US Considers Sanctions Against Hikvision and DahuaBy: Charles Rollet, Published on May 22, 2019
The US government is considering blacklisting "up to 5" PRC surveillance firms, including Hikvision and Dahua, Bloomberg reported, with human rights abuses in Xinjiang cited as the main reason.
US sanctions on Hikvision, Dahua, and other Chinese surveillance firms would have a major impact on the video surveillance industry. In this post, we examine the news and potential impact, including:
- Who Is Affected
- Stocks Fall
- Type of Sanctions, Possible Impact
- Reasoning / Xinjiang Human Rights
- Supply Chain Impact
- Hikvision claims only a 'product supplier'
- IPVM shows official records showing Hikvision is wrong
- PRC Government Response
Who Is Affected
Although Bloomberg said "up to 5" China surveillance firms were under consideration, it did not name any others aside from Hikvision and Dahua. Neither did the New York Times, which first broke the story but only mentioned Hikvision as a target.
Due to the news, Hikvision's stock plunged almost 10% (the maximum daily allowed in the PRC) and Dahua's fell about 8%, with both recovering slightly:
Type of Sanctions/Impact
Both Bloomberg and the NYT reported that the companies are under threat of being added to the Department of Commerce's Entity List, which is what happened to Huawei.
As IPVM has noted, this would effectively ban US companies from supplying most technology to Hikvision/Dahua/etc by requiring these US firms to obtain government licenses which operate under an explicit "presumption of denial" basis.
Such sanctions do not affect imports, only exports; US distributors and integrators can technically still buy products from affected PRC surveillance firms. However, the US Department of Commerce explicitly states that any transaction with Entity List companies is considered a "red flag."
Timeframe: "Coming Weeks"
Reasoning for Ban: Xinjiang and 'Espionage'
Bloomberg reported that the reasoning was twofold - human rights along with espionage concerns:
The Trump administration is concerned about their role in helping Beijing repress minority Uighurs in China’s west, they said, asking not to be identified talking about private deliberations. There’s concern also that Hikvision’s or Dahua’s cameras, which come with facial recognition capabilities, could be employed in espionage, the people said.
Complicity in Xinjiang Human Rights Abuses Crucial
Reports indicate that up to 1.5 million Muslims, chiefly members of the Uyghur minority, have been locked up in 're-education camps' in Xinjiang in an unprecedented human rights crisis. As IPVM has reported, Hikvision and Dahua have won over $1.2 billion in PRC government surveillance contracts in Xinjiang, including for:
- Facial recognition cameras in almost 1,000 mosques
- Panoramic cameras for the camps
- Building up the region's notorious hi-tech police stations
Immediate Effect on Supply Chains
Hikvision and Dahua have extensive supplier relationships with large American tech firms, as IPVM has reported. An Entity List addition would bar all of the transactions listed below:
- Intel: Hikvision's NVRs and 'open source smart cameras' use Intel processors, Hikvision's AI cameras use Intel Movidius' Myriad 2 VPU, while Hikvision's industrial robots are also powered by the Myriad 2. Dahua NVRs and people-counting cameras also use Intel processors and Movidius chips, respectively.
- Western Digital: the company's hard drives are used in "the majority" of Hikvision NVRs for storage, a rep told IPVM at Intersec, where a WD/Hikvision collaboration with the WD Purple surveillance-optimized hard drive was on prominent display. Dahua DVRs also use the WD Purple drive.
- NVIDIA: For smart city applications, Hikvision uses NVIDIA's Jetson GPU platform, servers powered by NVIDIA's Tesla P4 GPUs, and NVIDIA's DGX-1 AI supercomputer, an NVIDIA blog stated. Dahua's Deep Sense server uses NVIDIA's Tesla 4 GPUs.
- Seagate: Hikvision NVRs use Seagate's SkyHawk surveillance drives, as shown in this press release and video; Dahua uses the drives as well, with one Dahua exec calling the firm a "strategic partner" of Seagate in a Seagate press release.
This would certainly harm the companies' supply chains, especially their AI efforts. When PRC telecoms firm ZTE was added to the Entity List last year, it almost completely shut down before the US backtracked on the move. We do not see a similar impact happening to video surveillance companies, as IP cameras can generally be made without US core components.
Hikvision Incorrectly Claims Only 'Product Supplier' in Xinjiang
For the first time, Hikvision has directly addressed the Xinjiang situation in a statement it provided to Chinese state media where it claimed to merely be a "product supplier" in Xinjiang:
"Hikvision is a product supplier. We have never done any inappropriate actions in Xinjiang," the company said in a statement to the Global Times. "We have never and would never conduct business operations that are based on the condition of violating human rights."
Such a statement is simply untrue; Hikvision is much more deeply involved, directly winning huge Xinjiang surveillance projects. Even Hikvision's own website directly contradicts this claim. In 2017, Hikvision proudly posted that it had won a $79 million safe city project in Xinjiang's capital of Urumqi, stating the project included about 30,000 cameras and data centers.
Bidding documents also show Hikvision itself directly bid and won wide-ranging surveillance projects in Xinjiang. For a $46m project in Xinjiang's Karakax (or Moyu) county, Hikvision is listed as the sole winner in Chinese bidding documents, which even include its headquarters' address in Hangzhou and state the project is "BOT", a scheme in which companies Build, Operate, and then Transfer projects to authorities. Hikvision is also listed as the only winner in bidding documents for a different $53 million surveillance project in Pishan County, which also list its Hangzhou address.
Hikvision even promised an outside review of its Xinjiang operations:
Hikvision also said that it has hired professionals from the US to conduct an independent review of the company's operations in Xinjiang and will respond to foreign and domestic concerns when they have gathered full evidence.
Given Hikvision's falsehoods about being a simple "provider" in Xinjiang, such a review seems unlikely to produce any reliable results.
Dahua No Official Response
IPVM could not find an official response from Dahua. Chinese media reported that a Dahua official responded by saying that the company had not received any news from US officials about these developments, while downplaying Dahua's reliance on US technology. We will update if Dahua issues a formal statement.
PRC Government Response
Reuters reports that Lu Kang, the spokesperson for China's foreign ministry, addressed the potential PRC surveillance sanctions at a daily news briefing:
[Kang said] that China opposes the United States smearing Chinese companies, after media reports that the U.S. administration is considering Huawei-like sanctions on Chinese video surveillance firm Hikvision.
China urges the United States to provide a fair and non-discriminatory environment for Chinese firms, ministry spokesman Lu Kang told a daily news briefing.
Conclusion: Sanctions More Likely Than Ever
The Trump administration previously considered implementing Xinjiang sanctions on Hikvision and Dahua last fall. However, those demands reportedly fell by the wayside as trade talks with China improved.
Now, with US-China tensions heating up significantly, sanctions are back on the table and look more likely than ever before. Everyone in the video surveillance industry will need to pay close attention.
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