US to blacklist Chinese AI company SenseTime over Xinjiang ahead of IPO

The US will put SenseTime, the Chinese artificial intelligence company that specialises in facial recognition software, on an investment blacklist on Friday, the same day that it prices its Hong Kong initial public offering.

The action against SenseTime, which Washington says enables human rights abuses against Muslim Uyghurs in Xinjiang, will be part of a package of sanctions against a number of countries to mark Human Rights Day, according to three people familiar with the decision.

The US Treasury will place SenseTime on a list of “Chinese military-industrial complex companies”. In June, President Joe Biden signed an executive order that barred Americans from investing in companies on the list, following a Trump administration policy intended to tackle national security threats.

The decision to blacklist SenseTime will coincide with the last day of the Democracy Summit that Biden has convened with more than 100 countries.

The US president held a virtual meeting last month with Xi Jinping, his Chinese counterpart, in which they discussed ways to ensure that tensions between the countries did not veer into conflict. But Biden has stressed that he will not stop criticising China over human rights abuses.

The White House declined to comment on SenseTime or the sanctions. The Treasury did not respond to a request for comment. SenseTime did not immediately respond to a request for comment.

The blacklisting could be problematic for US shareholders in SenseTime. Silver Lake, the US private equity firm which has a 3 per cent stake in the company, has agreed to lock up some of the shares for six months after the IPO. Fidelity and Qualcomm own smaller stakes.

HSBC is the only western investment bank involved in the IPO, according to US banking executives.

Others avoided the listing after SenseTime was placed on a US commerce department blacklist, known as the entity list, in 2019.

The sanctions against SenseTime mark the latest effort to punish China for the repression of more than 1m Uyghurs and other ethnic minorities who have been subjected to detention and forced labour in camps in the north-western Xinjiang region. China denies the claims and says the sites are education camps.

The White House this week announced a diplomatic boycott of the Beijing Winter Olympics. The UK, Australia and Canada followed suit.

The US House of Representatives on Wednesday passed a bill by 428-1 to bar companies from importing goods from Xinjiang unless they proved that no forced labour was used in the manufacturing process.

Wendy Sherman, deputy secretary of state, told the Financial Times in an interview that Biden would continue to look at targets for Xinjiang-related sanctions. Asked if the US would try to prosecute Chinese officials implicated in the policy, she said: “We should consider every option that makes sense.”

Chinese state-backed investors feature prominently in the SenseTime IPO, which is expected to be the biggest listing in Hong Kong in months.

Of the $450m of planned cornerstone investments, $200m will come from the Mixed-Ownership Reform Fund, which was created in late 2020 by state-run China Chengtong Holdings Group and other investors under the auspices of Beijing’s state-owned Assets Supervision and Administration Commission.

SenseTime depends on China for a big portion of its business, with sales of facial recognition, predictive policing and other AI tools to cities contributing 40 per cent of the total last year. The importance of government sales to its future has increased as Chinese tech groups have pursued the development of their own internal AI systems.

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