China’s AI unicorns overcame US tech ban but face bigger challenge: reducing reliance on government surveillance business

When Chinese AI unicorns SenseTime, Megvii and Yitu were sanctioned by the US in October last year, it looked like a major threat to the survival of their business.

Yet the supply chain impact of being added to Washington’s Entity List, which restricted their access to American products, has been less significant than originally feared. In fact, it was quickly overshadowed by the need to diversify a business model overly reliant on government orders for surveillance cameras in a market that has since become saturated.

“With more companies entering and the technology threshold lower, competition for AI surveillance applications is even more intense,” said Zhang Yi, chief executive at Shenzhen-based iiMedia Research.

In 2019, surveillance was the biggest single end-use for AI in China, accounting for 53.8 per cent of all AI-powered applications, according to research firm iiMedia. Finance was second with 15.8 per cent followed by marketing (11.6 per cent) and transport (4.2 per cent).

“The industry started to be aware of the problem [of dependence on surveillance] as early as last year, before the Entity List ban, but the US-China tech war was a catalyst,” said an investor in Chinese AI unicorn Megvii Technology, a facial recognition company that was added to the Entity List in October 2019.

SenseTime and Megvii, the most valuable Chinese AI unicorns worth US$7.5 billion and US$4 billion respectively, along with smaller players Yitu Technology and CloudWalk, are known as the “four dragons” of China’s computer vision industry.