China’s leading artificial intelligence start-ups Megvii and SenseTime are raising money and winning overseas contracts despite landing on a US blacklist last year, underscoring how Beijing’s brightest young companies are weathering the setback rather than scrambling to survive.
Megvii, one of eight companies put on the US commerce department’s entity list nine months ago, is in talks with new investors to raise funds after postponing an initial public offering in Hong Kong earlier this year, according to two people with knowledge of the situation. There are internal discussions about whether the $4bn Chinese facial recognition start-up needs the capital before or after a potential listing next year, the people added.
Alibaba-backed facial recognition software company SenseTime turned to private investors to raise up to $1bn in capital this year, with an IPO still some ways off, according to two other people familiar with the matter.
Both companies declined to comment.
The US blacklisted Megvii and SenseTime in October, along with voice recognition company iFlytek and AI unicorn Yitu, accusing the companies of aiding the “repression, mass arbitrary detention and high-technology surveillance” in the western Chinese region of Xinjiang.
The move by the Trump administration, whose acrimony with Beijing has increasingly involved the technology sector, struck at the heart of China’s burgeoning AI industry, a critical facet of President Xi Jinping’s “Made in China 2025” blueprint. Megvii and SenseTime have multiple contracts with Chinese companies and cities and are some of Beijing’s brightest prospects in the sector.
But after initially struggling with the US blacklisting, which bars them from buying components from American suppliers, they have stabilised.
Megvii’s planned Hong Kong listing was thrown off course and revenue was hit as the company halted many operations to assess the impact. The start-up, whose offshore backers include Macquarie and the Abu Dhabi Investment Authority, said it made no revenue from projects in Xinjiang in the first half of 2019.
Megvii’s revenue this year has recovered to pre-entity list levels, according to a person with knowledge of the situation. A revived IPO, this time potentially on the mainland’s tech-focused Shanghai Star board, is expected in 2021.
Shenzhen-based iFlytek said in April that the entity list ban had cost it $12.7m but net profit still rose 51 per cent to Rm819m ($117m) in 2019 from the year before.
SenseTime has not publicly commented on the business impact, but it operates primarily in China and has little exposure to the US market.
Their situation echoes Huawei’s experience with a similar ban: not only did the Chinese telecoms equipment maker’s sales rise despite it being blacklisted in May last year, its spending with US suppliers surged 70 per cent in 2019.
AI innovation remains “a top priority” for the Chinese government, said Yu Jiang, executive director and professor at the Institute of Policy and Management, part of the Chinese Academy of Sciences in Beijing. The coronavirus crisis has highlighted how AI could benefit the medical industry, he added.
The start-ups’ overseas ambitions are also undeterred. Megvii’s intelligent temperature measurement systems, already adopted across China to help curb the spread of coronavirus, have been deployed in Japan and the Middle East this year.
SenseTime, whose other backers include Fidelity, Qualcomm and Silver Lake, has held talks to roll out its software at a Singapore casino to help identify cheating. Earlier this year SenseTime sealed a deal with a Thai property developer for AI cloud computing services and was shortlisted to help a major Japanese company upgrade its expressway monitoring system.