In China, Foreign AI Companies Banned or Disadvantaged, Says Top China AI CompanyBy: John Honovich and Charles Rollet, Published on Aug 28, 2019
Non-China (PRC) companies are prejudiced and unfairly targeted inside of the PRC's booming AI market, which not only denies them revenue inside of the PRC but fosters domestic PRC giants that can then unfairly compete around the world.
One of China's largest AI providers, Megvii, disclosed in its IPO filing that:
Foreign-owned entities are prohibited or disadvantaged in the relevant City IoT project bidding process in practice. In practice, when selecting service providers, many end users, as well as many direct customers (which are our system integrators) engaged by such end users to assist them in the supplier selection process, would set implicit requirements that the service provider must not have any foreign shareholder, or at least consider foreign ownership as a disadvantage in their decision making process. Some government agencies even explicitly set forth such requirements in their project bidding invitation documents [emphasis added]
This disclosure comes in stark contrast to the PRC government and major PRC manufacturers complaining strenuously about how unfair and unjust the US NDAA ban is.
Megvii Revenue Rocketing
Megvii's IPO document show 2018 revenue of ~$200 million, with H1 2019 revenue tripling, putting the firm on pace to generate $500+ million revenue in 2019.
PRC AI Market Booming
This shows a huge market in PRC for AI solutions, which Megvii estimated at almost $42 billion total (300 billion RMB) last year for the "city and community management" segment:
Owing to the gradual replacement of existing security solutions, implementation of smart community solutions and cost reduction of human staff, the market for computer vision technology under the city and community management context is approximately RMB300 billion as of 2018
This is driven in part by the PRC government's smart city spending, which Megvii expects to skyrocket from $1.66 billion in 2018 to over $14 billion by 2023:
The market size of China’s smart city management vertical in terms of revenue is expected to grow from RMB11.9 billion in 2018 to RMB103.1 billion in 2023 [...] Smart city management solutions are primarily provided to government agencies [...] Our growth, especially with respect to our City IoT solutions, depends in part on government spending and favorable government policies [emphasis added]
Indeed, a new IDC market report on PRC video surveillance says that the government accounts for nearly half of all PRC market spending:
The government is the largest industry in China's video surveillance, accounting for 47.6% of total expenditure.
Adds To Historic Video Surveillance Barriers
With all this spending, being shielded from foreign competitors is certainly a plus. However, this is neither new nor surprising. For years, the PRC has considered foreign video surveillance systems to be a security risk.
As such, even the biggest non-PRC companies such as Axis, Avigilon, Genetec, and Milestone have a negligible share of the PRC market.
Major Problem For Non-PRC Vendors
The outcome will be huge PRC AI vendors that will be far larger and have far more resources to compete globally against non-PRC AI vendors. This, of course, has already happened with surveillance cameras as Dahua and Hikvision built up huge protected markets inside of the PRC and then leveraged that to spend vastly on sales while undercutting the pricing of their foreign competitors. With these barriers, this could repeat with AI.
Contrast To The US NDAA
While the PRC is banning and disadvantaging foreign AI providers, the PRC, and its largest manufacturers have made repeated claims of how the US NDAA is unfair and unjust. This is ironic, since surely Huawei and Hikvision know the same thing Megvii knows, that they have benefited from unfairly undermining foreign companies inside their home country.
Both hurt targeted providers (in the case of the PRC, all foreign companies, in the case of the US, just PRC companies).
Ideally, both countries would support open trade and trust each other. This is unlikely to happen.
With AI becoming core to video surveillance in the next decade, this is shaping up to be a repeat of the 2010s, with huge PRC providers, benefiting from an unfairly protected home market, having far greater revenue and resources to undermine rivals throughout the rest of the world.
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