Sanctions-hit Chinese facial recognition firm DeepGlint in muted trading debut in Shanghai, with US$1 billion market cap

DeepGlint, which was added to the US government’s trade blacklist in July last year, once targeted a US$300 billion valuation
The company’s initial trading performance paled in comparison to that of AI giant SenseTime’s debut in Hong Kong last December

Artificial intelligence

Jiaxing Li

Published: 7:00am, 19 Mar 2022

Why you can trust SCMP

Chinese artificial intelligence (AI) company DeepGlint, which once targeted a US$300 billion valuation, made its trading debut in Shanghai on Thursday, but quickly saw its share price decline amid the rout in tech stocks this week.

Shares of DeepGlint, which was added to the US government’s trade blacklist in July last year, was down 12 per cent over the past two days, heightening investor concerns about the potential of China’s AI industry. It recorded a market capitalisation of US$1 billion.

A specialist in facial recognition technology, the company is still operating at a net loss, according to Zhang Yi, chief executive at Shenzhen-based iiMedia Research. “Investors will keep a prudent attitude before the company achieves a breakthrough that can fix the “choke point” in the industry,” he said.

While China is expected to overtake the US in AI and other foundational technologies of the 21st century, being able to gain investor confidence by delivering handsome returns remains a challenge for companies like DeepGlint.

02:42

‘Flying Wolf’, China’s first AI-powered 3D automatic sorting system

DeepGlint’s initial trading performance paled in comparison to that of SenseTime Group, China’s artificial intelligence champion, which saw its shares jump more than expected on its trading debut last December.

Hong Kong-based SenseTime paid off for investors who shrugged off concerns about US sanctions in the run-up to its US$851 million stock offering.

DeepGlint’s struggle to make a profit is attributed to its high research and development costs, according to iiMedia’s Zhang.

From 2018 to 2020, DeepGlint’s cumulative research and development expenses were more than over 283 million yuan (US$44.56 million), according to the company’s listing prospectus. That accounted for 77.3 per cent of its total revenue during the period.

Around 66 per cent of DeepGlint’s revenue came from its “city management” business in the first half of 2021, which involved supplying surveillance and traffic management technology to local authorities.

SenseTime logs surprise gain in Hong Kong as market defied US sanctions

Founder Zhao Yong, who previously worked in research at the Google Glass team, founded DeepGlint in 2013. Backed by big-name venture capitalists, including Sequoia China, Beijing-based DeepGlint is focused on supplying facial recognition, big data and data intelligence software and services. Its biggest client is the Chinese government.

DeepGlint is among a group of facial recognition tech companies – including SenseTime, Yitu Technology and Megvii – that heavily rely on government orders, as China increasingly deploys surveillance systems to maintain public order and track Covid-19 cases during the pandemic.

Following government procurement processes typically leads to long payment approval cycles, causing a cash crunch for these firms, according to Jeffery Ding, a postdoctoral fellow at Stanford University’s Centre for International Security and Cooperation, in a report published by the ChinaAI Newsletter.

Close ties with the government have also put AI firms in the middle of growing US-China tensions. In July last year, DeepGlint and 13 other firms were blacklisted by the US government over their links to government surveillance of Uygur Muslims in Xinjiang.

Amid its tech war with the US, China has kick-started its “little giant” project, which pours resources to small and medium-sized companies operating in sectors that Beijing deems critical. Hundreds of AI firms, including DeepGlint, have benefited from this programme.