ChinAI #147: DeepGlint's Prospectus for Listing on China's STAR Board
Plus, the battleground of American history and the DOJ's China Initiative
Greetings from a world where…
collagen rhymes with apologin’
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Feature Translation: Shanghai STAR Board Accepts DeepGlint’s IPO Prospectus
Context: Last week, on June 22, the Shanghai STAR board accepted DeepGlint’s prospectus for an IPO listing. They follow other AI companies that have applied and been accepted for a listing on the STAR market, including Yitu (covered in ChinAI #135), CouldWalk (covered in ChinAI #94), Intellifusion, Technology, Megvii, and Transn.
DeepGlint [格灵深瞳] garnered a lot of early buzz after its launch in 2013. The computer vision startup appeared set for success: Bill Gates once described it as “very cool” in summer 2014; the founder, Zhao Yong, had previously worked on the Google Glass team after completing a PhD at Brown University; plus, it had financial backing from the likes of ZhenFund and Zequoia Capital.
What happened? Why hasn’t DeepGlint joined China’s “Four Little CV Dragons?” And what does that say about the broader landscape of China’s AI industry? Wu Xin, reporter for jiqizhineng, helps us digest (link to original article in Mandarin) DeepGlint’s 400-page prospectus.
In 2020 DeepGlint took in 240 million RMB in revenue. Wu states, “Compared to the 4 AI Little Dragons (Sensetime, Megvii, Yitu, Cloudwalk), these revenue figures are not impressive, and DeepGlint is no longer in the first camp.” Wu claims that DeepGlint “cannot escape the ‘curse’ of AI business” — a crunch on cash on hand. Like many of its competitors, DeepGlint reported large losses mostly because it needs to continuously make high investments in R&D in order to ensure competitiveness.
Another factor behind DeepGlint’s cash crunch, Wu suggests, is that DeepGlint’s main clients are government agencies and large companies, who usually follow centralized procurement and budgeting systems. Project and procurement planning happens in the first half of the year; project delivery and payment usually doesn’t get finalized until the fourth quarter of the year. This makes accounts receivables grow faster than operating income, especially since there will be a long payment approval cycle for these government and large state-owned enterprise clients.
The article generalizes from DeepGlint’s experience to make a broader point: “This also shows no matter what is publicized China’s AI companies currently are not strong enough to break established industry rules. For example, general contracting companies in the security field usually purchase products from different companies according to customer needs. Most of the time, AI companies can only be integrated (as one component of the solution), and only get a small piece of the ‘cake’.”
So, what’s DeepGlint’s play?
Diversify sources of revenue. While city management/public security applications still make up the majority of DeepGlint’s revenues (51.5% in 2020), that figure has dropped from about 80% in 2018. Two other application domains — smart finance and commercial retail products — have significantly increased their contributions to revenue (see table below). According to the article, “DeepGlint’s founder and CEO, Zhao Yong, has previously said in a media interview that although the scale of AI applications in these two domains is not large, it will definitely exceed the security industry in the long run.”
The past three years have also seen a sharp increase in the share of revenues from DeepGlint’s smart front-end products (mainly behavior analyzers, smart cameras, face recognition devices, etc.): from 18% of total revenues in 2018 to 70% in 2020. Wu concludes, “This makes DeepGlint more like an AI hardware company.”
Still, concerns about a top-heavy customer base linger. For instance, Agricultural Bank of China (one of China’s “Big Four” banks) selected DeepGlint as a qualified supplier for its security equipment project back in 2018. The following year, AgBank accounted for about 33% of DeepGlint’s revenue. As a China Money Network analysis points out, this trend is not unique to DeepGlint. For example, in the first half of 2020, Yitu’s top five customers accounted for more than 60% of its sales.
I’ll leave you with this crisp pie graph from the article. It’s a breakdown of China’s computer vision market shares by leading companies. The color scheme makes it hard to read, but it’s trying to display that 8 companies (including Sensetime with the largest share, followed by Megvii, Hikvision, Yitu, Cloudwalk, and three more) occupy more than 50% of the market. What about DeepGlint? It’s in the “other” category.
ChinAI Links (Four to Forward)
One thing that’s been lingering in my mind over the past half-year or so is this State Department memo titled “ Elements of the China Challenge,” which represented a last-ditch attempt by the outgoing Trump administration to provide a blueprint for great power competition with China. The memo’s first citation gives you a glimpse of the writers’ sense of their own grandeur: “For another turn to authoritative assumptions and governing ideas to explain the conduct of a great-power rival, see George Kennan, ‘The Long Telegram,’ February 22, 1946.”
In the concluding section, the memo picks 10 tasks for America to “refashion foreign policy” against the China challenge. Somehow, this made it into the top 10 most urgent priorities (p. 49):
The US must reform American education...Sinister efforts from abroad seek to sow discord in the United States. And America's grade schools, middle schools, high schools, and colleges and universities have to a dismaying degree abandoned well-rounded presentations of America's founding ideas and constitutional traditions in favor of propaganda aimed at villifying the nation."
So, here’s where we stand: the main strategic arm of the U.S. Department of State believes that one of the ten most important things we should be doing to compete with China is to stop “villifying the nation” when teaching America’s founding story in our schools. That’s where this week’s must-read comes in. A prescient essay in Harper’s by Matthew Karp on the 1619 Project, the sincerity of conservatives’ and liberals commitments to history, and the debate over America’s “true founding” date:
“…[T]he debate cannot be resolved by an appeal to scholarly rigor alone. The question, as The Atlantic’s Adam Serwer has written, is not only about the facts, but the politics of the metaphor: ‘a fundamental disagreement over the trajectory of American society.’ In a country that is now wealthier than any society in human history but which still groans under the most grotesque inequalities in the developed world—in health care, housing, criminal justice, and every other dimension of social life—the optimistic liberal narrative put forward by Kennedy and Clinton has ceased to inspire. Some commentators have rushed to declare Joe Biden a transformational president on the basis of his large stimulus bill, but Biden’s chastened brand of liberalism remains less notable for what it proposes than what it removes from the horizon: universal guarantees for health care, jobs, college education, and a living wage. Although Biden may still invoke Obama’s ‘arc of the moral universe’ on occasion, the metaphors that brought him to power, and that still define his political project, are not about the glories of progress but the need for repair: ‘We must restore the soul of America.’ In a country so deeply riven by injustice—with violence and oppression coded into its very DNA—what more could be hoped for?”
Should-read: “Ridiculous Case”: Juror Criticizes DOJ for Charging Scientist with Hiding Ties to China
For The Intercept, Mara Hvistendahl interviews Wendy Chandler, one of the jurors on a closely watched case against former Univ. of Tennessee scientist Anming Hu, brought under the DOJ’s China Initiative. As Mara summarizes: “The U.S. government charged Hu with three counts of wire fraud and three counts of making false statements in connection with a NASA grant . . .But court documents and courtroom testimony showed that prosecutors brought fraud charges only after nearly two years of surveilling Hu and failing to find evidence that he was involved in a more serious crime related to spying or technology transfer.” Here’s the juror again:
“It was the most ridiculous case,” she said. About the FBI, she added: “If this is who is protecting America, we’ve got problems.”
In case it wasn’t clear, the first two recommendations in this week’s ChinAI are linked in many ways. The American story is a continual struggle over how exclusionary we define the bounds of what it means to be an American. Let me make it more clear: if you’re serious about restoring the soul of America, you should end the China Initiative.
I’ve really been enjoying this newsletter about daily life on the Chinese internet. In this issue Chaoyang Trap presents a special preview of Open Sesame Magazine’s latest issue: “Made by the graphic design studio Lava Beijing, Open Sesame is an irregular print magazine devoted to the weird and wonderful world of Taobao, *the* Chinese online shopping site. The theme of this third issue is ‘Taking Responsibility,’ examining the ethics, blurred or otherwise, of internet shopping and the choices we make when confronting this behemoth of a platform.”
Should-listen: McKinsey Global Institute podcast
I had the chance to talk about U.S.-China technological competition, unsexy AI, some of my favorite past issues of ChinAI, and on McKinsey Global Institute’s Forward Thinking podcast. Thanks to Michael Chui for a great conversation on AI — we got to dig into the weeds because he’s worked on impressive reports on China’s digital economy and has a background as an AI practitioner. Check out previous episodes of the podcast here.
Thank you for reading and engaging.
These are Jeff Ding's (sometimes) weekly translations of Chinese-language musings on AI and related topics. Jeff is a PhD candidate in International Relations at the University of Oxford and a Predoctoral Fellow at Stanford’s Center for International Security and Cooperation, sponsored by Stanford’s Institute for Human-Centered Artificial Intelligence.
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