Hikvision: The Dilemma of a Surveillance Company
By Qiongyi Chen
Without much notification to its people, the Chinese government has carried out a massive project of installing 176 million cameras across the country in the past decade. According to industry research firm IHS, this number will triple to 626 million by 2020. Hikvision, a state-owned surveillance service provider established by a former engineer of China Electronics Technology Group Corporation (CETC), has been the engine of this project. Since its initial public offering in 2010, the company’s annual revenue has skyrocketed from 3.6 billion RMB ($0.52 billion) to 49.8 billion RMB ($7.2 billion), with a current market value of more than $37 billion. Behind this monumental success are three crucial factors: its state background, its close ties with the Chinese Communist Party (CCP), and its deep involvement in government projects.
However, as Hikvision looks outside China’s borders, these factors may cast shadows on its performance. According to its annual reports since 2010, the percentage of Hikvision’s income coming from overseas grew from 16.8% in 2010 to 28.5% in 2018. At the same time, serious concerns have been raised by the U.S. government regarding Chinese technology companies and their possible threat to national security. In May, the U.S. Department of Commerce added Huawei, another technology compnay, to its entity list under the Export Administration Regulations, restricting U.S. companies from doing business with the company. With these considerations in mind, a solid understanding of the factors that have caused one of the most successful companies in China to face such blowback when venturing overseas is in order.
First, Hikvision’s state background—an advantage for business growth domestically—may make it an unacceptable market player abroad. Hikvision has 41.6% of its shares in the hands of CETC, a large, state-owned company under the direct oversight of the State-owned Assets Supervision and Administration Commission of the State Council. Just like its parent company, Hikvision has developed strong ties with government organs, such as sharing the same research head with the Ministry of Public Security. Over the years, Hikvision has won many lucrative national surveillance projects, providing recording, alerting, and data-storing services for the 2008 Beijing Olympics, the 2014 APEC summit, and the 2015 military parade commemorating the 70th anniversary of the victory over Japan. Another benefit of being a state-owned company, as Hikvision stated in its investor prospectus, is strong financial support from the Chinese government and its state-owned parent. In the year 2015 alone, subsidies in the form of tax refunds, deferred tax assets, and special project funding have made up 22% of its annual profit. However, these benefits may face backlash in an international context. With the help of subsidies, Hikvision has long been touted for its price competitiveness within the market and advantage over its competitors. For years, countries like the U.S. have filed dozens of complaints against China, accusing it of pursuing WTO-inconsistent activities, specifically by receiving government-backed subsidies on manufactured products expressly prohibited by the WTO’s agreement on Subsidies and Countervailing Measures. Within such a context and the heightened trade disputes between China and the U.S., Western countries are eager to see genuine changes to China’s subsidy policy on its state-owned enterprises. Therefore, Hikvision may have a difficult time in a business environment where subsidies are frowned upon.
Hikvision’s second success condition has been its close ties with the CCP. General Secretary Xi Jinping visited Hikvision in October 2017, praising the company for its achievements. Domestically, such praise from the president is the highest honor a company can get; soon after Xi’s visit, the company gained another 1.8 billion RMB in subsidies from the government, 13 million more than what it had received the previous year. Moreover, the company’s CEO Chen Zongnian is the communist party secretary of Electronics Technology Group, the parent company of Hikvision. The personal proximity of Hikvision to the CCP is now close enough to alarm foreign governments. According to the Wall Street Journal, after reading media reports about Hikvision, the U.S. army removed Hikvision surveillance cameras from a Miami military base to “avoid any negative perception” even if they “never believed the cameras were a security risk.” Later on, the National Defense Authorization Act for fiscal year 2019 officially banned the use of video surveillance and telecommunications equipment from Hikvision in all government agencies, citing national security concerns.
The final factor to Hikvision’s success regards how it frames the mission it serves. Hikvision has positioned itself as a reliable partner with the Chinese Ministry of Public Security in its mission to “maintain social stability,” claiming to construct a safe environment for all citizens by building a massive surveillance network. For example, Hikvision won several surveillance contracts with the Ministry of Public Security totaling more than one billion RMB in Xinjiang, where its 22 million residents, including 10 million Uyghur Muslims, live under close surveillance. It described this network as a tool to “crack down on the management problem of specific groups of people, industries, and conflicts” and was praised by state media as “the eyes that safeguard the common people.” Within a Chinese context, this mission statement is noble; however, overseas it can be controversial. In Western media, these government-led surveillance projects are often identified as the Orwellian “eyes of Big Brother” trying to make Xinjiang a dystopian laboratory for ethnic minority suppression. Evidently, the very honor Hikvision receives for aiming to safeguard Chinese citizens fails to win equal approval beyond the country’s borders.
As one ancient Chinese proverb goes, the river that floats the boat is the same that capsizes it. Hikvision would not have been so successful without its state background, its connections to the party, and its participation in politically favored projects. However, these same factors that have contributed to its success in China can also be the exact ones that solicit opposition and resistance from the international market. The future business success of Hikvision overseas relies on its awareness and reaction to such a dilemma.
Qiongyi Chen is a research intern with the East Asia program at the Stimson Center.