By Aaron Pressman and Clay Chandler
May 22, 2019

This is the web version of Data Sheet, Fortune’s daily newsletter on the top tech news. To get it delivered daily to your in-box, sign up here.

Good morning. Clay Chandler in Hong Kong, filling in for Adam.

Shares in Hangzhou Hikvision Digital Technology, the world’s largest manufacturer of surveillance equipment, and rival Zhejiang Dahua Technology tanked on the Shenzhen exchange Wednesday following news that the Trump administration may forbid the companies from buying U.S. technology, adding them to a national security blacklist that currently targets only one Chinese tech firm, the telecom gear giant Huawei Technologies. The expanded ban could also impact several more as-yet-unnamed companies, Bloomberg reports.

Adding Hikvision and Dahua would up the ante in Trump’s trade war with China, confirming a fear expressed yesterday by Tencent founder Pony Ma that it is rapidly morphing into a tech war.

It also would invoke a new justification for banning Chinese tech firms. The White House blacklisted Huawei on national security grounds. Now Trump officials are seeking to punish Hikvision and Dahua for supplying equipment and technology used in the surveillance and mass detention of Uighurs, a Muslim minority.

China sees both rationales as contrivances to gain negotiating leverage—and in that sense they may be working. Huawei’s founder Ren Zhengfei scoffed at efforts to impede his company’s global rise, boasting that he foresaw a U.S. “attack” long ago and therefore Huawei has been developing its own chips and stockpiling parts from U.S. suppliers. But Huawei’s consumer electronics chief Richard Yu, in an interview with The Information‘s Juro Osawa, acknowledged the company was blindsided by Google’s decision to curtail Huawei’s access to Android software. Yu says he fears Huawei is in for “really a very rough time.”

Hikvision is one of China’s hottest tech firms. Its monitoring devices, which use artificial intelligence to identify and track people by recognizing their faces, gait, or even body language, are among the most sophisticated in the world. The company began as a government research institute and remains under the control of a state-owned entity with a 40% stake. But it has grown into a $39 billion business that supplies monitoring equipment for surveillance systems throughout China and the rest of the world. Customers include the Memphis police department, the Nuremberg railway station, and a Brazilian soccer stadium. Hikvision is a component of the MSCI Asia Pacific Index and a favorite China stock of overseas investors, including pension funds for teachers in New York and California.

While the executive order Trump signed May 15 has been widely interpreted as written for Huawei, it is worded so broadly that it could be applied to drones or virtually any Chinese-made electronic device associated with the Internet of Things, argues Steve Dickinson on the China Law Blog. “The final result is hard to predict,” he concludes. “What we can say, however, is [that]…relations between China and the United States are on a straight-line decline with no end in sight.”

Clay Chandler
@claychandler
clay.chandler@fortune.com

SPONSORED FINANCIAL CONTENT

You May Like