In part 1 of our China in AI series, we dig into patents, earnings transcripts, startup data, and government documents to detail the growth of surveillance tech in China.

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Facial recognition technology is penetrating deep into China. Cameras track passengers at railway stations, identify homeless people on the streets, and even monitor worshippers in state-approved churches.

China’s nation-wide surveillance project, named Skynet, began as early as 2005. But recent advances in artificial intelligence have given the state’s surveillance efforts a boost.

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The government’s ambitious plans hinge on three legs: support from big tech giants like Alibaba and Tencent, strong startup partnerships, and elaborately crafted government policies favoring national security over privacy.

In part 1 of our China in AI series, we dig into patents, private market activity, government documents, and public company data to detail the growth of surveillance tech in China.

Table of Contents

China’s plan of action

Unlike the US, China has been vocal about its plans to become an AI-first state — and particularly vocal about how it will put the tech to use to monitor its citizens.

A 2017 documentary co-produced by the Communist Party claimed the country had the largest network of CCTV cameras – 20M – in the world.

Last year, around 55 cities were part of a plan called Xio Liange or “sharp eyes.” Footage from surveillance cameras in public and private properties will be processed centrally to monitor people and events.

Media reports suggest that intelligence collected from the video footage may eventually power China’s Social Credit System, a government plan announced in 2014 to rate the “trustworthiness” of its citizens.

A simple keyword search on worldwide patent database Espacenet shows how much emphsais China has put on surveillance. Over 530 patents related to video surveillance and surveillance cameras were published in China in 2017 alone, compared to just 96 in the United States (based on keyword searches of title and abstract).

China has also seen a rise in facial recognition patents, with 900+ patents published last year. Applicants included government-supported academic institutions like Shandong University and South China Tech, as well as big tech companies and startups whose clientele includes government agencies.

(Note: The patent filing process involves a significant time-lag before the publishing of patent applications.)

Deep govt-startup ties

As the government adds a layer of artificial intelligence to its surveillance, startups are playing a key role in providing the government with the underlying technology.

For instance, facial recognition is already at use in many railway stations for ID verification. Now, AI-enabled smart glasses developed by startup LLvision will be used to help authorities spot criminals.

LLvision builds smart glasses that resemble Google Glass. In 2018, it launched a new product, GLXSS ME, for industrial AI applications.

Using Intel’s Movidius Myriad vision processing chip, LLvision matches faces with a database of known and wanted criminals stored on the device. By storing images at the “edge” (aka on the device), as opposed to sending images to a central server on the cloud, the device can make IDs faster.

A simple keyword search on the CB Insights platform for computer vision deals in China shows the sudden explosion of interest in 2017.

The most well-funded computer vision companies are SenseTime, Face++, and CloudWalk.

CloudWalk received a $301M grant from the Guangzhou Municipal Government in Q4’17. Its facial recognition technology is deployed across several banks and airports, including the state-owned Agricultural Bank of China.

Startup Megvii (which develops the Face++ facial recognition platform) raised a $460M round – the largest to a computer vision startup in 2017 – led by the Chinese state government’s venture capital fund, with participation from the Russian government as well.

The diversity of investors’ profiles in the Series C-II round of Face++ speaks to the growing commercial and government interest in facial recognition technology.

Megvii already has access to 1.3 billion face data records on Chinese citizens from the Ministry of Public Security’s database.

Two other investors in the round — Alibaba Group (through Ant Financial) and Foxconn — partnered with Hangzhou city in China in 2016 for the “City Brain” project, using AI to analyze data from surveillance cameras and social feeds. Apart from surveillance and crime prevention, the smart city project will reportedly help the government manage traffic and monitor water levels in the city, among other things.

The project was reportedly so popular that it is being replicated in other cities across the country. Ant Financial separately uses facial recognition for payments at Alibaba-owned retail stores.

Alibaba is also an investor in unicorn startup SenseTime, which boasts over 400 clients and partners, including the Guangzhou public security bureau, Yunnan Provincial Public Security, and the National Satellite Meteorological Center.

China’s big tech backs surveillance plans

China has a strong mobile payment market with 2 tech giants at the forefront: WeChat, owned by Tencent, and Alipay, Alibaba’s financial arm. The former has nearly 1B users, and the latter about 500M, leaving a large digital footprint.

Now these payment giants are becoming digital ID repositories.

At least three provinces in China have announced they’re issuing electronic identification cards for their citizens using WeChat or Alipay’s facial recognition technology. The most recent announcement came from Guangzhou city in southern China.

The mobile IDs can be used for authentication instead of carrying physical ID cards – mandatory for citizens at all times in China – for travel booking, real name registration at internet cafés, and other security checks.

To put this in perspective, this would be similar to a hypothetical situation where Facebook or Amazon worked with the government to issue electronic social security cards using facial recognition technology, and officially stored citizens’ personal information, including which internet café you last browsed at.

A simple keyword search for “identity authentication” in the CB Insights platform shows 7 patents filed by Tencent in the United States (some of them parallelly filed in China as well). The image below shows a facial recognition based system:

Tencent is one of the top applicants for facial recognition patents published in China last year.

Alibaba applied for a similar facial recognition-based authentication patent in 2017.

Another testament to the overlap between government and big tech interests is Tencent’s CEO Pony Ma’s role as a deputy to the National People’s Congress (the national legislature of the People’s Republic of China).

As an Alibaba employee said at the World AI Summit last year, “In china, people are less concerned with privacy, which allows us to move faster.”

The Wall Street Journal recently juxtaposed this willingness to comply with the government to Apple’s court battle in the United States, where it refused to comply with an FBI request to unlock a suspect’s iPhone.

Apart from digital IDs, Tencent and Alibaba are working with the government on smart city projects, offering their cloud processing and AI capabilities.

The projects involve online and offline surveillance. As discussed, the smart city projects will help the government with tasks like traffic control, waste management, and water level management, apart from the real-time monitoring of surveillance footage for crime prevention. According to the government-affiliated Economic Information Daily, around 500 smart city projects were underway in China in early 2017.

China leverages US semiconductor tech

We used the CB Insights platform to analyze earnings calls of companies publicly traded in the United States that are talking about “China” and “surveillance,” as they identify potential opportunity in supplying the tech underpinning many of China’s surveillance initiatives.

(The chart excludes companies like Vimicro — which is headquartered in China, but trades on NASDAQ — and Himax, headquartered in Taiwan).

Prior to the recent AI chip boom in China, Chinese companies were heavily relying on high-end semiconductor chips from US-based manufacturers.

For instance, the CEO of Ambarella, which is headquartered in California, but has a significant base in China, said in a Q1’15 earnings call that China’s leading video surveillance products developer, Techvision, was using Ambarella’s silicon-on-chip (SoC) solutions for its latest family of surveillance cameras.

Another example is Texas-based semiconductor company Diodes. It said in a Q4’16 earnings call that the company “saw a new point of entry in the industrial market through several surveillance equipment design wins in China.” Diodes acquired Pericom Semiconductors, which also mentioned “China” and “survelliance” multiple times over the years, as you can see in the chart above.

“This gives us greater reach into what is expected to be the largest video surveillance market in the world by next year.” – Jonathan Gacek, former CEO of Quantum Corp

Israel-based CEVA (which has offices in the United States and trades on NASDAQ) develops AI processors. CEO Gideon Wertheizer spoke about opportunities in China’s growing public surveillance market in a Q3’17 earnings call.

The surveillance market is also opening new avenues for companies in ancillary industries like data storage.

Quantum Corp provides storage solutions for the media and entertainment industries. In a Q3’17 earnings call, Quantum announced that Uniview Technologies, “one of the top 3 video surveillance integrators in China,” is now a Quantum reseller and alliance partner.

This report was created with data from CB Insights’ emerging technology insights platform, which offers clarity into emerging tech and new business strategies through tools like:If you aren’t already a client, sign up for a free trial to learn more about our platform.