Hikvision: Chinese Government "Exert Significant Influence Over Our Business"

Author: IPVM Team, Published on Mar 28, 2018

In an investor prospectus, Hikvision disclosed that the Chinese government, as their controlling shareholder:

will continue to be in a position to exert significant influence over our business and other matters of significance to us.

has substantial control over [Hikvision] and their interests may not be aligned with the interests of our other shareholders

may improperly control the significant business, finance and personnel of [Hikvision] by way of exercising the voting rights, which will damage the interests of [Hikvision] and its other shareholders.

This is from the investor prospectus p.33, the full paragraph below:

Recall CETHIK is the Chinese government division created expressly to manage Hikvision and that the Chinese government has controlled Hikvision since they created it in 2001.

Not only does the Chinese government have such control, Hikvision also touts strong support from the Chinese (PRC) government as well acknowledging their 'state-owned parent' (CETC / CETHIK):

Moreover, the prospectus discloses that the Chinese government offers "substantial fiscal subsidies" to Hikvision:

Additionally, the prospectus reports the Chinese government provided Hikvision a total of 732,000 square meters of land for their headquarters and factories (p.87).

Contrary to Hikvision Marketing

To the contrary, Hikvision's overseas marketing has repeatedly portrayed Hikvision as a commercial entity simply with private and public shareholders (e.g., Security World: Hikvision responds to accusations of being a cyber security risk).

Security Risks

Being "substantially controlled" and subject to "significant influence" of the authoritarian and aggressive Chinese PRC government, by Hikvision's own acknowledgment, means that Hikvision’s customers, integrators, and OEMs are at risk to the actions of the Chinese PRC government.

15 reports cite this report:

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US House Passes Bill Banning Gov Use of Dahua and Hikvision on May 24, 2018
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Comments (18)

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Interesting read. Thanks for the information. We started moving away from Hikvision 2.5 years ago and never looked back. I’ll be honest. It’s tuff. They make good cameras and they’re cheap. Lost a job to a Hikvision truck slammer last week. Anyways. Just read this article about Eagle Eye and Hikvision joining forces to address school surveillance in Texas.

https://www.asmag.com/mobile/article_detail.aspx?aid=24869

Yes, that partnership was originally announced in January. When the Texas state government figures it out, I wonder how thrilled they will be partnering with the Chinese state government's surveillance manufacture.

The silence in the comments of this post is truly deafening.

At this point, anyone who denies the Chinese Govts role at Hikvision should be included in the same group as "Flat Earthers."

This isnt a knock on Hik, Hik Products, or Hik Dealers. The product is good, Hikvision North America is full of good people, and the pricing is, well, depending on the ADI sale of the week, is great to excellent.

But this 100% shuts down any "witch hunt" argument ever made. There's no conspiracy theory. There's no IPVM agenda. The Communist Chinese Govts involvement and influence in Hikvision is real and is a an absolute fact. This should concern anyone who is directly or indirectly involved with their products.

Paranoia is only natural when faced with facts like this. Denial is only natural when you're profiting from facts like this.

You’re 100% right. Was thinking the same thing.

The China Electronics Technology Corporation, mentionet at the Prospectus as a controlling shareholder with 41.88%, is a state-owned company (see here and here), as like CETHIK. So, is Hikvision really 81,79% controled by PRC?

Rafeal,

It's 41.88% total. The China Electronics Technology Corporation (also called CETC) is the parent of CETHIK (notice the first three letters are the same - CET). 39.91% is owned by CETHIK and the other 2% or so from CETC to give the total 41.88%.

So investors (mostly Chinese domestic and limited foreigners) get to invest in Hikvision but the PRC remains in control.

I love the last sentence in that pic from page 33 of their prospectus:

“Without the consent of our controlling shareholders, we may be prevented from entering into transactions that could be beneficial to us and the holders of the Notes.”

Who would invest their money in any organization that states this kind of thing?

IANAL, but that sure sounds to me like that sentence was added as a future defense to any lawsuit claiming that the company did not exercise their fiduciary duties to their shareholders.

imo, that 'get out of jail free card' statement crystallizes the fact that they are not in control of their own company - the PRC is.... :(

Who would invest their money in any organization that states this kind of thing?

Hikvision is the #2 overall stock gainer, up 441% since Paramount Leader Xi came to power in 2013, as this Bloomberg chart shows:

Hikvision is the #1 video surveillance supplier to an authoritarian government that is spending heavily on building the world's largest surveillance structure. To Western senses, it sounds crazy but it's straightforward Chinese 'capitalist' logic.

Investing in Hikvision is likely a lot less crazy than deploying Hikvision in security systems of China's rival countries.

My point is not that investors in their stock aren't doing well - it is the potential of having all those gains erased if/when the controlling PRC decides to do something that is not in the shareholders best interests, because it may be in the PRCs best interest instead.

Certainly, that is a risk but as long as you can get out beforehand...

Equally importantly, some ~70% of Hikvision's revenue is inside of China, so that's quite protected from any external issues.

Great, now that we got that cleared up, the next debate will be "Why does it matter that the Chinese Government owns the largest surveillance camera manufacturer in the world"

Should make for some interesting lunch reads....

Great, now that we got that cleared up,

But have we? I think objectively and intellectually speaking, it is clear. But it is certainly not clear to Hikvision's 'overseas' marketing and PR departments. Do you think they are going to admit it themselves?

I do agree with you that there is a genuine debate of where, when and how significant the ownership is.

Pointing out the obvious herr, but just in case:

Ask any hacker (white or black hat ; rogue or well resourced )- if you could have access to *any* tool on an adversaries network, what would it consist of?

They would say:

any Linux-based device,

connected *internally* and with a hardwire (ie not a dropped Wireless tool on a co.’s guest AP),

with consistent power (i.e. not battery powered),

and with a route/path, out, to the Internet (route in would be nice too).

(Check,check,check,check) :/

Thank you IPVM for addressing this reality. Please keep standing tall on these issues. As trade becomes a battleground, what can we expect here? I work a great deal with IC Realtime, who buys a great majority of its products from Dahua. Dahua as you know was hit with the sloppy coding hack, if you want to call it that (comments welcome) The percentage of our industry dependent on China is what? Thanks IPVM.

The percentage of our industry dependent on China is what?

Too much, whatever it may be.

I think customers expect us to be on top of these things on their behalf. Where the US interests lie, Hikvision being substantially owned by the Chinese government comes across as letting the fox keep an eye on the hen house. We should seek better alternatives.

David you are correct and I agree! What about Dahua and IC Realtime? I like IC Realtime, great people. But like tons of other manufactured things, especially IT related, you cannot get away from China. With Dahua, they are numero 2 and Chinese, but not owned by govt I don't believe. That hack they had was goofy! Lots of folks hacked however.

Great article and great comments.
Lots to consider.

There is a whole discussion over the actual (potential) problems with a using a state-owned manufacturer of something so sensitive as CCTV cameras.

@DavidWatkins is right with the analogy of the fox guarding the hens and its important to remember as professionals we have a right to serve the customer. They pay us to provide them with the correct information and a solution that provides peace of mind.

So to answer expand on the question posed by @JayHobdy

"Would a customer want to know that the security system you/someone else is fitting is majoritively owned by the Chinese state government and the manufacturers themselves refer to them in a legal document as having significant influence over the business and their interests may not be aligned with the that of others?"

We could debate the questions of whether a Chinese state owned CCTV company is good/bad but really it comes down to customer perception.

Tie into that a questionable response on their back door P2P Port Forwarding (if explained clearly enough that the customer understands the implications) and I think that's enough information to make the majority of customers question why the kit is so cheap. Because someone is benefiting somewhere.

Some customers just won't care I know. But if positioned correctly, this is a formidable argument for any installer to justify their stance on why the choose another supplier over HIK.

To lead on from comments on Dahua being Chinese number #2. The fact is so much CCTV equipment is Chinese made. Along with even more non-security tech.

Being Chinese manufactured is a different argument to Chinese State-owned. I feel its unjust to tar any Chinese manufacturer with the same brush.

We put off fitting HIK since it's been out. But over recent years it has crept into the bottom end of some of our installs. But applied information is power and this article goes a long way to empower installers to make better-informed decisions and pass on this knowledge to teams so everyone knows.

But most importantly.
The end users need to know.
As the article said, HIK paints a different picture in Europe and I imagine the USA,
Than the truth it displays back home.

Installers have more power making a stance and having an opinion for why they dont believe something serves them, their industry or customers, than just fitting a product because its cheap.

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