Chinese AI expert Tang's sudden death throws SenseTime into disarray, shares hit record low

The sudden death of Tang Xiao'ou, a key figure behind China's facial recognition technology and a cofounder of SenseTime Group, is the latest challenge to face the US-sanctioned artificial intelligence (AI) giant, with its shares losing 11 per cent in Hong Kong on Monday.

Shares of SenseTime, once held up as a model of China's AI capabilities thanks to the strong research credentials of Tang, a professor with the Chinese University of Hong Kong, have dropped to their lowest-ever level since its initial public offering on December 31, 2021. The stock is currently trading at one fifth of the IPO value.

One immediate challenge following the death of Tang, who died on Friday from an undisclosed illness at the age of 55, is the company's voting structure, as Tang was its controlling shareholder with dominant voting power through his class A shares.

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In a filing to the Hong Kong exchange, SenseTime announced that the weighted voting rights attached to Tang's 6.9 billion class A shares had ceased. It added that they are expected to be converted on a one-to-one basis into class B shares, which hold less voting power, and will remain locked up until the end of December 2024.

"The passing of Professor Tang is not expected to have a material adverse impact on the daily management and the ordinary business activities of the company," SenseTime said in the filing, issued before the market opened on Monday.

SenseTime's shares dropped as much as 18 per cent before ending down 11.11 per cent at a record low price of HKD$1.12 (US 14 cents) at the close of trading. The development is a further blow to the struggling company, once considered one of China's "four little dragons of AI", amid declining profits and tough market conditions.

Last month, the company came under fire from a short-seller report, which accused it of questionable accounting and business practices. SenseTime said the report was unfounded and contained "misleading conclusions and interpretations." The company's stock is down nearly 50 per cent year-to-date.

SenseTime on Sunday expressed commitment to continuing Tang's mission and legacy, emphasising the importance of adhering to the company's original aspirations and goals.

SenseTime co-founder Tang Xiao'ou. Photo: Weibo alt=SenseTime co-founder Tang Xiao'ou. Photo: Weibo>

Tang, a graduate of the Massachusetts Institute of Technology, co-founded the AI-focused company with fellow professors from the Chinese University of Hong Kong in 2014. The company's Chinese name, ShangTang, is an amalgam of the character representing China's earliest imperial dynasty with Tang's surname.

Under Tang's leadership, the company became a key player in computer vision technology and China's leading provider of AI-powered facial recognition technology, used primarily in the public sector. In February, the cofounder was listed by Forbes as the 33rd richest person in Hong Kong, with a net worth of US$2.5 billion.

However, SenseTime encountered turbulence in 2021, when Washington barred American funds from investing in the company, delaying a highly anticipated IPO. The US alleged that the company's technology contributed to human rights abuses against Uygurs in China's Xinjiang region. That accusation followed SenseTime's addition to an American trade blacklist in 2019, which restricted its access to key technologies originating from the country. SenseTime has repeatedly denied such allegations from the US.

SenseTime went ahead with its IPO in December 2021, but scaled it down to raise HK$6.64 billion (US$846 million). It has since seen the stock drop by about 80 per cent, with some analysts pointing to a lack of cash-generating operations, tighter spending by municipal and provincial governments in China, and increased competition in the local AI space as contributing factors.

Tang's death comes amid efforts by SenseTime's to diversify its business, with a recent focus on generative AI. The company received approval from the Chinese government to publicly launch its answer to Open AI's ChatGPT in August, along with competitors like Chinese search giant Baidu.

In its exchange filing on Monday, SenseTime Group added that it would maintain business continuity under the leadership of Tang's fellow co-founders, including executive chairman and CEO Xu Li, executive director and chief scientist Wang Xiaogang and executive director Xu Bing.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.

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