WSJ Investigates China's Total Surveillance State

By: John Honovich, Published on Dec 26, 2017

The WSJ is continuing its investigation into Chinese video surveillance. Following up on last month's WSJ Investigation of Hikvision, the WSJ is back with Twelve Days in Xinjiang: How China’s Surveillance State Overwhelms Daily Life, remarking that "The government has turned the remote region into a laboratory for its high-tech social controls"

Below is the 8-minute video from the report:

Inside, we examine the claims made, the video surveillance manufacturers cited and the potential impact on the industry.

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Comments (57)

I would really like to hear from the loyal Hikvision & Dahua dealers how they can support a manufacturer that derives most of its money from the twisted, control freak Chinese regime. I doubt it weighs on their conscience one bit as profit is more important than anything, including but not limited to human rights violations.

While increased press on video surveillance poses more risk for the industry, maybe it is a good thing for Americans to see this so they can think their decisions on what product to choose more carefully. The average consumer has no idea what they are supporting at this point, but each and every article like this on IPVM and WSJ is going to gradually change the perception.

 

I would really like to hear from the loyal Hikvision & Dahua dealers how they can support a manufacturer that derives most of its money from the twisted, control freak Chinese regime.

Since Hikua operations in America are widely considered to be unprofitable undertakings, any dealer might consider it their patriotic duty to enhance their losses ;)

widely considered to be unprofitable undertakings

Unprofitable at the net level, not at the gross level, i.e., each unit they sell is more than it costs to produce but not enough to cover their overhead (sales, marketing, operations, inventory, local facilities, etc.).

Still a cash drain on the overall operation, yes?

Still a cash drain on the overall operation, yes?

No. When you sell something for more than it costs to produce, it does not drain cash. The problem is the overhead. If your total contribution margin is less than your overhead, you are operating at a loss, even if you have positive gross margin.

Returning to your opening assumption that it might be a 'patriotic duty to enhance their losses', buying their products would not achieve that goal, since it would contribute gross profits that, if enough people bought (and fixed costs could be constrained), could eventually make them profitable.

No. When you sell something for more than it costs to produce, it does not drain cash.

Maybe if you didn’t have to pay local people to sell and support it that would be true.  But they get paid out of cash.  And they exist only to serve the US.  

So at a minimum any local payroll and expenses would have to figure into a cash flow analysis.

Anyway, isn’t that what the 6 billion is for?

 

 

"Unprofitable at the net level, not at the gross level, i.e., each unit they sell is more than it costs to produce but not enough to cover their overhead (sales, marketing, operations, inventory, local facilities, etc.)"

What proof do you have?

For example, Hikvision USA talks about its performance publicly regularly but the description is about top-line revenue, not local profitability (e.g. Jeffrey He 9/2017).

Another point, Hikvision USA has slowed their expansion. In Feb 2017, they expected "more than 400 employees". By September 2017, it was down to 350. A company slowing hiring is a sign of profitability and growth problems.

Moreover, Hikvision USA is selling products for about half of what Axis does but spending more on sales and marketing than them. It's not a profitable combination, even if things are made cheap in China.

But #3, you and I know each other. You are not looking to be convinced. You just want me to admit that I have not seen Hikvision's internal financials. You can happily pretend that Hikvision USA is profitable. Or Dahua USA, which is even funnier.

I can see how the security flaws could be something for people to worry about when choosing a manufacturer, but doubt it matters who else they sell to. 

I'm sure you purchase many products from companies that also sell to another company/government that commit violations worse than human rights.

This type of press might even be positive in some peoples eyes. Right or wrong, if the Chinese government, or any other country's government  is using it for their own security in this magnitude, then it must be good enough for an eight camera system. 

And these article might change a few average consumer's perception, but unfortunately the only thing that will ultimately change their mind is a product with similar qualities and cheaper price. 

 

And these article might change a few average consumer's perception, but unfortunately the only thing that will ultimately change their mind is a product with similar qualities and cheaper price.

I agree that this article and such press is not a factor for consumers.

Where it is a factor is in enterprise and government purchasing. Those people, either by direct employment or association (retired military, law enforcement, etc.) tend to care more about such things and far less about cheaper price, e.g., Fortune 500 Company Bars Dahua and Hikvision

Yikes...we're looking at this in disgust, but we're only another Patriot Act away from having this in some areas of our own country. People make hasty decisions when they're afraid, including consenting to what would normally be unlawful search. Governments are counting on our fear, so it's best not to give in to it.

Yikes...we're looking at this in disgust, but we're only another Patriot Act away from having this in some areas of our own country.

It’s worth reflecting on the fact that freedom is always relative: after watching the video I can imagine many a Xinjiang resident longing for the (relative) freedom of the rest of mainland China...

we're only another Patriot Act away from having this in some areas of our own country

Respectfully but strongly disagree. America's civil liberties and freedoms are far more robust than China. While we should protect them and beware of risks, there should be no conflating with how China operates with the US.

For example:

  • The US President cannot fire Supreme Court Justices or remove Congressman. By contrast, Xi Jinping and the CCP can change their senior officials as they please. Our system of checks and balances limits abuses of power.
  • The US has freedom of press, freedom of speech, freedom of religion, etc. This is backed up by an independent judiciary. Not only does China not have this, China routinely disappears, detains and detains people for 'picking quarrels' or criticizing the government even on social media. Our system and well-protected freedoms allows people to criticize and counter government officials and actions.
  • In the US, our freedoms are so great, people can routinely mock, attack and even threaten the President. Not only are those people not arrested, other Americans cheer them on. By contrast, the China Communist Party cracked down on people who posted images that compared Xi Jinping to the Winnie the Pooh.
  • Look at what China is doing with their social credit system. If China finds you are a 'troublemaker' (e.g. criticizing the Chinese government or being friends with such people), you "will have slower internet speeds; restricted access to restaurants and the removal of the right to travel". There is nothing anything close to such Big Brother control in the US.

...even threaten the President.

In what way?

Kathy Griffin way?

To John’s meta-point, threatening an effigy is protected expression here.

But in China, I don’t think you would get away with it.

In the US any bona-fide threat on the president though will precipitate a SS visit.

Look at what China is doing with their social credit system

I wonder if they're doing this with foreigners or even folks who have never been in China?  It would be interesting to see the scores.  I'm going to go out on a limb and guess John is on an "immediately detain and educate" list somewhere.

Hey John, I agree with you, my comments were geared more toward surveillance, our Constitution keeps us from devolving into the state of affairs you mentioned in your response.

The main difference is the Chinese government is upfront and proud of their surveillance and privacy invasion. Not hidden within thousands of pages of legal docs.

And Chinese citizens either don't mind this or definitely scare easy. You would think 1 billion citizens against 3 million military would be easy win during a revolt.

But if I had guess, the US isn't far behind. We just have a much larger area to cover. 

Governments are counting on our fear, so it's best not to give in to it.

2nd Amendment. Which should be 1st Amendment, because without it you could lose the other 9.

The main difference is the Chinese government is upfront and proud of their surveillance and privacy invasion. Not hidden within thousands of pages of legal docs.

No, that's very wrong. For example, the Chinese government Great Firewall bans thousands of websites, censors online posting, blocks VPNs, etc. The Chinese government censors news extensively, they jail their people who make fun of their leaders, etc.

And Chinese citizens either don't mind this or definitely scare easy.

You think they 'scare easy' because you don't understand the depth of control that the Chinese government exerts. In the US, it is easy to complain and protest about anything. In China, you literally risk your life doing so.

No, that's very wrong. For example, the Chinese government Great Firewall bans thousands of websitescensors online postingblocks VPNs, etc. The Chinese government censors news extensively, they jail their people who make fun of their leaders, etc.

 

Well maybe they aren't proud of it, but I don't know of any more up front way to do it?

Same thing happens in US to some extent, but with a more subtle approach. I haven't visited China much less lived there. So I don't know what it's really like. The friends and family that I know who have, enjoyed it.

Same thing happens in US to some extent, but with a more subtle approach.

What? Same thing? Care to share some examples to back up your claim?

Are you aware that Google, Facebook, YouTube, Twitter, Instagram, GitHub, the NY Times, Dropbox, Bloomberg, Wikileaks, the BBC and much more are banned in China? What 'subtle approach' of the US are you talking about that is anything like what China does?

What? Same thing? Care to share some examples to back up your claim?

It's already been mentioned. The Patriot Act.

Are you aware that Google, Facebook, YouTube, Twitter, Instagram, GitHub, the NY Times, Dropbox, Bloomberg, Wikileaks, the BBC and much more are banned in China? 

No I was not aware of that, and unless you can tell me how that directly harms my family, it really isn't any of my business and I could care less. But your comment did spark my attention and got me to waist a couple minutes online. Are you aware that this happens in a lot of countries?

Doesn't sound like that bad of an idea. I bet those countries have a much lower rate of vitamin D deficiency in their population being forced to leave their computer and go outside to play in the sun.

Doesn't sound like that bad of an idea. I bet those countries have a much lower rate of vitamin D deficiency in their population being forced to leave their computer and go outside to play in the sun.

You really don't know about the pollution in China? 

China is not blocking Western websites to get people to go outside. They are promoting their own domestic rivals and ensuring they can censor the sites that work in China.

And as for 'play in the sun', that's unlikely. Are you familiar with face masks?

They are not a fashion statement but an unfortunate consequence of the Chinese government's focus on producing things cheaply over undermining the health of their people.

Take Beijing right now (from the World Air Quality index):

And that's no exception, China is filled with extremely high pollution:

To understand how bad that is, here is the US right now:

I recommend you learn more about China and its vast problems before putting down your own country so cavalierly.

I recommend you learn more about China and its vast problems before putting down your own country so cavalierly.

So the US doesn't do any of this stuff TO SOME EXTENT? I assume this is what you are referring to as "putting down". 

I may not know all the facts and political BS but I have never "put down" my country here or anywhere else in my life. I may not agree with some things we do, like being too involved in other countries affairs. 

I recommend you to stop twisting my words and letting them come out of your mouth.

So the US doesn't do any of this stuff TO SOME EXTENT? 

The Patriot Act is nothing compared to what is done in China. It's like comparing a slap in the face to shooting someone in the head.

Please read Amnesty International's 2016/2017 report on Human Rights, compare the China and United States sections. It's obvious that the countries are literally worlds apart.

For example, this is China:

The authorities increasingly used “residential surveillance in a designated location”, a form of secret incommunicado detention that allowed the police to hold individuals for up to six months outside the formal detention system, without access to legal counsel of their choice, their families or anybody else from the outside world, and placed suspects at risk of torture and other ill-treatment.

On 7 November, the National People’s Congress (NPC) passed the Cyber Security Law, which purported to protect internet users’ personal data from hacking and theft, but made it obligatory for internet companies operating in China to censor content, store users’ data domestically, and enforce a realname registration system in a way that runs counter to national and international obligations to safeguard the rights to freedom of expression and privacy. The law prohibited individuals or groups from using the internet to “harm national security”, “upset social order”, or “harm national interests”

The campaign to demolish churches and remove Christian crosses from buildings in Zhejiang province, launched in 2013, intensified into 2016. According to international media, more than 1,700 crosses had been removed by the end of 2016, prompting a series of protests

These types of things are impossible in the US. Or how about China mass executing political prisoners and harvesting their organs, etc.

The worst thing you can think of, the Patriot Act, has been protested against fiercely and lawsuits have been won against it. These (public protests and winning lawsuits against the government) are also things impossible in China. 

Trust me, out of your ignorance of China, you are putting down the US to equivocate the two. Spend the New Year's weekend studying how the PRC operates and you'll understand your mistake.

Political arguments especially involving other countries isn't something I enjoy doing so you can guess how my New Year's weekend studying session went. Pretty good if you count studying the different chinese brands of bottle rockets and their performance during an exhilarating game of bottle rocket war. 

You really don't know about the pollution in China?

Oxygen is overrated.

I am not disputing air quality in China

but, when I was there I hardly seen people with masks

for example

China street pictures

when I was there

Wow, even you get a free Hikvision trip? Kudos!

I hardly seen people with masks

Well, China is the world leader in deaths per millions due to pollution:

As for wearing masks, pollution varies on time of year and region (e.g., pollution levels increase in the Winter and the North generally has worse pollution ), e.g.:

Nothing to do with HIK :)

Me and my wife took 

Yangtze River Cruise

which I can recommend to everybody

 

Thanks for the clarification!

For what it's worth, I definitely think you deserve a free Hikvision trip for your efforts in support of them! :) Happy New Year!

Thank you,

Happy new year to you too!

Happy new year to you too!

This annual display of good cheer between #3 and JH has become somewhat of a tradition on IPVM :)

"Are you aware that this happens in a lot of countries?

Doesn't sound like that bad of an idea. I bet those countries have a much lower rate of vitamin D deficiency in their population being forced to leave their computer and go outside to play in the sun."

I hope that bolded part was just the set up for the lame vitamin D joke - and not what you actually believe.

Not really sure why I bolded it. And I guess I was just trying to look at the bright side of a bad situation. I could live with websites being blocked, the other stuff not so much.

you didn't bold it - I did (to point it out).

I thought it was a particularly scary statement

I hope that bolded part was just the set up for the lame vitamin D joke

Your heckling was drowned out over the laughs and spare change that was showered upon me and my all time high 2-Funny Votes.

You would think 1 billion citizens against 3 million military would be easy win during a revolt.

Citizens with QR coded knives don't fare well against shrapnel.

Shrapnel does whatever those citizens tell it to do. If you had 300 angry citizens corner you in the street then those QR codes suddenly look a bit more intimidating.

As a Dahua dealer and former installer of Hikvision products I can explain my outlook on the use of/support for a manufacturer who derives a substantial portion of their income from a control freak regime. First I feel it is important to look at this issue in context. China is by far number one in big brother style surveillance and a major violator of human rights. However where do we rank in the US, the UK, or rest of the “free world”?

In the greater Los Angeles area, where I live, there are multiple cameras at every major intersection, on every freeway, and now even on Law Enforcement drones being used over residential areas. As for violations of human rights, UD2 already mentioned the Patriot Act which allows our government to circumvent many of our Constitutional protections, and in the name of “the war on terror” commit countless unlawful imprisonments, seizures of property, and even torture suspects for information. Is our government tyrannical? No far from it, but it is also far from innocent.

With that in mind partnering with any company who earns a substantial portion of their income from any government agency to me is the same. To that end, I weigh each individual project/company on its own merits. Are they asking us to do anything unlawful or immoral? Are we bystanders to unlawful or immoral acts being committed?

As far as Dahua is concerned in this case I feel the answer to both is no. Even when examining what they are doing for the Chinese government I do not see them involved in any kind of unlawful or immoral activity. I may not like the way the government uses their technology but as a for profit business I cannot fault them for supplying cameras for city wide projects.

Now Hikvision is a different beast as we all know. I do have moral issues with a surveillance company that is a spin off of a governmental spy agency, that is controlled directly by said government, and has shown itself to be dishonest about its own origins and making products with multiple critical vulnerabilities.

For those of us who like to throw around the term “Hikua” for fun, this is really the distinguishing factor for me between the world’s two largest manufacturers. Yes they imitate one another, yes they offer very similar product lines, yes they probably even share/steal/reverse engineer each others tech... as done by leaders in every industry (apple v google, ford v chevy, everyone v tesla) but at the end of the day one of these companies is part of the government regime and the other is a for profit business that is separate from the said regime. Not to mention Dahua has honestly answered for and responded to its mistakes and critics. They are by no means perfect but then again who is?

David, thanks for the thoughtful feedback!

Btw, as for:

China is by far number one in big brother style surveillance and a major violator of human rights. However where do we rank in the US, the UK, or rest of the “free world”?

By pretty much every ranking, the US is near the top and China is near the bottom, e.g., Freedom In The World 2017:

" but at the end of the day one of these companies is part of the government regime and the other is a for profit business that is separate from the said regime"

 

to be honest i find this stand a little naive. If you see the Chinese government as an evil oppressive regime then you should not buy anything that originates from China (including western OEMed products), buy Korean, Taiwanese or Japanese, there are enough options out there.


As long as it it in China, the fact the Dahua is a "for profit" business does not mean it is disconnected from the Chinese government or that the Chinese government doesn't have any way of controlling it. Dahua depends on banks for credit lines, in China these banks are controlled by the government, Dahua depends on the government for numerous government contracts in their domestic market and i can think of a few more levers the government can use to influence the company.

As was mentioned here before, China is a one-party state with a formidable security apparatus, do you think that if the Chinese equivalent of "Agent Smith" pays a visit to Dahua HQ they will not fall in suit to do what the government wants? 

I personally do not see the Chinese manufacturers as part of a plot to take over the world, in the 90s similar views were voiced against the Japanese taking over the world economy, i believe it is a question of time before some other country rises to prominence. Maybe in 10 years we will be discussing the rise of Indian manufacturers and how they undercut the Chinese prices.

i'm just sayin... 

China is one of the most oppressive regimes, yes. However so many products that we use on a daily basis are made in China. Check your tags, electronics, tools, pens, furniture, cookware, etc and you are bound to find made in China written more often than you may like. So knowing that it is so pervasive in our lifestyles, does that mean that all of those manufacturers are part of the regime? Is every dollar that I spend on Chinese made goods going to the Communist party? Most likely not, it is going to for profit companies that are trying to be successful. Are those companies paying taxes to the government? Yes and a piece of my spent dollars will make their way back for government use. Could the Chinese government come in one day and a la Agent Smith lean on the Mr Anderson’s of China to enforce their will upon them? They certainly can and probably do when it suits them (pun intended).

However, that means if one truly wants to remove Chinese made products/electronics/IoT devices from their lives they are going to have to search far and wide in their homes/offices/vehicles to effectively purge these “Sentinels” (since you brought up the Matrix I am just going to keep rolling with it).

So my point about Dahua and Hik is that one is run by Agents and the other by Mr Anderson (not Neo just plain old Mr Anderson). I cannot bring myself to support an orginization that is directly linked back to “the Source” (ok maybe now I am having too much fun with this). Could Dahua become overrun or controlled by the Communists? Yes and that is something that I will not support. However should I cut ties from a company that is actively helping me grow my business and allowing me to provide greater value to my clients and dealers, due to the possibility that an Agent may seize control? I do not think so, but I am glad to be a part of IPVM because I know if that does happen they will be the first to report on it so we all can act accordingly.

Thanks for the critique UD6, it allowed me to clarify my point and use a lot of awesome Matrix references. Btw I do understand that you are not against Chinese products, but rather you do not see a distinction between Dahua and Hikvision. I beg to differ but that is one of the awesome things about living in “Zion” rather than being “plugged in”, the freedom to dissent. 

As someone who has worked with those Los Angeles cameras on poles and corners, they are for traffic and only the corner PTZ’s are viewed, not recorded and usually only if there is an issue reported with the intersection.

The cameras on the top of poles are used with analytics to replace the in ground traffic loops. 

CalTrans doesn’t record the freeway cameras. 

Our big brother isn’t that big.  Yet. 

It seems there is a clash between showing off new technology and maintaining old mindsets.  How good can their surveillance really be if they have to send you a paper form to fill out that asks questions like:  Do you have a passport?  

In my mind police on every corner, checkpoints at every store, transportation hub, etc. and paper surveys all show that the surveillance technology isn't working very well  -  if it was they would already know where you are and what you're doing. 

Or it could just be the primary purpose is fearmongering and not surveillng.  

More China moves that are incomprehensible and against both US and EU law: China Snares Innocent and Guilty Alike to Build World’s Biggest DNA Database:

Many of the ways Chinese police are collecting samples are impermissible in the U.S. In China, DNA saliva swabs or blood samples are routinely gathered from people detained for violations such as forgetting to carry identity cards or writing blogs critical of the state, according to documents from a national police DNA conference in September and official forensic journals.

Others aren’t suspected of any crime. Police target certain groups considered a higher risk to social stability. These include migrant workers and, in one city, coal miners and home renters, the documents show.

“All your base pair are belong to us.”

Update: Social Media Critic Prisoned for 20 Years

Further showing how repressive China is, How questioning China’s security crackdown in Xinjiang led to a 20-year jail term:

Electronics salesman Zhang Haitao raised on social media whether the massive anti-terrorism campaign in Xinjiang was fuelling resentment among Muslim Uygurs

Court records say Zhang was convicted of sending 274 posts from 2010 to 2015 on Chinese social media sites Weibo and WeChat that “resisted, attacked and smeared” the Communist Party and its policies, earning him 15 years in prison for subversion of state power. He was given another five years for talking to foreign reporters and providing photos of the intense police presence in the streets of Xinjiang.

This is the type of punishment that is impossible and incomprehensible in the EU or the USA but is the norm for China.

I didn't see Dahua in this clip but it has some interesting parts.

Hikvision profitability maybe higher than USA accounts show depending on transfer prices from Hangzhou 

hikvison has very low cost of manufacture 

and im sure they want to keep all those lovely dollars in their chinese coffers

Hik and dahua are peddling this technology to any regime that wants to buy it

without care of what it’s being used for 

who’s stopping Syria loading up drones with nerve gas controlled by hiks cms

face detection being deployed in Iran to pick up protesters demanding more democratic freedoms

who

in the west wouldn’t want a softer regime there

didnt we fight world wars for our freedom

Are we letting it being taken away by the back door

turning a blind eye won’t prevemt

it

 

Don't fool yourself into thinking western companies have an altruistic sense that prevents them from selling to "any regime that wants to buy it," most western companies will peddle to any regime that wants to buy it as well, the all mighty dollar is what dictates the decisions made in those boardrooms.  The main reason they might not sell to them is their own respective governments prevent it (with threat of fines, making selling a less profitable venture) - and many times that doesn't even stop them.  Read the Bloomberg series from a couple years ago "Wired for Repression."  It discusses some of those very countries you list buying surveillance technology from Western companies.

there are some people in the world who would exploit anything for a few dollars

but in the main the usa has balances and checks 

the whole issue of AI

this is supported by a billion dollar endowment to make sure standards are maintained 

open ai 

facebook was made to come clean over allegations about russian interference

their are lines to be drawn in the sand 

turning the world in to a police state is not something the west is rushing out to do

abuse of civil rights is rare in the west compared to china iran syria

sure mistakes are made but is not the norm

most large american companies take corporate actions seriously

 

 

Ignoring the skin-crawling level of Chinese governmental intrusion, the one positive "silver lining" from the WSJ video was that this technology is being heavily used in a large test environment. I believe that element is good for surveillance product development.

this technology is being heavily used in a large test environment. I believe that element is good for surveillance product development.

Could be, assuming it's actually being used. As I point out in the post, the examples given are from marketing videos, so unclear what is in reality.

Also, to the extent that it is being used, unclear how much manual intervention is needed, i.e., how heavy are the false alerts and how much is that being tolerated since labor is cheaper in China, 'security' is a higher priority and false matches are less of a concern (whereas in the EU or US a face recognition false alert arrest would cause a national controversy). 

Related, Dahua is looking for Western facial recognition pilot customers, do me a favor and sign up - kidding mostly!

Related: China Uses Facial Recognition to Fence In Villagers in Far West

Using facial recognition, when a person of interest ventures further than 300 meters out of the safe area, authorities are notified and can be dispatched to intervene or visit their home to question friends or family.

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