By Liza Lin and Josh Chin
Critical pieces of China's cutting-edge surveillance state share
a connection. They came from America.
Some of the biggest names in U.S. technology have provided
components, financing and know-how to China's multibillion-dollar
surveillance industry. The country's authoritarian government uses
those tools to track ethnic minorities, political dissidents and
others it sees as a threat to its power -- including in Xinjiang,
where authorities are creating an all-seeing digital monitoring
system that feeds into a network of detention camps for the area's
Muslims.
U.S. companies, including Seagate Technology PLC, Western
Digital Corp., Intel Corp. and Hewlett Packard Enterprise Co., have
nurtured, courted and profited from China's surveillance industry.
Several have been involved since the industry's infancy.
The U.S. connections came under scrutiny in October, when the
Trump administration added eight Chinese surveillance companies to
an export blacklist, as part of a wider push to keep American
technology out of China's hands. The Chinese companies played a
role in human-rights abuses in "China's campaign of repression" in
Xinjiang, the Commerce Department said.
The Communist Party's data-driven crackdown in Xinjiang, aimed
at suppressing Muslim identity in the region, has been condemned by
Western governments and United Nations experts. In an era of
increased scrutiny of corporate behavior, the U.S. companies could
face reputational damage if they are seen as enabling a
human-rights crisis described by Secretary of State Mike Pompeo as
"the stain of the century." The companies also risk losing
significant business if the Trump administration decides to take
stronger steps to sanction China's surveillance industry.
For their part, the companies say that their products can be
used in any number of ways, and that convoluted supply chains limit
their understanding and control over how their goods are put to
use.
Participation in China's surveillance market offers companies
and investors an opportunity to grab a piece of a booming new field
and improve their products. China's video surveillance market
reached $10.6 billion in 2018, with the government accounting for
about half of those purchases, according to industry analyst
IDC.
Of 37 Chinese firms singled out last November by the
Beijing-backed China Security and Protection Industry Association
for outstanding contributions to the country's surveillance
industry, 17 have publicly disclosed financing, commercial or
supply-chain relationships with U.S. technology companies. Several
had multiple connections.
Hewlett Packard Enterprise owns 49% of New H3C Technologies Co.
Ltd., which provides switches, surveillance network-control systems
and cloud computing to Chinese law enforcement. According to
company marketing materials, one end customer for its switches is
Aksu, a Xinjiang city that conducts broad surveillance of residents
in public spaces. Satellite images suggest the city is home to
multiple internment camps.
Hewlett Packard Enterprise had sold a controlling stake in the
company in 2015 to Beijing-based Tsinghua Holdings, which has
government backing, giving H3C better access to China's restrictive
market for government sales.
A spokesman for Hewlett Packard Enterprise said H3C confirmed
that multipurpose equipment had been sold to government authorities
in Xinjiang, but that the company wasn't involved in the deployment
of this technology there. The company is looking into these sales,
he said.
The Aksu government denied the presence of internment camps in
the city, calling it rumor and slander. The government said Aksu
has an education center for schooling purposes, teaching Mandarin,
legal knowledge and career skills to clamp down on terrorism and
extremism in Xinjiang.
Surveillance in Xinjiang incorporates a web of
facial-recognition cameras, identity card scanners, smartphone
readers and other tools used to track Muslims, particularly the
region's 12 million Uighurs. The Xinjiang government said in a
written statement that monitoring public spaces for safety "is
accepted current international practice." It said localities decide
what products to use based on their needs.
Leaked internal government documents from Xinjiang released on
Sunday by the International Consortium of Investigative
Journalists, a Washington-based nonprofit, revealed new details
about the operations of the regional surveillance system. One of
the documents, a classified intelligence briefing dated June 2017,
said the region's centralized surveillance platform had identified
more than 24,000 "suspicious persons" during a one-week period that
month, with more than 15,500 later sent to internment camps.
Separately, the New York Times reported on 403 pages of internal
government documents leaked to the Times detailing the roundups;
based on another leak, China researcher Adrian Zenz calculated that
as many as 1.8 million people have been detained since early
2017.
None of the American companies involved in China's surveillance
industry appear to have directly done business in Xinjiang since
surveillance there began ramping up three years ago. Many U.S.
hardware manufacturers sell in China through contractors or
middlemen and said they do not know the details of every project
that incorporates their products.
In its wider campaign against Chinese tech companies, the Trump
administration alleges the Chinese companies abet espionage by
China's government. Under a U.S. order, American companies must get
permission to provide U.S. goods and services to Huawei
Technologies Co., the networking gear giant that is also a major
exporter of Chinese surveillance systems.
U.S. companies have found ways to continue selling products to
Huawei since it was put on the entity list in May, including by
shipping products to China made outside the U.S. The regulations
allow shipments of parts made in other countries as long as
U.S.-originated controlled components form less than 25% of the
value of the product.
The Commerce Department added camera makers and several
prominent Chinese AI surveillance startups to its "entity list" in
October, which places restrictions on some U.S. technology exports.
Those Chinese companies, too, will only be able to purchase banned
U.S.-made technology from suppliers that have acquired special
exemptions.
One of the companies is Hangzhou Hikvision Digital Technology
Co. Ltd., the world's largest maker of surveillance cameras. The
company has won contracts worth more than 1.8 billion yuan ($256
million) to build surveillance systems in Xinjiang since 2016,
including in a detention camp, according to public procurement
documents and the company's website. A Hikvision spokeswoman
confirmed the company has done projects in Xinjiang, including one
"education and training center."
Hikvision's placement on the U.S. blacklist could jeopardize
business deals with U.S. tech suppliers worth close to a $1 billion
a year, according to a person familiar with the company.
Seagate and Western Digital have traditionally sold hard-disk
drives directly to Hikvision to be packaged with the Chinese
companies' surveillance products. Hikvision sells surveillance
products for a variety of uses, including monitoring of commercial
areas like shopping malls, though police and other Chinese
government agencies are the dominant domestic buyers of its more
sophisticated systems. Many of the hard disk drives from American
companies used in China are produced outside the U.S. and don't
have the more advanced technology restricted by the entity list,
according to Bernstein Research.
In September, the Senate voted in favor of a bill that
encourages the Commerce Department to impose a more stringent ban
on sales of U.S. technology to the authorities in Xinjiang. The
House of Representatives is considering a similar bill.
Western Digital and Seagate said they comply with all laws and
are closely watching Xinjiang. "We recognize the gravity of the
allegations related to surveillance in the Xinjiang Province," said
Western Digital, which added in a written statement it doesn't sell
products directly to the Chinese government.
Hikvision said that it respects human rights and strongly
opposed the Commerce Department's decision. The company noted it
had hired a former U.S. diplomat as an adviser on human-rights
compliance. It primarily packages Seagate and Western Digital hard
disk drives with all of its surveillance systems, not just those
used by police, the spokeswoman said.
Hikvision uses programmable chips from San Jose, Calif.-based
Xilinx Inc., purchased through resellers. A Xilinx spokeswoman said
the company doesn't control the way customers use or sell its
products. Xilinx takes human-rights issues seriously, she said, and
complies with all government requirements in the places it does
business.
Until it was put on the entity list, Hikvision had bought chips
from Nvidia Corp., based in Santa Clara, Calif., for training its
own algorithms and for use in its artificial intelligence cameras
and servers. An Nvidia spokesman said the company complies with all
U.S. government export rules.
Seagate, based in Cupertino, Calif., has worked with Hikvision
going back to 2005, when they worked together to develop what
Seagate said was the world's first hard disk drive designed
specifically for surveillance.
Hard disk drives at the time weren't designed to handle large
volumes of video footage running around the clock, so Seagate
dispatched a dedicated engineering team to China to tailor-make
one, the company said in a post on its website that was taken down
in May. Seagate declined to comment.
These hard disk drives sit at the foundation of the surveillance
systems used by police departments in China. They offer storage at
a low enough price to purchase in the large amounts needed to store
and analyze video, and China has no manufacturers of comparable
products, says Kevin Cassidy, an independent semiconductor analyst
in Oakton, Va.
In October 2018, Seagate sponsored an award ceremony for firms
including Hikvision and Huawei at the country's largest
public-safety exhibition in Beijing. Seagate also marketed its
surveillance hard-drive products at the expo in a large booth.
Sales to China now account for about 12% of Seagate's annual
global sales of $11.2 billion and about a fifth of Western
Digital's overall annual revenue of $16.6 billion, says Mr.
Cassidy.
Chinese company SenseTime Group Ltd., one of the world's biggest
AI startups, with a valuation of more than $7.5 billion, benefited
early on from an investment by San Diego, Calif., chip giant
Qualcomm. Qualcomm still owns an undisclosed stake in the
5-year-old company.
SenseTime was also added to the entity list in October. The
company said in a statement it was disappointed in the decision,
adding that it is developing a code of ethics to ensure its
products are used responsibly.
Qualcomm didn't reply to requests for comment.
Intel, based in Santa Clara, Calif., provided seed money, as
well as chips and technical solutions, to China's NetPosa
Technologies Ltd., which serves the police departments of Beijing,
Shanghai and around 60 other cities, as well as the Ministry of
Public Security. NetPosa is embedded in Xinjiang, providing
cloud-based video management systems and surveillance vans to
police, according to the company website. NetPosa isn't on the U.S.
entity list.
Intel Capital, the venture arm of the American semiconductor
giant, had become NetPosa's fifth-largest corporate shareholder in
2010. By the time Intel sold its stake in early 2016, two years
after the Chinese company went public, NetPosa's value had grown at
least sixfold.
The American chip maker continues to supply NetPosa with
advanced chips that the Chinese company uses to power AI video
surveillance platforms it markets to police.
NetPosa declined to comment. Intel said that its products are
used by customers world-wide for a variety of applications.
For a 238 million yuan ($34 million) project in a Xinjiang
county, featuring blanket surveillance, a contractor opted for
products made by Seagate and Western Digital, according to an
employee on the contractor's engineering team.
The Western products would help store and process the flood of
video footage. The contractor is a local subsidiary of China-based
PCI-Suntek Technology Co Ltd., which supplies facial recognition
and other surveillance tools. "For the most part it's Seagate or
Western Digital. We don't buy domestic," said the employee.
PCI-Suntek declined to comment.
Chengdu Xiwu Xinan Co. Ltd., a contractor building a 182 million
yuan "safe city" project in Tacheng, in northern Xinjiang, relies
exclusively on Seagate and Western Digital drives, according to an
employee in the company's purchasing department. Safe cities is the
marketing term Chinese surveillance companies use to describe
centralized, citywide surveillance systems for policing and
security that rely on facial-recognition and other advanced
technologies.
Government bid documents for the project seek about 1,700 hard
disk drives for use with more than 3,400 high-definition video
cameras and facial-recognition technology, with each able to check
in real-time the faces of 24 passersby across a database of half a
million faces.
"We chose them because of their quality, and sometimes the
brands are requested by the buyer themselves," he said. Chengdu
Xiwu didn't respond to requests for comment.
--Fanfan Wang contributed to this article.
Write to Liza Lin at Liza.Lin@wsj.com and Josh Chin at
josh.chin@wsj.com
(END) Dow Jones Newswires
November 26, 2019 12:02 ET (17:02 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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