Trump's Latest China Target Includes a Rising Star in AI
A fast-rising China firm is Trump’s latest target amidst an escalating trade war.
(Bloomberg) -- U.S. President Donald Trump’s initial swing at China Inc. went after the nation’s technology titan, Huawei Technologies Co. The next broadside is heading for one of China’s emerging stars.
The Trump Administration is considering adding five more Chinese companies to a list of banned entities, the latest escalation in a trade-war tactic to cut off Beijing from vital U.S. components and technology. One name on the potential blacklist is Megvii, a facial-recognition specialist that’s been linked to China’s growing use of surveillance to monitor its citizens.
The company is "not aware of being on any U.S. government list," it said in a statement. “Megvii is a private company and is focused on commercial, not political solutions. We are continuously reviewing our guidelines and safeguards to see where they can be strengthened to prevent unintended misuse.”
Megvii isn’t well-known outside China, but it’s a fast-rising juggernaut at home.
Founded in 2011, the Beijing-based company primarily sells software that can detect faces, gender, and ages of people as they pass through train stations or shop in malls. Payments providers and smartphone makers, such as Lenovo Group Ltd., use Megvii’s main service Face++ to digitally identify customers. Megvii has said it’s processed more than 400 million identity verification requests using facial recognition for payments, banking and other customers. Backed by blue-chip investors from e-commerce giant Alibaba Group Holding Ltd. to Jack Ma’s Ant Financial, the startup is weighing an initial public offering in Hong Kong that could raise as much as $1 billion.
Still, it’s mostly known for being at the forefront of China’s burgeoning AI industry, placing the 2,000-person startup in the middle of a global political debate over how the powerful technology should be deployed, controlled and regulated.
While facial recognition technology in China has been used for positive things like finding lost children, solving crimes and helping traffic flows, U.S. lawmakers and human rights groups have cited the treatment of Uighurs, a predominantly Muslim ethnic group, as a frightening example of China’s surveillance state. In April, the New York Times reported the Chinese government used software from Megvii, SenseTime and other domestic firms to track Uighurs in a practice described as “minority identification.”
Megvii said it doesn’t design or customize its software to target or label ethnic groups. For cases where it works with city management or the public sector, the company said it doesn’t have access to personal data, which is saved in private cloud servers of its customers.
"We are concerned about the well-being and safety of individuals, not about monitoring any particular demographic groups,” the company said. "We require our clients not to weaponize our technology and solutions and not to use them for illegal purposes, including the infringement of human rights."
The company acknowledged that there may be "unintended consequences," with AI, as with all forms of technology, and that it wants to work with the global AI community to ensure its products have a "positive impact on society."
On Wednesday, members of the U.S. House Oversight and Reform Committee held a hearing to explore legislation that could limit law enforcement’s use of facial recognition, part of a discussion about its impact on civil rights. At the same time, American military leaders openly fret that China’s embrace of AI technologies could leave the U.S. woefully behind.
Megvii vies with rival SenseTime Group Ltd. for the title of most valuable AI startup. Both companies have raised money at a phenomenal clip, and both are well-regarded, in China and beyond, for their technical expertise. Kai-Fu Lee, head of Sinovation Ventures and an early Megvii backer, wrote in a book published last year that the startup was “a world leader in face- and image-recognition technology.”
Sinovation has since sold some of its stake in Megvii and left the board. Sinovation spokeswoman Anita Huang confirmed those details but declined further comment.
The company was formed by alums from Microsoft Research and Tsinghua University, a research hotbed in China. Lee, a former Google executive and an influential figure on the tech scene, described Megvii’s founders as “two super engineers” in an interview with Bloomberg News last fall. The fledgling company was among the winners in a prestigious global competition on computer vision in 2017 and 2018, topping teams from Google, Microsoft Corp. and Facebook Inc.
That technical accuracy piqued the interest of the Chinese state. Megvii has said that its technology is deployed in more than 260 city projects, helping police arrest more than 10,000 people. The company says that it sells to government agencies through middlemen called system integrators.
The company’s facial recognition software is employed in places like airports, public transit stations and office buildings, where law enforcement and other customers can link real-time video feeds to run people’s faces through public security databases, or blacklists, to look for criminals, Megvii Corporate Finance Director Tianyu Jiang said at a tech conference last year.
"Traditionally, police would look back at video streams and identify if there are certain criminals but now smart cameras can trigger the alarm in real time to help police to capture those criminals," he said. Instead of having humans check it, "machines can do a better job with higher accuracy and more efficiency," he said.
Megvii has expanded beyond China, particularly to Southeast Asia. At least some businesses outside its home country have avoided the startup, according to Shaun Moore, chief executive officer of Trueface, a Los-Angeles-based competitor. He said Megvii’s products are "phenomenal" but that his customers, which include banks, casinos and government agencies, aren’t comfortable using their technology.
It’s not clear how reliant Megvii is on U.S. technology, and therefore how damaging a ban on buying American products would be. China has made a concerted push to fund semiconductor companies that can power the type of intensive computing that AI systems require. But many Chinese companies still rely on U.S. suppliers like Intel Corp., Nvidia Corp. and Qualcomm Inc. In addition to software, Megvii has also been moving into hardware with products like smart robots for manufacturer Foxconn’s iPhone assembly lines.
“For China to fully catch up and have its own Nvidia, it’s going to be at least a decade away,” Sinovation’s Lee said last year. “That is not a space that capital-plus-tenacity-plus-fast-burning cash can just overcome.”
Megvii’s sales to the U.S. are "very small," according to the company’s statement. "Like any global IT company, our supply chain is global; the U.S. is just one part of it," it said.
In January, scientists from Megvii published research on ways to improve how machines can detect human poses. The data used in the research was trained on eight graphic processing units from Santa Clara, California-based Nvidia, according to the paper. A Nvidia spokesman had no immediate information about Megvii specifically, but said the company fully complies with all U.S. laws and regulations.
Megvii, like nearly all software companies around the world, also uses AI tools from Alphabet Inc.’s Google. A 2018 research project on object detection, authored by Megvii engineers, cited the help of TensorFlow, an open-source library of code -- meaning anyone can download it and use it on their own -- that Google has promoted heavily in China. Google declined to comment. Megvii said it uses its own tools to train algorithms, instead of relying on AI frameworks developed by third parties such as TensorFlow or Facebook’s PyTorch.
Last summer, the company released a feature with device maker Oppo for unlocking smartphones and verifying payments. Megvii said it took just a 10th of a second for its software to detect a face, with an error rate of just 0.0001%.
“There’s no denying that they’re at the cutting edge of the artificial intelligence revolution,” said Moore, the rival executive.
--With assistance from Lulu Yilun Chen and Ian King.
To contact the reporters on this story: Mark Bergen in San Francisco at mbergen10@bloomberg.net;Shelly Banjo in Hong Kong at sbanjo@bloomberg.net
To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, ;Edwin Chan at echan273@bloomberg.net, Alistair Barr, Peter Elstrom
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