US expands blacklist to include China's top AI startups ahead of trade talks

The decision, which drew a sharp rebuke from Beijing, targets 20 Chinese public security bureausand eight companies including video surveillance firm Hikvision, as well as leaders in facial recognition technology SenseTime Group Ltd and Megvii Technology Ltd.

The action bars the firms from buying components from UScompanies without US government approval - a potentially crippling move for some of them. It follows the same blueprintused by Washington in its attempt to limit the influence of Huawei Technologies Co Ltdfor what it says are national security reasons.

The Commerce Department said in a filing the "entities have been implicated in human rights violations and abuses in the implementation ofChina'scampaign of repression, mass arbitrary detention, and high-technology surveillance against Uighurs, Kazakhs, and other members of Muslim minority groups."

"The USGovernment and Department of Commerce cannot and will not tolerate the brutal suppression of ethnic minorities within China," said Secretary of Commerce Wilbur Ross.

China said the United States should stopinterfering in its affairs. It will continue to take firm and resolute measures to protect its sovereign security, foreign ministry spokesman Geng Shuang told a regular media briefing without elaborating.

Hikvision, with a market value of about $42 billion, calls itself the world's largest maker of video surveillance gear.

SenseTime, which says it is valued at more than $7.5 billion, is one of the world's most valuableAIunicorns while Megvii, backed by e-commerce giant Alibaba, is valued at around $4 billion and is preparing an IPO to raise at least $500 million in Hong Kong.

The other companies on the list are speech recognition firm iFlytek Co, surveillance equipment maker Zhejiang Dahua Technology, data recovery firm Xiamen Meiya Pico Information Co, facial recognition firm Yitu Technology and Yixin Science and Technology Co.

A USHikvision spokesman said the company "strongly opposes" the decision and noted that in January it retained a human rights expert and former USambassador to advise the company on human rights compliance.

"Punishing Hikvision, despite these engagements, will deter global companies from communicating with the USgovernment, hurt Hikvision's US businesses partners and negatively impact the US economy," the company added.

Hikvision also said that it was assessing the potential impact of theblacklisting and was working on contingency plans.

John Honovich, founder of surveillance video research company IPVM, said Hikvision and Dahua bothuse Intel Corp, Nvidia Corp, Ambarella Inc, Western Digital and Seagate Technologyas suppliers and that the impact on the Chinese companies would be "devastating".

Theblacklisting of Huawei has hurt many of its USsuppliers that depended on the world's largest telecommunications company for revenue and made it difficult for Huawei to sell new products.

Reuters reported in August Hikvision receives nearly 30 per centof its 50 billion yuan ($7 billion) in revenue from overseas.

SenseTime said in a statement it was deeply disappointed by the USmove, that it abides by all relevant laws of the jurisdictions in which its operates and that it has been actively developing anAIcode of ethics to ensure its technologies areused responsibly.

Megvii said it strongly objected to being placed on theblacklistand that it required its clients not to weaponize its technology oruse it for illegal purposes.

IFlytek said its placement on theblacklistwould not affect its daily operations, while Xiamen Meiya said its overseas revenue was less than 1 per cent of total revenue and that most of its suppliers were domestic companies. Dahua said on a conference call it was confident it could easily replace some components and would also seek other solutions to keep servicing clients.

IFlytek fell 2.7 per centand Xiamen Meiya lost 1.8 per centon Tuesday as investors factored in their limited exposure to overseas markets and the potential for the USaction to speed up restructuring, analysts said.

"China'sstock market has become increasingly immune to bad news from thetradewar. No more panic selling," said Stephen Huang, vice president of ShanghaiSee Truth Investment Management.

Hikvision and Dahua were suspended fromtradeat the companies' behest. USsupplier Ambarella fell 12 per centin after-hours trading on Monday.

In August, the Trump administration also released an interim rule banning federal purchases of telecommunications equipment from five Chinese companies, including Huawei and Hikvision.