Backing Big Brother: Chinese facial recognition firms appeal to funds

Asian Stock Markets

Buoyed by China’s plans to build a ubiquitous CCTV surveillance network, Chinese and some foreign investors are pouring money into start-up technology firms that specialize in facial recognition software

At stake for firms such as SenseTime Group, Face++ and DeepGlint, is a multi-billion dollar global public and private market for facial recognition technology that can quickly identify individuals by measuring major elements of their faces, such as the distance between the eyes and the curve of the cheekbones. 

With the use of artificial intelligence (AI) the technology can recognise and track those wanted by the authorities by seeking a match from a database of photographs. In the commercial world it can be used for security at homes, workplaces and ATM machines, and as a part of payments systems at stores and restaurants. 

According to estimates from IHS Markit Ltd, video surveillance - including the equipment and video management software - was a $6.4 billion market in China in 2016, with 176 million surveillance cameras already installed by the authorities or private companies. 

That market, the largest in the world, is set for a compound annual growth rate of 12.4 percent through 2021, according to IHS. By comparison, the US market was estimated to be worth only $2.9 billion and growing at just 0.7 percent a year. 

In China, though, the supercharged growth has added to concerns about controls on dissidents or activists by the government of President Xi Jinping, especially when combined with the potential for the Chinese authorities to track phones being increasingly used for electronic payments and their stepped up monitoring of Internet traffic.

That hasn’t appeared to deter investors, who include leading U.S. venture capital firms such as the China arm of Sequoia Capital, which is one of the best-known Silicon Valley venture capital firms.

Hong Kong-based SenseTime Group, which produces deep-learning based software for facial recognition, autonomous driving and video analyzing, said earlier this month it had “attracted lots of interest” in its latest financing round without elaborating. People familiar with its plans said the firm intends to raise about $500 million.

At the same time, SenseTime, which lists various police departments across China as major clients, has joined forces with its backer China’s CDH Investments to raise about $450 million to invest in other firms working on artificial intelligence technologies, said two sources with knowledge of the matter.

And China’s biggest facial recognition firm Megvii, more commonly known as Face ++, earlier this month announced it has raised $460 million in its latest capital raising, including pulling in money from China’s national venture capital fund.

With the funding, Face++ plans to expand its business from software to hardware by developing more products with built-in AI, such as smart surveillance cameras that can capture faces better and faster, said Xie Yinan, Face++’s marketing and public relations director.