Internet & Tech

Face value

AI unicorn CloudWalk gets nod for STAR Market IPO


The polygraph, so beloved in spy films and detective novels, is underpinned by the idea that a liar can be caught out through physical symptoms. The technology uses contact sensors to detect changes in pulse, blood pressure, breathing rate and skin conductivity to determine whether someone is being dishonest. But in the early 2010s Zhou Xi, a professor at the Chongqing branch of the Chinese Academy of Sciences, set out to create a new version of test that could detect dishonesty from greater distances. Non-contact sensors and facial recognition technology was said to pick up on a person’s micro-expression, skin colour, temperature, heart rate and even their vocal characteristics. “The advantage of our new polygraph is the non-contact detector, which will lower the vigilance of targets,” Zhou claimed in 2015 when the product was unveiled.

Today Zhou is also the founder and president of CloudWalk Technology, a six year-old firm that creates image recognition hardware, as well as making the algorithms that sift through troves of biometric data to discern patterns and establish correlations.

Popular across the public and private sectors, CloudWalk’s solutions have been adopted for a wide array of purposes including payment processing, surveillance, urban management and airport traffic control.

Although CloudWalk is the youngest of the group of the four best-known artificial intelligence companies in China it is poised to become the first to go public. On July 21 the Shanghai stock exchange issued a circular noting that the Guangzhou-based firm had been given the green light to sell new shares on the Nasdaq-style STAR Market. Based on the prospectus it filed in December, CloudWalk hopes to raise Rmb3.75 billion ($580 million).

The Chinese media says CloudWalk is the first to get the go-ahead for an IPO because of its strong state backing. Unlike peers such as Megvii (see WiC441) and SenseTime (see WiC405), which have both received funding from foreign investors, CloudWalk is backed by government affiliates such as the Shanghai State-owned Enterprise Reform Fund and by industrial development funds from Guangzhou and Bohai. Zhou is still the largest stockholder with a 23% stake (and 65% voting rights under a dual-share class share structure), followed by PCI-Suntek Technology, a Shanghai-listed AI company that holds a 7.8% interest.

CloudWalk needs new sources of finance. Although its revenues multiplied more than twelvefold to Rmb807 million between 2017 and 2019, its expenses also ballooned. As of June last year, it had accumulated Rmb2.3 billion in net losses after raising Rmb3.3 billion in 10 rounds of financing since it was created.

Other Chinese AI companies have had problems getting approvals to sell shares in the public markets. Beijing-based Megvii, which had abandoned a plan to go public in Hong Kong after being targeted by a Washington trade blacklist, is now hoping for a debut on the STAR Market too. But regulators are reported to be concerned about the way the company gathers and manages the data it collects, as revealed in 560 pages of company responses to questions about the initial IPO application, says 21CN Business Herald.

Shanghai-based Yitu – another AI unicorn – was forced to shelve a plan to sell shares in the United States and China after failing to resolve tax concerns emanating from its variable interest entity (VIE) structures.

What could further complicate the plans of all the companies in the group is the Chinese government’s determination to tighten rules over data privacy. On Wednesday the Supreme People’s Court (SPC) issued another new regulation on the deployment of facial recognition technology in which companies can no longer compel users to share their biometric data in exchange for the service that the technology supports. The change also restricts the use of facial recognition at xiaoqu, or gated communities with communal facilities (see WiC539), where facial recognition is widely used as an access and payment tool.

“Abuses of facial recognition technology take place frequently,” Yang Wanming, vice president of the SPC, told reporters, noting that retailers were collecting facial data without consumer consent as a way of fine-tuning their marketing strategies. “Such behaviour seriously damages the personal rights of those involved, leaving regulation urgently needed,” added Yang.

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