AI unicorn Shangtang Goes Public In Hong Kong

SenseTime Group, a well-known image recognition software company in China, will officially be listed in Hong Kong this Thursday (December 30), becoming the first artificial intelligence (AI) share in Hong Kong stocks. SenseTime’s face recognition system was twice sanctioned by the US blacklist for being used by the CCP to monitor Uighurs in Xinjiang. Some Hong Kong stock analysts believe that the sanctions imposed by the United States have “minorly” hindered Shangtang’s business. Shangtang is optimistic about its revenue and gross profit prospects and still has medium and long-term investment value. But there are also observers who argue that Shangtang is an “accomplice” in the CCP’s establishment of Skynet. The surveillance software it develops persecutes human rights and violates the ethical norms of AI development and should not exist at all.

The SenseTime Group, known as the “AI Unicorn”, plans to issue 1.5 billion new shares, priced between HK$3.85 and HK$3.99 per share, and can raise up to nearly HK$6 billion (US$770 million) in total funds, of which nearly Sixty-five percent of the new shares were subscribed by nine cornerstone investors last week, and approximately US$500 million of funds have been deposited.

SenseTime was originally expected to go public in mid-December, but because its flagship subsidiary SenseTime was hit by the United States on December 10 for assisting the Chinese government in persecuting the human rights of Muslim minorities such as Xinjiang Uyghurs, it broke into the “China” where U.S. investment is prohibited. Chinese military-industrial complex companies (Chinese military-industrial complex companies)” blacklist, the listing plan was temporarily suspended.

Shangtang Group's office building in Shanghai
Shangtang Group’s office building in Shanghai

In response, SenseTime issued a statement on December 10 to refute that the U.S. allegations were groundless, reflecting the United States’.

However, according to Shangtang’s patent application, the recognition capabilities of its software can distinguish Uyghurs even with a beard, sunglasses, and mask.

This is the second time SenseTime has been sanctioned by the United States. As early as October 2019, the U.S. Department of Commerce included SenseTime on the list of entities, prohibiting US companies from selling technology to SenseTime without permission.

SenseTime Cornerstone Investment: foreign capital retreats, state-owned capital enters

Only ten days before the latest sanctions by the United States, SenseTime reopened the listing case after quickly adjusting the list of cornerstone investors and excluding foreign capital such as the United States.

According to its supplementary prospectus issued on December 20, the number of shares issued and the pricing area in the SenseTime’s plan remain unchanged. The biggest change is that due to the impact of US sanctions, GF Fund and 4 foreign investors, including Pleiad The Fund, WT, Focusar Capital, Focusar Fund and Hel Ved have all decided to withdraw. It is replaced by institutional investors with official state-owned colors, including Xuhui Capital and Hong Kong Science and Technology Park Venture Capital Fund.

In other words, “the country advances and the country retreats” and backed by state-owned funds is the biggest rescuer for Shangtang to restart the listing case.

Although the cornerstone investor successfully completed the subscription, SenseTime still has nearly 500 million new shares that will be released for public trading on the Hong Kong stock market on Thursday. In this regard, Hong Kong-based Huasheng Securities analyst Nie Zhenbang believes that “after the listing, there will be more stocks on the market.

In a written analysis report sent to VOA, Nie Zhenbang pointed out that for Shangtang’s listing case, he “expects the high participation of retail investors, (but) the stock price performance in the initial stage of listing will largely depend on the investment sentiment of the market at that time. The performance of the stock price is unpredictable at the time. If the (Hong Kong) Hang Seng Index (number) is still below 23,000 points when it is listed on December 30, the risk of (Shangtang) falling below the listing price is extremely high, and the stock price can wait at that time. It is 10% to 15% lower than the listed price, and seeing signs of rampant stock prices, short-term operators are better to consider entering the market.”

Analyst: Shangtang is short and short, but long and long

Although short-term bearish, Nie Zhenbang believes that the US sanctions will hinder SenseTime’s business as “minor”. Based on its revenue and gross profit prospects, he is still optimistic about SenseTime’s mid- to long-term investment value.

Nie Zhenbang pointed out in his analysis report that in terms of revenue in 2020, SenseTime has an 11% market share and is the largest computer vision software provider in China. SenseTime’s revenue in the past three years has grown rapidly from nearly RMB 1.9 billion in 2018 to nearly RMB 3.5 billion in 2020, which represents “the market demand for its services is strong” and SenseTime’s gross profit margin has increased from 2018. 56.5% of the year, climbing to 70.6% in 2020, “the gross profit margin has a trend of expansion, which fully reflects the medium and long-term investment value.”

Shang Tang was established in Hong Kong in 2014 by Tang Xiaoou, who has been studying AI for many years and specializing in image recognition technology. Xiaoou Tang from Anshan, Liaoning, received his Ph.D. from the Massachusetts Institute of Technology in 1996, and went to Hong Kong as a professor at the Chinese University of Hong Kong the following year.

According to comprehensive media reports, SenseTime published the DeepID series of facial recognition algorithms in the same year of its founding that defeated the American social media leader Facebook. After becoming famous in World War I, SenseTime was widely favored by startup funds. Since 2015, it has won 12 rounds, totaling 52. 100 million US dollars of financing, including Alibaba, Singapore’s sovereign fund Temasik (Temasik) and Softbank, etc. have contributed, the current company valuation may be as high as tens of billions of dollars.

Although expensive as the darling of capital, Red Star News, located in Chengdu, Sichuan, stated in an analysis report at the end of October that Shangtang is also a veritable “golden beast” because the company has been based on “no bottom-out” since 2018. “The R&D investment, including the salary expenditures of R&D personnel, which accounted for a large amount, has accumulated a loss of nearly 24.3 billion yuan, and it is expected that the loss may continue to expand in the future.

According to the report, SenseTime and three other peers that also “burned money”, YITU, MEGVII and CloudWalk, are collectively referred to as China’s “AI Four” in the AI ​​vision field. “Xiaolong”, but four companies, including Shangtang, which is the head of the four dragons, are currently at a loss, and all of them are eager to go public to raise funds.

R&D burns, coupled with business overlap between peers, and intensified competition in the future are all factors that the market has questioned the prospects of Chinese AI companies.

The Times Weekly in Guangdong Province once quoted a venture capitalist in the telecommunications, media, and technology (TMT) industry as saying: “The AI ​​industry looks very good on the surface, but the problem is actually very serious. There is overlap. Several giants in the traditional Internet and security fields have also cross-boundary in the field of machine vision. In the future, the barriers to competition in this industry will not only be technology, but more importantly, resources.”

China’s Skynet accomplices, U.S. sanctions have limited impact

SenseTime’s future share price performance remains to be seen, but Huang Jizhen, a researcher at George Mason University in the United States and currently teaching at Chung Yuan Christian University in Taoyuan, Northern Taiwan, said in an interview with VOA that SenseTime has benefited from China’s huge demographic dividend. After the successful listing of AI domestic demand market, the two rounds of US sanctions have limited impact on its development.

Huang Jizhen said: “Shangtang’s technology is mainly to do urban facial recognition systems in China, which is behind the scenes of Skynet. It also develops some facial AI recognition software services for the Chinese banking industry and the Chinese police. So in this view, due to the support of China’s domestic demographic dividend and the fact that China’s internal domestic demand market is actually larger than the global artificial intelligence market, I think the US sanctions against Shang Tang basically have little impact. It is from the perspective of capital and from the perspective of the future market. Such sanctions are necessary, but the effect may also be very limited.”

Huang Jizhen said that in addition to the banking industry and the police, SenseTime has also invested in AI infrastructure, including platforms such as smart business scenarios, smart cities, smart cars, and smart healthcare. Even if SenseTime only serves the Chinese government, in terms of the number of urban development in China , This domestic demand market will also bring business opportunities that cannot be underestimated.

According to the forecast issued by the International Data Corporation (IDC) in August this year, China’s spending on the AI ​​market will reach US$8.2 billion in 2021 and is expected to double to US$16 billion in 2025.

Huang Jizhen said that AI itself has ethical controversies such as programming deviations and inability to cover the entire population. It is necessary to determine the degree of application of technology through social consensus, and even regulate that the government cannot abuse it. However, in the face of a one-party authoritarian system such as the CCP, using AI technology to promote political achievements, monitor the people, and even manipulate false news to control society, the ethical problems posed are particularly serious.

Conor Healy, director of the Canadian government affairs department of IPVM, an American monitor industry research company, also said in an interview with VOA that China’s extensive use of facial recognition software to strengthen its surveillance of the people has violated AI. The ethical norms of SenseTime, especially the software developed by SenseTime, specifically identifies the ethnicity of Uyghurs, causing even higher ethical controversy.

Xili said: “The face recognition technology on Uyghurs is mainly used to assist the government in its ethnic suppression. This technology does not exist at all and should not be developed at all. There is sufficient evidence to prove that these surveillance technologies were purchased. The public security organs committed severe atrocities against Uyghurs, and these technologies played a key role in the public security’s execution of atrocities. Therefore, the Shangtang who invented these technologies was an accomplice of this type of tyranny, which caused a high degree of ethical controversy.”

China abuses AI to promote technological totalitarianism

China’s AI tyranny not only persecutes Uyghurs. IPVM released a report at the end of November. It pointed out that Henan Province is also building a similar surveillance system, and uses yellow and green lights to indicate reporters, foreign students, and even female immigrants that the authorities should pay attention to. However, the report did not point out whether Shangtang was involved in the construction of this face monitoring system.

Healy said: “These technologies have greatly expanded the power of the CCP and the public security. China’s continuous monitoring of the people and violation of privacy rights have constituted so-called technological fascism or technological totalitarianism. China’s abuse of AI is deeply disturbing.”

Xili said that when Shangtang applied for a patent, it had already admitted that its software can distinguish between Han and Uyghurs. Therefore, the sanctions imposed by the United States are self-defeating, and it is unreasonable for Shangtang to describe itself as a victim of geopolitics. He also said that the reasons for the US sanctions against SenseTime are adequate and legitimate, and that it also has the power to prohibit US individuals or companies from dealing with such companies that persecute human rights.

Both Huang Jizhen and Healy believe that the United States is still ahead of China in the field of AI, and there is no need to sanction a single company in order to contain China’s technological rise. Healy said that compared with the openness and innovation of the United States, Chinese AI companies are relatively closed and have many unknown internal operations. Therefore, any argument that China’s AI development has surpassed the United States may not have a clear picture of China.

Huang Jizhen said that China may only have a single product and a single technology that surpasses the United States. However, in terms of one-stop solutions, the overall competitiveness of the United States still has a leading position. Take the current operating system as an example, whether it is Microsoft or Apple’s operations. The system is still in the hands of European and American companies. From the fact that China has not yet been able to develop an operating system with a Chinese interface, it can be seen that the United States is still in a leading position.

Human rights groups call for sanctions and accountability

In response to the harm caused by SenseTime Software to Uyghurs, Dilxat Raxit, the spokesperson of the World Uyghur Congress in Sweden, called on the international community not only to increase sanctions, but also to hold them accountable. Legal responsibility for assisting the Chinese government to implement genocide policies.

Dilixati Rexiti told VOA: “Through facial recognition technology, China analyzes the facial expressions of each Uyghur to identify whether they are dissatisfied with the authorities. The technology companies provide China with this surveillance system is not just a single one. For commercial applications, they are typically direct accomplices in participating in and assisting the Chinese government’s genocide against the Uyghur nation.”

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