An Opportunity for Wall St. in China’s Surveillance Boom

Market Analysis

September 11, 2007
An Opportunity for Wall St. in China’s Surveillance Boom

Timothy O’Rourke for The New York Times
A security camera above a sidewalk in the Lo Wu district of Shenzhen, China.

By KEITH BRADSHER

SHENZHEN, China — Li Runsen, the powerful technology director of China’s ministry of public security, is best known for leading Project Golden Shield, China’s intensive effort to strengthen police control over the Internet.

Timothy O’Rourke for The New York Times
The Chinese surveillance market is expected to grow to $43 billion by 2010. A camera watches over a Shenzhen street.

But last month Mr. Li took an additional title: director for China Security and Surveillance Technology, a fast-growing company that installs and sometimes operates surveillance systems for Chinese police agencies, jails and banks, among other customers. The company has just been approved for a listing on the New York Stock Exchange. The company’s listing and Mr. Li’s membership on its board are just the latest signs of ever-closer ties among Wall Street, surveillance companies and the Chinese government’s security apparatus.

Wall Street analysts now follow the growth of companies that install surveillance systems providing Chinese police stations with 24-hour video feeds from nearby Internet cafes. Hedge fund money from the United States has paid for the development of not just better video cameras, but face-recognition software and even newer behavior-recognition software designed to spot the beginnings of a street protest and notify police.

Now, the ties between China’s surveillance sector and American capital markets are starting to draw Washington’s attention.

Rep. Tom Lantos, the California Democrat who is chairman of the House Foreign Affairs Committee, said he was disturbed by a recent report in The New York Times about the development of surveillance systems in China by another company, China Public Security Technology, which, like China Security and Surveillance, incorporated itself in the United States to make it easier to sell shares to Western investors.

Mr. Lantos called American involvement in the Chinese surveillance industry “an absolutely incredible phenomenon of extreme corporate irresponsibility.”

He said he planned to broaden an existing investigation into “the cooperation of American companies in the Chinese police state.”

Executives of Chinese surveillance companies say they are helping their government reduce street crime, preserve social stability and prevent terrorism. They note that London has a more sophisticated surveillance system, although the Chinese system will soon be far more extensive.

Wall Street executives also defend the industry as necessary to keep the peace at a time of rapid change in China. They point out that New York has begun experimenting with surveillance cameras in Lower Manhattan and other areas of the city, and that corporations make broad use of surveillance cameras in places like convenience stores and automated teller machines.

“Is New York a police state?” said Peter Siris, the managing director of Guerrilla Capital and Hua-Mei 21st Century, two Manhattan hedge funds that were among the earliest investors in China Security and Surveillance.

Mr. Lantos and human rights advocates contend that surveillance in China poses different issues from surveillance in the West because China is a one-party state where government officials can exercise power with few legal restraints.

Mr. Lantos is part of a Democratic Congressional majority that is increasingly eager to confront China at a time of high Chinese trade surpluses and considerable economic insecurity in the United States. He is also a longtime ally of Nancy Pelosi, the speaker of the House and a fellow Californian, who made her reputation in Congress as a critic of China on human rights issues.

A White House spokesman, Tony Fratto said the White House would not comment on specific companies, adding, “It’s not appropriate to interfere in the private decisions of Americans to invest in legally incorporated firms.”

The New York Stock Exchange said that it had no comment except to confirm that China Security and Surveillance was expected to list on the exchange “later this year, subject to the usual conditions, including approval by the S.E.C.”

Because the company already has shares traded in the United States and is not selling any additional shares, Securities and Exchange Commission regulations say approval is automatic once the company fills out a notification form and the New York Stock Exchange confirms it has approved the listing.

Over the last year, American hedge funds have put more than $150 million into Chinese surveillance companies.

The Chinese government trade association for surveillance companies, which also regulates the industry, predicts that the surveillance market here will expand to more than $43.1 billion by 2010, compared with less than $500 million in 2003. Under the Safe Cities program adopted by the government last winter, 660 cities are starting work on high-tech surveillance systems.

Many Western experts, skeptical that China faces a terrorism threat, have suggested that the government may be using it as an excuse for tougher policies toward ethnic minorities in western China, notably Xinjiang Province, and toward Tibet.

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