vision. And many observers believe the latency and download requirements of this particular form of artificial intelligence (AI) will be a key driver for 5G enterprise services, including ones for private wireless.

But ethical issues have cast a pall over this lucrative market niche. Another China-based AI firm, Megvii, was approved for IPO in China early this year, but after appearing on the U.S. government's Entities List it withdrew plans to list on the Hong Kong exchange and instead filed for listing on the Shanghai Stock Exchange’s STAR Market.

Megvii, founded in 2011 and backed by the Alibaba Group, Foxconn Technology, and Boyu Capital Consultancy, also has been cited for its tech contribution to the targeting of Uyghurs in Xinjian. The company is reportedly one of several to be moved from the Entities List to the OFAC list by December 17.

Ethical Issues Plague Machine Vision Firms

While the U.S. government condemns China’s AI firms for unethical conduct despite claims of their technological genius, other computer vision companies on the rise face their own ethical considerations. California's Verkada, for example, wound up in the news last year when one of its sales directors allegedly used the company’s own technology to spy on female employees and subsequently harass them online.

Clearly, the ethical issues surrounding machine vision and other forms of AI go beyond the more glaring examples in this week’s news. Consideration of the best and most beneficial uses of machine vision has just begun. As the technology continues to penetrate the market, there will be more issues raised and more hard questions asked.