China’s tech champions roundly denounced Washington’s move to add them to the US Commerce Department’s Entity List, which prevents them from buying US-made technology on national security grounds just as the world’s two-biggest economies are about to resume crucial trade talks.

The US Commerce Department said on Monday it was putting 28 Chinese public security bureaus and companies on a US trade blacklist over Beijing’s treatment of Uygur Muslims and other predominantly Muslim ethnic minorities.

The companies added to the so-called “Entity List” include facial recognition start-ups Sensetime, Megvii and Yitu, video surveillance specialists Hikvision and Dahua Technology, AI champion iFlyTek, Xiamen Meiya Pico Information Co and Yixin Science and Technology Co.

Hikvision said in a statement that it “strongly opposes” the US government’s decision, adding that it “will hamper efforts by global companies to improve human rights around the world.”

Visitors pass by a booth for state-owned surveillance equipment manufacturer Hikvision at the Security China 2018 expo in Beijing on October 23, 2018.

“[We have] been engaging with Administration officials over the past 12 months to clarify misunderstandings about the company and address their concerns,” said a Hikvision spokesman on Tuesday.

Hikvision has sold products to more than 150 countries and territories globally, but derives less than 5% of its revenue from the US, according to a research note from Jefferies. The US government banned the procurement of Hikvision and Dahua products by federal agencies last year, citing national security risks.

The ban on China’s rising national tech champions comes as Chinese vice-premier Liu He gets ready to lead a delegation of high level officials for a new round of trade talks in Washington on Thursday and Friday. The next round of US tariffs applied to Chinese products is also set to go into effect on October 15.

“Specifically, these entities have been implicated in human rights violations and abuses in the implementation of China’s campaign of repression, mass arbitrary detention, and high-technology surveillance against Uygurs, Kazakhs, and other members of Muslim minority groups in the XUAR [Xinjiang Uygur autonomous region],” the Department of Commerce’s Bureau of Industry and Security said in the new ruling.

Asked on Tuesday if China would retaliate over the blacklist, foreign ministry spokesman Geng Shuang told reporters “stay tuned.” He also denied that the government abused human rights in the far west region of Xinjiang.

“We urge the US side to immediately correct its mistake, withdraw the relevant decision and stop interfering in China’s internal affairs,” Geng said. “China will continue to take firm and forceful measures to resolutely safeguard national sovereignty, security and development interests.”

Lu Xiang, a research fellow on US issues with the Chinese Academy of Social Sciences, said the blacklist “is a very unfriendly move by the US government and not helpful to the overall US-China relations” ahead of the trade talks.

“It’s an issue apart from the trade front, and the Chinese delegation won’t discuss the Xinjiang issue with the US in the trade talks,” he said.

Julian Ku, a professor at Hofstra University's law school, said it was unusual to use the entity list to target human rights buses and the move marked a major shift in how it was used.

“For the very first time anywhere, a government is taking concrete action against China over its policies in Xinjiang. Up to now, it's all been talk (and not even that much talk). Now, at least, we have a little action,” he tweeted.

But he said blacklisting the entities was not as harsh as imposing sanctions under the Global Magnitsky Act, which Human Rights Watch and members of Congress have called for.

Visitors to iFlytek's artificial intelligence (AI) smart city display at the International Intelligent Transportation Industry Expo in Hangzhou, Zhejiang province on December 21, 2018. (Picture: Reuters)

iFlytek closed down 2.67% at 31.01 yuan while Meiya Pico Information closed at 16.86 yuan, down 1.63%. Hikvision was unchanged at 32.30 yuan and Dahua unchanged at 17.27 yuan with trading halted in Shenzhen.

Analysts said the Chinese companies would now have to think about sourcing alternative tech in the same way that Huawei Technologies had done. The Chinese telecoms giant was added to the entity list in May, hampering its global roll-out of 5G networks and blocking access to US-made software for its handsets and devices, such as Google’s Android operating system and Microsoft’s Windows.

“The ban will further underscore something that has been under the radar and not recognized, which is Chinese dependence on foreign technology, and the integration of the value chains and the value of ecosystems in the technology sector,” said Alex Capri, senior visiting fellow and a lecturer at the National University of Singapore Business School.

Hikvision, for example, buys chips from US company Nvidia which help to facilitate artificial intelligence features for video surveillance camera systems.

Other analysts were more optimistic.

“It will be a temporary setback, these Chinese tech companies are likely able to find ways around [the ban] but it will take a little bit of time,” said Wong Kam Fai, associate dean at the Chinese University of Hong Kong’s Faculty of Engineering.

He pointed out that while Huawei had stockpiled components, it is uncertain if companies affected by the current ban have made similar backup plans.

Other Chinese companies blacklisted by the US also condemned the move.

“We are deeply disappointed with this decision … we will work closely with all relevant authorities to fully understand and resolve the situation,” said SenseTime on Tuesday. “SenseTime is focused on computer vision and deep learning … We abide by all relevant laws and regulations of the jurisdictions in which we operate.”

Megvii, which in August filed for an IPO in Hong Kong, said it “strongly objected to the move” in a statement. “We are committed to making sure our technology has a positive impact on society and we are in compliance with all laws and regulations in jurisdictions where we operate.”

iFlyTek, which was named one of China’s national AI champions in November 2017, also sought to play down the impact of the ban, saying it has contingency plans for the situation and that its AI core technologies are “self-developed and [it] has independent intellectual property rights.”

Yitu said it too was “strongly opposed” to the ban.

“[We] have aimed at building a safer, healthier and more convenient world since formation. Scientific and technological innovation is to empower all mankind, and is the motivation for us to solve world-class problems.”

Dahua, Meiya Pico and Yixin Science did not respond immediately to emailed requests for comment.