Surveillance cameras are mounted on a post at Tiananmen Square as snow falls in Beijing, China, on Thursday, Feb. 14, 2019. Qilai Shen | Bloomberg | Getty Images

China and America's trade war looks more and more like a tech war, and the United States appears to be widening its focus on to another category of Chinese technology: surveillance. The U.S. may put Chinese surveillance equipment company Hikvision on a blacklist that would limit its ability to acquire American components — expanding the tech rivalry between the countries and even bringing attention to the ways China monitors its own people. Hikvision is one of the world's largest makers of video surveillance products. If Washington goes ahead with the penalties, U.S. firms will be required to obtain a government license to sell equipment to Hikvision, the New York Times reported, citing people familiar with the matter. The Times noted that the Trump administration sees China as an economic and geopolitical threat, but added that there are concerns about China's "extensive surveillance industry." U.S. lawmakers last month cited intensive surveillance of a minority Muslim population in the western part of China as possibly constituting "crimes against humanity." U.S. lawmakers made similar accusations last October.

China rejects criticism

China's foreign ministry has said surveillance in the Xinjiang region is designed to ensure social stability. A Chinese state-controlled newspaper last week said U.S. efforts to link human rights with China-made technology show that the United States is "obsessed with impeding China's development." China's Ministry of Public Security did not respond to a CNBC request for comment.

A Hikvision spokesperson told CNBC that the company "takes these concerns very seriously and has engaged with the U.S. government regarding all of this since last October." The spokesperson added that it had hired a human rights expert to advise the company. Hikvision is just a small part of a sprawling ecosystem of Chinese surveillance technology at home — and which China increasingly exports to autocratic regimes around he world. At the heart of the project is technology. The 200 million surveillance cameras peppered around China are recording what's going on, but in addition the systems have artificial intelligence (AI) technology that powers facial recognition. China's facial recognition database includes almost every one of its 1.4 billion people. Government surveillance is a potentially important tech growth sector in China, a Credit Suisse analyst told CNBC in March.

"For example, quite a lot of AI companies in China, their biggest business is (the) public surveillance type (of business); that could be another area you could see rising," Head of China Equity Strategy Vincent Chan told CNBC at the Credit Suisse Asian investment Conference in Hong Kong. Beijing has been vocal in stating that it intends to be the world leader in artificial technology in the near future. In turn, AI companies are springing up across the country and have now become some of the most valuable private firms in the world.

The data

Underpinning China's surveillance network is data. Chinese nationals have unique identification cards, and law enforcement accumulates information about individuals, including things such as digital records of their faces. That helps AI algorithms identify and pinpoint an individual. People must register their ID cards in order to buy SIM cards. That means people's phone numbers are linked to a government database. And when they sign up for services using their phone number, their real identity becomes known — trying to use online pseudonyms, for example, won't give a person any anonymity. Authorities have been also collecting other biometric data, including voice samples of individuals, according to a 2017 report by Human Rights Watch. So far, the collection of data is far from centralized — meaning there is not yet one huge database. But the idea is to be able to connect various databases using advanced algorithms that are able to track down anyone at any time.

The role of multibillion-dollar tech firms

In 2017, China laid out its blueprint for becoming the world leader in artificial intelligence. The government has been pushing the development of that technology, which has led to the growth of firms that sell AI-driven products. Many of them have been actively involved in the construction of China's surveillance state. SenseTime, which is reportedly worth over $4 billion, is one of those firms. It sells AI-powered facial recognition technology to police departments. Megvii, another company reportedly valued at around $4 billion, also has its facial recognition technology sold to government customers, according to a representative for the company.

A SenseTime spokesperson said the company works with the Chinese government "on many smart city projects" pointing to one in particular in Shanghai. A description of that project on SenseTime's website says it uses its technology to "improve public safety management, smart regional operations and life quality enhancement." Those companies have proven able to raise huge sums of money from investors. Megvii raised $750 million just this month. Last year SenseTime raised more than $1 billion over two rounds. Several other big technology companies in China including Hikvision are involved with the government's mass surveillance plans.

Origins

China's discussion around using technology to control and manage society can be traced back to the 1970s and 1980s, according to Samantha Hoffman, a fellow at the Australian Strategic Policy Institute's International Cyber Policy Centre. But it was in 2000, with the launch of the "Golden Shield Project," that China's surveillance drive really kicked off. The aim was to create a centralized database system with every citizen's records that can be accessed by security forces around the country.

That has developed to include other initiatives. One is called "Skynet," which refers to the government's video surveillance project, and another is "Sharp Eyes," which looks to extend that monitoring to more rural areas. This network comprises tens of millions of cameras, and Beijing wants to have blanket coverage across China. "It's truly Orwellian, but the (Communist) party think they need to do this to survive," James Lewis, a senior vice president at the Center for Strategic and International Studies, told CNBC.

Finding a blueprint