For years, Xu Li toiled with millions of lines of computer codes to establish an artificial intelligence (AI) system to empower manufacturing, enhance surveillance and enrich social matrix.
Then in October 2019, Donald Trump's administration dropped a bomb on Xu, chief executive of SenseTime, naming his company as an enabler of human rights abuses against Muslim Uygurs in western China's Xinjiang region. Then last December, the US banned American funds from investing in SenseTime, in an escalation that forced the company to postpone the pricing of its stock sale in Hong Kong.
Still, what happened with SenseTime reflects how growing animosity between the United States and China is catching Hong Kong - as well as the companies that trade, list and do business in one of the world's top financial markets - in the crossfire between the world's two largest economies.
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''Technology should be the global goal that we pursue for our [collective] future" for all of humanity," said Xu, who received a doctorate in computer science from the Chinese University of Hong Kong (CUHK) before co-founding SenseTime, during an interview with South China Morning Post. "[It is regrettable] that we are caught in the middle of geopolitical tension."
Xu Li, the computer scientist from the Chinese University of Hong Kong (CUHK) and co-founder of the AI company SenseTime, spoke at a sub-forum of World Artificial Intelligence Conference in Shanghai on 18 September 2018. Photo: Handout alt=Xu Li, the computer scientist from the Chinese University of Hong Kong (CUHK) and co-founder of the AI company SenseTime, spoke at a sub-forum of World Artificial Intelligence Conference in Shanghai on 18 September 2018. Photo: Handout>
The White House placed SenseTime on a list of "Chinese military-industrial complex companies," holding the Hong Kong-based start-up responsible for "human rights abuse enabled by the malign use of technology," according to Deputy Secretary of the Treasury Wally Adeyemo. SenseTime rejected the accusation.
Still, the US sanction - that banned American funds from investing in SenseTime - coincided with the day for pricing its shares, in an IPO expected to net US$768 million. The pricing was delayed, forcing the company to postpone its stock sale three days after the US sanction.
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The sanction "gave us some trouble, but it did not take long before the management decided to proceed with the listing," Xu said in Shanghai's Caohejing, where facial recognition unlocks most doors throughout the seven-storey building that houses 1,400 staff including engineers and computer scientists.
On December 20, SenseTime relaunched its Hong Kong IPO and raised HK$6.64 billion (US$846 million) in line with its original fundraising target, albeit without US investors. A number of US investors were among the company's earliest funders, including IDG Capital, Qualcomm, Fidelity and Silverlake.
SenseTime's shares started trading on December 30, three weeks after the US sanction. It turned Xu into a multimillionaire at the age of 40, with 3.8 per cent of the HK$93 billion (US$11.9 billion) company, according to December 30 filings.
An undated photograph of SenseTime Tower, at the Caohejing development area in Shanghai. Photo: Handout alt=An undated photograph of SenseTime Tower, at the Caohejing development area in Shanghai. Photo: Handout>
Xu and his co-founder Tang Xiao'ou pushed ahead with the listing to "set an example" that Hong Kong remained a safe harbour for fundraising amid geopolitical tumult.
"If we withdrew the listing, other [sanctioned] technology players would not be able to use this channel to list," Xu said. "It would also hit Hong Kong's status as an international fundraising platform."
The group of founders, mostly alumni of the CUHK's information engineering school under Tang's mentorship, believed that technology should be left out of geopolitics, be used instead by humanity as a force for good to improve people's lives.
"The global productivity slowdown is affecting the world's economies," Xu said. "New technology is [the key driver] for breakthroughs in productivity, and hence future growth patterns. Technology should be the global goals we pursue for our future."
Tang, a professor at the CUHK's Department of Information Engineering, is SenseTime's largest single shareholder, with a 26-per cent bloc that gives him 70 per cent of the voting rights of the company, founded in 2014.
SenseTime first made its name in 2015 when it developed a facial recognition algorithm that was 99.55 per cent accurate, beating the human eye's 97.5 per cent. It is now Asia's largest AI software provider, and China's biggest provider of computer vision applications, with 22 per cent share of the industry, according to IDC's June report.
An undated photograph of SenseTime's founder Tang Xiao'ou, who was appointed as a board member of Malaysia's sovereign wealth fund Khazanah Nasional Berhad. Photo: Handout alt=An undated photograph of SenseTime's founder Tang Xiao'ou, who was appointed as a board member of Malaysia's sovereign wealth fund Khazanah Nasional Berhad. Photo: Handout>
Revenue comes from one of four major businesses: AI-powered solutions for city and traffic management for local authorities, mainly in China. Shanghai's Changning district began using AI in its road management system in 2020, using 1,000 cameras as sensors for detecting illegal parking, flooding and other problems using algorithms.
SenseTime's AI is also deployed in the digitalisation of companies in finance, real estate and property management.
Two applications are growth areas for SenseTime's AI: image processing on smartphones, metaverse-related applications and driver-assistance and autonomous driving systems in smart cars.
The augmented reality (AR) content on Bilibili's live videos, including personalised avatars and the digital world for users to interact with virtual live-streamers were all enabled by SenseTime's AI.
It served over 2,400 customers from big companies such as China Mobile, Honda Motors, 140 city governments, and this newspaper's owner Alibaba Group Holding, a pre-IPO investor in SenseTime.
"Our mission is to advance the interconnection of the physical and digital worlds with artificial intelligence, driving sustainable productivity growth and seamless interactive experiences," Xu said. "When the digital world becomes more like the physical world, technology can be better applied in many industries and that will lead to productivity breakthroughs."
The entrance of the Bank of Ningbo on Nanjing West Road in Shanghai on July 8, 2008. Photo: Bloomberg alt=The entrance of the Bank of Ningbo on Nanjing West Road in Shanghai on July 8, 2008. Photo: Bloomberg>
Advanced Digital Humans can acquire knowledge rapidly from various scenarios with the learning capabilities of artificial intelligence to become spontaneous experts of specific fields, according to the future sketched by SenseTime's white paper in May.
Intelligent interactions can apply in various scenarios and industries, providing the momentum to transform industries. Such metaverse- related technologies also develop different platforms in entertainment and consumption.
Those digital humans can already be seen at the AEON Mall in Guangzhou in the guise of a shopping guide, and as an AI bot handling customers' queries at the Shanghai branch of the Bank of Ningbo.
But scale and production costs are the keys to success.
"Most people agree that AI is good for industries, but the cost is too high," Xu said. "If you tell a company's boss that the AI-powered technology can help his investment break even in 50 years, he will prefer to use manpower."
The surging popularity of electric vehicles has offered SenseTime a game-changing break, as its AI can be applied in smart driving, intelligent cockpits and autonomous driving. With three of every five new cars on China's roads expected to be battery-powered by 2030, SenseTime is aiming to install its AI in as many as 25 million cars over the next few years, Xu said.
"Smart EVs is the best area for AI technologies to be commercialised," said Huang Mingming, founder and chief executive of Future Capital, a Beijing-based early stage venture fund that invested in such companies as the EV maker Li Auto and the AI software developer Bizseer. "The pursuit of the future of mobility is creating a massive market for AI firms."
The jewel in SenseTime's crown is its universal AI infrastructure called SenseTime Core, which can train AI models using massive data and deep learning to produce scalable and affordable models for different industries. The company has produced 22,000 of these commercialised AI models as of June 30 to adapt in different applications, Xu said.
"This allows the company to develop AI models more efficiently and address demands from "long-tail" scenarios," said Marley Ngan of China Merchants Bank International (CMBI) in a February report. But investors need patience before they see SenseTime report a profit, due to the huge investments in research and development, analysts said.
"It will be some years before AI can be fully commercialised, because their use in many industries such as biotechnology is still preliminary," said Zhang Ming, managing director of Flag Leader Information, a software development and investment firm. "Top AI firms like SenseTime will continue to invest [in research] for the future [because] they see hope in areas like autonomous driving, now that smart EVs are growing quickly."
SenseTime spent 2.45 billion yuan on research in 2020, more than double the budget by the Beijing-based facial recognition company Megvii - sanctioned by the Trump administration in 2019 - and making it the largest spender among China's AI software developers, according to CMBI.
Seven in every 10 of SenseTime's workforce of 4,300 people were involved in research and development, a front-heavy investment that pushes the company's profitability further down the line, analysts said.
Its latest investment is a US$800 million AI data centre in the Lingang free-trade zone in Shanghai - near Tesla's Gigafactory 3 - that can process 23,600 years' runtime of video content in a single day.
It would not take too long, Xu said. "We have invested a lot of capital in the AI infrastructure and future investment costs will be smaller," said Xu, adding that the infrastructure needs two years of investments. "Once the system has been built, the company can see handsome profits coming."
SenseTime's revenue may grow 37 per cent to about 8.82 billion yuan next year, from 3.45 billion yuan in 2020, driven by more AI applications, expanding coverage among customers and cities, according to HSBC.
The bank cut SenseTime's revenue estimate by 2.3 per cent in anticipation of a milder growth from services for city governments due to Shanghai's Covid-19 lockdown. It trimmed the stock's target price to HK$5 from HK$8, according to the report released on July 1.
Still, some investors have lost patience. Shares of the company plunged 47 per cent in Hong Kong on June 30, when the lock-up period covering nearly two-thirds of its stock expired. Early investors headed for the exit, driving the stock down to HK$2.32 in recent trading, 40 per cent less than its IPO price of HK$3.85.
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The AI sector itself is becoming increasingly competitive. SenseTime faces a raft of rivals in China - CloudWalk, Megvii, Yitu and Hikvision - all of whom are also developing smart technologies to take away SenseTime's business.
But Xu is fearless.
"Investments in a comprehensive and integrated innovation system is the foundation for us to improve AI capabilities, cementing our goal to cut costs to the lowest level and lead to production breakthroughs for industries. We are ahead of others even if some want to follow our strategy," he said.
