In China’s Far West, Companies Cash in on Surveillance Program That Targets Muslims
Foreign Policy, 13 June 2018
By Charles Rollet – In the far western region of Xinjiang, China has created one of the world’s most sophisticated and intrusive state surveillance systems to target the predominantly Muslim Uighur ethnic minority. Part of what Beijing calls its anti-terrorism campaign, the system includes mandatory facial-recognition scans at gas stations and Wi-Fi sniffers that secretly collect data from network devices. Over the past two years, the technology has helped authorities round up an estimated hundreds of thousands of Uighurs and other Muslims and lock them up in clandestine camps that China calls “re-education centers.”
For those detainees and for millions of others, this Chinese experiment in technological control has transformed Xinjiang into an Orwellian prison state. But for Chinese surveillance companies, it has turned the area into something else altogether: a lucrative market and a laboratory to test the latest gadgetry. The companies include some of the leaders in their field, often backed by Western investors and suppliers, according to analysts and activists who follow the plight of the Uighurs. Their research on the issue raises the grim prospect that many people around the world are profiting from some of China’s worst human rights abuses.
The companies include the world’s two largest security camera manufacturers, Hikvision and Dahua Technology. Though they are not household names, odds are you’ve been filmed by one of their products. Combined, the two firms supply around one-third of the global market for security cameras and related goods like digital video recorders. They are publicly traded at the Shenzhen Stock Exchange and are worth a combined $70 billion — billions more than better-known brands like Sony.
Hikvision and Dahua have already attracted scrutiny in the West, where their popular cameras are deployed at U.S. Army bases and other sensitive locations.
Hikvision has close ties to the Chinese government — it’s partly owned by a state defense contractor and its chairman was appointed to the National People’s Congress, China’s rubber-stamp parliament, earlier this year — raising concern in the United States that China might be harnessing these cameras for espionage (charges Hikvision strongly denies). Last month, the House of Representatives passed the annual National Defense Authorization bill for 2019, which includes a provision that would bar the U.S. government from purchasing both firms’ products.
But the two companies’ activities within China, where they make the bulk of their revenues, have received little scrutiny — allowing both firms to capitalize on China’s surge in security spending in Xinjiang in recent years. Beijing has long worried about a Muslim separatist movement in Xinjiang, a huge mineral-rich region that straddles key trade routes.
In response, it has promoted the migration of millions of Han Chinese — people from China’s ethnic majority — to the province, a strategy which backfired in 2009 when race riots left hundreds dead in Xinjiang’s capital of Urumqi. As Beijing cracked down, some Uighurs turned to terrorism. In 2016, China appointed Chen Quanguo to run the province, a hard-liner who had previously run the Tibet autonomous region. In short order, Quanguo nearly doubled security spending in Xinjiang to an astonishing $9 billion per year.
Since then, Hikvision and Dahua have won at least $1.2 billion in government contracts for 11 separate, large-scale surveillance projects across Xinjiang, according to Chinese bidding websites and the Shenzhen Stock Exchange. Most of the Xinjiang projects were launched in 2017, a year in which Hikvision and Dahua’s revenues grew by 30 and 40 percent respectively, and most are located in predominantly Uighur parts of the province.
Suspects flagged for practicing their religion
The scale of these projects is huge. A single “safe county” project won by Dahua in Yarkant County in 2017, the site of violent riots that left scores dead in 2014, is worth the equivalent of $686 million over a 10-year period. Another project won by Hikvision in Xinjiang’s capital city of Urumqi is worth $79 million and includes some 30,000 security cameras. The projects include not only security cameras but also video analytics hubs, intelligent monitoring systems, big data centers, police checkpoints, and even drones. Most of the projects are under construction, but some are already completed or partially operating.
These mass surveillance schemes are not a new phenomenon in China. Beijing began began building a nationwide surveillance network in 2005 called Skynet to better control public order in urban areas. In 2015, authorities launched a dramatic expansion and update of Skynet called Sharp Eyes, intended to cover the entire country with facial-recognition systems and other technology.
While these national programs have raised concerns on their own, nowhere has Chinese state surveillance been as broad and intrusive as in Xinjiang. In an attempt to establish total control, Chinese authorities have pushed local apps capable of covertly passing data to authorities, detained Uighurs for studying abroad, and even arrested the families of Uighur reporters working for a U.S. state-funded outlet. There, even buying a knife or entering a bazaar can require an identity check.
But the most disturbing feature of China’s clampdown is the secretive network of re-education camps where Uighurs and other minorities are detained for exhibiting behavior deemed too Islamic or anti-China. One county where Hikvision is building a $46 million surveillance project, Karakash, has seen almost half its Uighur population disappear according to some reports, although there’s no indication Hikvision has supplied the re-education camps themselves. Former inmates of the camps have alleged torture and brainwashing. A U.S. State Department official recently said Washington could sanction Chinese officials involved in the crackdown.
To Peter Irwin, project manager for the Germany-based World Uyghur Congress, the boom in surveillance projects and the mass detentions are inextricably linked. “Information from facial recognition software and surveillance cameras feeds into a central database that may directly lead to Uyghurs being arrested and sent to what the government terms re-education camps,” he said. Because Chinese government figures are unavailable, estimates of those detained vary wildly. Adrian Zenz, a researcher at the European School of Culture and Theology who has documented the construction of dozens of re-education camps since 2016, says the number is somewhere between hundreds of thousands and over 1 million.
Hikvision did not respond to requests for comment. A Dahua spokesperson said Dahua simply provided its “standard offering” of equipment in Xinjiang, where its market share is similar to the business it does in the rest of China. The spokesperson said the recent surge in projects has come as a surprise.
But the expansion of surveillance in Xinjiang goes far beyond traffic cameras or monitoring public areas. For example, two of the 11 surveillance projects won by Hikvision in Xinjiang specifically included provisions for video surveillance systems to be set up in mosques in rural areas. One of those projects is a $53 million deal announced in 2017 for a facial-recognition system in Pishan County, the site of a terrorist attack earlier that year.
Hikvision is also 42 percent owned by Chinese government entities controlled by the China Electronics Technology Group Corporation (CETC), a state defense contractor deeply involved in Xinjiang. Bloomberg reported that CETC is developing a facial-recognition system in the province that automatically notifies authorities when certain people leave designated areas. According to Human Rights Watch, a different CETC subsidiary is also a supplier for a predictive policing system, called the Integrated Joint Operations Platform (IJOP), that identifies suspects based on everything from surveillance footage to bank records and flags them for investigation by authorities as possible candidates for the re-education camps. The IJOP project and others have raised concerns that Uighurs are being targeted by the Chinese government for little more than practicing their religion. Legislation enacted last year already prohibits Xinjiang residents from wearing full-face veils and growing long beards, signs of Islamic piety. Additionally, the Associated Press identified the CETC as the maker of a facial scanner set up at the entry of a bazaar in Hotan town and found a total of 27 CETC bids for government contracts in Xinjiang.
While Hikvision has distanced itself from the CETC, in a 2016 bond prospectus it said it was the firm’s “most profitable entity,” accounting for over 40 percent of profits in 2014. It said the conglomerate was “in a position to exert significant influence over our business and other matters of significance to us.” And the company has not been shy about marketing its technology as a tool for racial profiling. In a recent promotional video, Hikvision showcased new facial-recognition software that could automatically determine whether someone belongs to an ethnic minority or not. It remains unclear if this technology is currently used in Xinjiang or elsewhere.
Hikvision also appears to have directly involved in the manufacturing of IJOP, the predictive policing system identified in the February Human Rights Watch report. According to Maya Wang, HRW’s senior China researcher and one of the report’s authors, Hikvision won a contract in 2017 to supply equipment to the IJOP which included “Wi-Fi sniffers,” probes that gather the unique addresses of devices like laptops and smartphones and can be used to covertly read people’s emails.
James Leibold, an associate professor at Australia’s La Trobe University and an expert on Xinjiang, said he’s long observed that mosques in major cities like Kashgar had government security cameras. But their expansion into rural areas seems new. He described it as another sign of the disproportionate measures authorities are taking to combat a relatively small terror threat in the province. “It’s like swatting a fly with a cruise missile,” Leibold said.
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 Bankresearch 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.
Reported by Charles Rollet for Foreign Policy