Hikvision Declares No Subsidies But Financials Show $189 Million Subsidies

Author: John Honovich, Published on Oct 13, 2016

Hikvision alleges that they receive no subsidies but their own financial records show $189 million of subsidies in 2015.

Hikvision 'overseas' has run a marketing campaign to counter critical coverage of their company. In a trade magazine interview, a Hikvision General Manager declares:

Hikvision does not receive subsidies from any government or financial institution

It is a definitive statement.

However, Hikvision's 2015 financial report (p.148) clearly lists Hikvision receiving government subsidies:

Indeed, Hikvision's own financials show 2015 China government subsidies of 1,274,249,562.08 RMB, equivalent to ~$189 million USD.

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Comments (18)

Jon, do you have any factual rebuttal to our analysis? Please share.

Why do all of these articles point the blame at Hikvision corporate (and brand) instead of attacking the few bad apples that are unaware of their corporate dealings? Why not just attack the bad employees, who obviously don't peruse the corporate filings as deeply as you do.

My point is that you haven't found a single shred of evidence of Hikvision doing anything illegal or filing any improper disclosures. All of your articles are about employees who are either unaware of (at best) or trying to spin (at worst) their positions.

Every single disclosure on the Hikvision website seems to be open and transparent.

instead of attacking the few bad apples that are unaware of their corporate dealings? Why not just attack the bad employees

Jon, that quote is from the GM of Hikvision UK and Ireland, who is an authorized representative of the company, in a formal media interview, and the head of Hikvision's second largest overseas market (after the US).

Here is another example of a Hikvision leader denying subsidies in their overseas marketing in the past year:

Jeffrey He is the President of Hikvision North America (the largest overseas market).

The reality is simple, these are statements from authorized senior leaders ultimately coming from corporate / China that the country managers are passing on.

You can feel free to believe there is no single shred of evidence but I am confident that industry people overwhelmingly will see the manipulation that Hikvision is conducting in their overseas marketing as we have examined in Hikvision CEO Admits Hikvision China State-Owned Company and this post.

Jeffery seems like a very nice, genuine guy. My best attempt at defending him is that he must not know every single Hikvision Corporate Chinese filing as well as you do.

My best attempt at defending him is that he must not know every single Hikvision Corporate Chinese filing as well as you do.

This "defense" would make him an idiot. These are not off-the-cuff questions posed by TMZ while walking thru an airport.

These are pre-meditated responses to questions that have been asked before, repeatedly.

If you think that He decided to tackle these questions on his own without any guidance/information from his superiors, he is also immensely brave.

The most likely explanation is that IF you could corner him he would dispute that VAT refeund is truly a subsidy, and that the word 'subsidies' is just used as an accounting 'term-of-art' chosen by auditors and that the others are insignificant and/or internal, not applicable.

In fact look for this type of explanation in his next prepared response addressing 'concerns of some in the media'.

...instead of attacking the few bad apples that are unaware of their corporate dealings.

Jeffery seems like a very nice, genuine guy.

A very nice, genuine bad apple?

Funniest comment heard recently, our Avigilon rep stated that Avigilon will be around longer than Hikvision, who could go out of business any day now.. I feel like I'm living in an alternate reality. When will the Chinese Communist Party go out of business?

When Trump puts America First and Makes America Great Again...as long as we are in alternate realities

Indeed VAT is not falling under "Government Subsidies" from an accounting point of view. Any accountant booking it under this heading should go back to school. Anything filed under this heading should be subsidies, nothing else. Hence, the proof of funding unfair - to say the least - competition is here. A bit like Middle East low-cost carriers and their effect on Western airlines.

Any accountant booking it under this heading should go back to school.

So you are saying Hikvision's 'accountant' is incompetent?

Indeed VAT is not falling under "Government Subsidies" from an accounting point of view

To be clear, this is a VAT refund.

Do you have any Chinese primary sources that counter that this is not a subsidy? Any other explanations of why Hikvision's accountants clearly include this under government subsidies?

John, I do not have this information and cannot judge this from just an amount in the balance sheet.

VAT refund in China is essentially a government subsidy on a massive scale. Here is the VAT mechanism in China:

1. Normally, almost all goods in China are subject to certain VAT rates: 17%, 13%, 6% under different scenario. For Hik, it is 17%.

2. VAT has the input component and the output component. When Hik procures raw materials for making cams, it pays 17% VAT on the invoice price to the suppliers; when Hik sells finished goods to customers, it charges 17% VAT on the finished products.

If raw material for one finished good costs $100, and the finished good is sold at $200, then VAT paid by Hik (VAT input) is $17, VAT charged against the customer by Hik (VAT output) is $34.

Since Hik already paid $17 on VAT input, it will only have to another $17 VAT to the government from the $34 VAT output.

The net effect of VAT on Hik is zero. Essentially, only the end customer will bear the total amount of VAT.

3. When Hik exports its products, it is qualified for VAT refund. It means that Hik can not charge the oversea customers for VAT at 17%, AND for any VAT input Hik paid to the suppliers, the Chinese government will credit the amount.

This tax refund applies to the majority of the Chinese exporters.

Some suggested readings:

http://www.kpmg.com/PL/pl/services/Foreign-Desks/Documents/China-Practice/China-Country-VAT-Business-Tax-Essentials-Guide-2015.pdf

http://www.tradegood.com/en/insights/viewpoints/sourcing-tips/vat-in-china-some-basics.html

The article linked here is from a respected (by me at least) source, and provides some insights into the underpinnings of the HikVision situation.

Geopolitical Futures - Chinese Government Companies

I am not connected with this source except as a reader.

Call the VAT refund what you will but it is

  1. Given for Hik goods sold thru export
  2. Not given for Hik goods sold domestically
  3. Charged to Hik competitors for goods imported into China

See my post above.

Hikvision UK GM did another interview. This time he restrained his comments and offered no specific rebuttal:

That was the only mention in the entire interview on the government topic.

From a PR perspective, this is likely better since it avoids making factual claims that can be debunked from Hikvision's own financials.

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