Bloomberg: Hikvision "China Spyware Star" "Runs Into A U.S. Backlash"

JH
John Honovich
•Sep 17, 2018
IPVM

Public reporting and criticism on Hikvision continue to rise with, overnight, a Bloomberg piece:

For those industry people following Hikvision, it covers standard grown about government ownership, sanctions, ban, etc. A few atypical points made about subsidies and government funding:

In monetary terms, government-related gains account for a fifth of net income. That doesn’t include other privileges such as the winning of government contracts. 

a recipient of China’s Innovation Company, or InnoCom, program, which hands out fiscal incentives to companies that meet requirements on parameters such as the percentage of R&D employees with college degrees.

The government has given the company thousands of square kilometers of land for its headquarters and facilities in Hangzhou. These forms of subsidies far outweigh the tax savings on R&D that are commonly available elsewhere in the world.

Interestingly, the piece cites a Hikvision briefing where the company contends they can expand elsewhere: 

Hikvision does have other options for expansion in the event that it’s shut out of developed markets, with management citing Latin America, Russia and India to analysts at a briefing in July.

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UD
Undisclosed Distributor #1
•Sep 24, 2018

Yes, they are already expanding aggresively in Latin America. Local offices are growing their manpower by the week...

... but calling Hik a "spyware maker" sounds a little bit too much. They have developed some great products and solutions.

Just my two cents.

 

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U
Undisclosed #2
•Sep 24, 2018
In reply to Undisclosed Distributor #1

Agreed. I haven't seen any evidence that Hik or the Chinese government has actually put spyware on Hik cameras. Nor have I seen evidence that the Chinese government has used Hik cameras for the purpose of spying. That headline should be revised ASAP unless it is proven true...

I guess "Government-controlled maker of uncomfortably-easy-to-compromise audio/video enabled IoT devices" isn't as attention-grabbing?

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AS
Andrew Somerville
•Oct 01, 2018

"Thousands of square kilometres of land" ?

I knew they were a large manufacturer but this sounds implausible.

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JH
John Honovich
•Oct 01, 2018
IPVM
In reply to Andrew Somerville

Andrew, that piece does not have citations for their evidence.

Our post Hikvision: Chinese Government "Exert Significant Influence Over Our Business" does have a related citation to their 2016 bond prospectus that comments on land given:

The Hangzhou government has provided ample land for our development through overall planning and provision of reserved land, including: Hangzhou Phase I production facilities, covering an area of 45,000 square meter(s) (“sq.m.”), Hangzhou R&D headquarters building, covering an area of 22,000 sq.m., Hangzhou Tonglu intelligent production facilities, covering an area of 600,000 sq.m., Hangzhou Internet Security Base, covering an area of 55,000 sq.m.

If my metric math is correct, it's 1 million square meters to 1 square kilometer so this would total 0.72 square kilometers for this report. 

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AS
Andrew Somerville
•Oct 01, 2018
In reply to John Honovich

Sounds more realistic.

Of course the Chinese are hardly unique in offering such subsidies, e.g. to quote just one example Tesla was given the first 1000 acres (4 square kilometres) of land for its Gigafactory for free by the state of Nevada plus hundreds of millions of dollars of additional tax incentives.

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JH
John Honovich
•Oct 01, 2018
IPVM
In reply to Andrew Somerville

The bigger problem is Hikvision lying about and covering up its subsidies. For example, from this UK interview:

I’ve read reports that Hikvision is subsidised by the Chinese government? How does Hikvision finance its operations?

Hikvision does not receive subsidies from any government or financial institution.

Or this US trade magazine interview:

SourceSecurity.com: There have been claims that Hikvision is being subsidized by the Chinese government. Do you care to comment on that?

Jeffrey He: This is simply not accurate. We are a commercial enterprise 

But there are many Hikvision official sources such as the one cited above that make it clear they receive extensive subsidies:

Andrew, any idea why Hikvision takes this tactic?

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EK
Edward Knoch
•Oct 01, 2018
In reply to Andrew Somerville

I believe that there is one CRITICAL thing that everyone here seems to overlook. China is, in fact, not on the Most Favored Nations list. Period. Our government doing ANY business with them violates multiple CFRs. Change the law and all is forgiven. Instead of destroying camera manufacturers and eroding their margins (in appeared as this was their MO on a weekly basis last year) - they - (Hik) should have been pouring monies to get the law changed to their benefit. Honestly, regardless of whether they injected "spyware"
 into their products (while still relevant), they just aren't authorized to do business with the Federal Government - by law. 

AS
Andrew Somerville
•Oct 01, 2018
In reply to Edward Knoch

Where do you get this 'fact' from? The USA gave China MFN conditional status in 1980. This was made permanent in 2000. China joined the WTO in 2001 and it is a condition of WTO membership that MFN status is granted to all the other 140 members unless a free trade agreement (like NAFTA or the EU single market) is in place.

JH
John Honovich
•Oct 01, 2018
IPVM
In reply to Andrew Somerville

Andrew, agreed, the USA did give China MFN status in 2001.

The issue is how the PRC has used / abused the WTO, e.g. WSJ: How China Swallowed the WTO, quote:

Rather than fulfilling its mission of steering the Communist behemoth toward longstanding Western trading norms, the WTO instead stands accused of enabling Beijing’s state-directed mercantilism, in turn allowing China to flood the world with cheap exports while limiting foreign access to its own market.

EK
Edward Knoch
•Oct 01, 2018
In reply to John Honovich

I stand (no sit) corrected. I made a mistake and unlike many politicians in the election cycle, I'll admit mine. I was confusing MFN for BAA and CFR (https://www.acq.osd.mil/dpap/dars/dfars/html/current/225_7.htm) for prohibited sources - which does list Chinese Military Technology (which is part of the portfolio of Hik). Nonetheless, I am so chastised and if you want, I will retract my original statement on the basis of it's merit - which is spurious.

 

Cheers

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AS
Andrew Somerville
•Oct 01, 2018
In reply to John Honovich

I'm afraid that article is behind a paywall.

As a Brit I have to admit I just don't see the Chinese as an existential threat in the same way as the US seems to. I think our general view is that the Americans are just as willing to play dirty when it suits them: 

* Providing massive state and federal subsidies to favoured businesses.

* Imposing import tariffs for spurious 'national security' reasons

* Blocking the appointment of new judges to the WTO appeals panel despite the US winning the majority of the appeals they submit

* Using the NSA to tap the communications of key European allies

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