My #1 Pick To Play China's Surveillance Boom

Tony Sagami

The massive protests in Egypt show you how desperately people desire democracy and how lucky we are to live in the United States.

Interestingly, many experts feel the unrest was exacerbated and perhaps triggered by the Egyptian government's decision to shut down the internet. Egyptian authorities pulled the plug on the internet to prevent the spread of news/images on sites such as Facebook, YouTube and Twitter.

Egypt wasn't the only country that limited internet access to its citizens last week. China blocked all searches that contained ‘Egypt' in it. Anyone in China that searched for Egypt received this message: "According to relevant laws, regulations and policies, the search results are not shown."

Most Americans don't know it, but Facebook, YouTube and Twitter are unavailable in China. That is why Big Brother is more of a reality in China than anywhere else in the world.

 

Remember Nineteen Eighty-Four by George Orwell? The central character of the book is Big Brother, the fictional dictator of Oceania, a totalitarian state that is controlled by the ruling elite, which wields total power for its own sake over the inhabitants.

Everyone is under complete surveillance by the authorities and the people are constantly reminded of this by the phrase "Big Brother is watching you."

When I read the book in high school, I thought the idea of being constantly watched by the government was a silly idea that could never happen.

The Chinese Surveillance State

China has taken surveillance, which they call homeland security technology, to new, invasive heights with a national network of surveillance cameras, biometric identification cards, and facial recognition software.

Train stations, airports, busy streets, universities, religious sites, banks, factories, libraries, border crossings, parks, athletic fields, government buildings, schools, and popular gathering spots are monitored.

Get this — every internet cafe in China has surveillance cameras that are hooked up to local police stations so they can keep an eye on not just WHO is using the internet but WHAT sites they are visiting and what they are posting. Facial-recognition software makes it possible to photograph, record, and identify users no matter where they go.

400 million cameras ... and counting!

Chinese police have installed 3 million surveillance cameras in China and incorporated face recognition technology into them. Check out this YouTube video clip:

http://www.youtube.com/watch?v=jmI1rBTRExo

It is the LAW that every internet café must install these surveillance cameras.

Chinese officials boast that all this surveillance helps battle crime and terrorism. In Guangdong province, the government claims that the new cameras deterred more than 18,000 street crimes. In the south-central town of Kunming, crime fell by 10% after the police installed new cameras.

All that surveillance is enriching somebody and that somebody is China Security & Surveillance Technology (CSR). CSR sells automated surveillance systems and has installed them all over China.

The company is involved in all phases of surveillance food chain: The manufacturing, distributing, installing, and servicing of surveillance systems.

More than half of CSR's customers are governmental entities, such as customs agencies, courts, public security bureaus, prisons, schools, museums, sports arenas, libraries, airports, and railroads. Even during economic downturns, CSR should continue to mint money from its government contracts.

As important as the government is to CSR, commercial security sales still constitutes close to half of its revenues. That is important because the industrial/commercial market could be larger with more recurring revenues than the government market.

CSR is the largest indigenous security systems integrator in China, the largest manufacturer of security products, and the largest non-government monitoring company in China. No other security company in China offers one-stop shopping for manufacturing, distribution, installation, and monitoring.

Surveillance and security is a booming business all over the world, but perhaps no place more than in China.

IMS Research, a research company that follows the surveillance industry, reported in its The China Market for CCTV and Video Surveillance Equipment — 2010 Edition that it expected the Chinese market to grow by more than 20% in 2010.

The total Chinese video surveillance market was $1.4 billion in 2009 and is expected to grow at a compound annual growth rate of 20% for the next four years and hit $3.5 billion in 2014.

What the Chinese government wants ... the Chinese government gets. And what it desperately wants is to keep tabs on its 1.3 billion citizens. That represents a ton of business and why 55% of CSR's business comes from government orders.

Behavior-Recognition Software ...

You’ve probably heard of face-recognition software. How about behavior-recognition software? Behavior-recognition software is designed to spot the beginnings of a street protest, riots, or violence.

For example, the newest generation of security cameras armed with surveillance software can count the number of people in crosswalks and alert the police if a larger-than-usual crowd forms at an unusual hour, a possible sign of an unsanctioned protest.

Remember, China is not a democracy and its people do not have the freedoms that we Americans consider a birthright.

The current 11th Five Year Plan states that a secured and stable society is the number one priority for the central government. That is why the Chinese government has passed several laws which require surveillance.

  • The Safe City Safety Surveillance Ordinances REQUIRES the 660 largest cities in China to install surveillance systems in major public venues such as subways and municipal buildings.
  • State Ordinance 458 requires all entertainment venues in China — internet cafes, pubs, discos, and karaoke parlors — install electronic surveillance systems. This is a law; not a guideline.
  • The 3111 project is a security project test program for monitoring and reporting on the provincial, city, county and municipal levels.

The Chinese government has the power, motivation, and the money to become a Big Brother state, and that is exactly what it is doing. China Security & Surveillance Technology is the company best positioned to profit from that.

 

Why am I telling you so much about CSR? I'm not suggesting that you rush out and buy it today. You need to do your own homework and decide whether it is appropriate for your personal situation and financial goals, but I can tell you that the company's CEO is so enthusiastic about the company's future that he announced that he would like to take the company private and said he would pay up to $6.50 a share for all outstanding shares.

CSR is currently trading in the $5 range, so there is the potential to make a quick 30% gain on the shares ... or more if other bidders come into the picture.

Best wishes,

Tony

P.S. I need to disclose that my Asia Stock Alert subscribers already own CSR. If you want to add more Asian stocks to your portfolio, consider a subscription to my Asia Stock Alert for only $199 a year.


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Posted 02-04-2011 1:48 PM by Tony Sagami
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