Advantage China? Digital Silk Road looks to upset US tech supremacy
The Digital Silk Road is a weapon being used by China in its war with the US for global tech supremacy, but how big a threat will it pose to the dominance of the US's Big Tech behemoths?
Lara Williams
Huawei's European expansion has taken the company into locations such as Paris (pictured), but China's Digital Silk Road is more targeted at developing economies. (Photo by Ludovic Marin/AFP via Getty Images)
China's Digital Silk Road (DSR) is the technology incarnation of the country's Belt and Road Initiative (BRI) and another fault line upon which the battle for global tech supremacy is playing out. Investment by Chinese Big Tech in digital infrastructure projects abroad was already under way before the DSR initiative was introduced by a Chinese government white paper in 2015, but after this time those same investments gathered momentum under the branding umbrella and policy support of the Chinese state.
Beijing's political and financial support for companies operating under the DSR framework is set to accelerate over the next 24 months, according to Paul Triolo, geo-technology practice head at analyst Eurasia Group. "Chinese companies will increasingly participate in key digital transformation projects in select markets along the BRI as the Chinese digital ecosystem continues to expand and play a key role in supply chains," he says.
Where is the Digital Silk Road?
Growing suspicion towards Chinese technology investments in the West, particularly within sensitive areas of national telecoms infrastructure, has not impeded the global expansion of Chinese Big Tech platforms. Investments are being made almost everywhere except North America and India, with particular emphasis on emerging economies, according to Dr Marek Banczyk, CEO of research company Cityglobe.
"Chinese companies are taking a very country-specific approach," he says. "In emerging economies, they might give out free laptops or become involved in writing digital strategy, whereas in France, for example, it might be something more sophisticated such as an artificial intelligence [AI] innovation lab."
Triolo agrees that Chinese companies are able to offer a much higher degree of localisation in products and services by entering developing markets through partnering or acquiring established players. "This isn't a unique strategy, but the upshot is Chinese players are often more attuned the local market's needs from the outset," he says.
Europe's Digital Silk Road
In 2012, China launched the 17+1 initiative to promote business and investment relations between China and 17 central and eastern European (CEE) countries, including Greece. Once seen as China's gateway into western Europe (President Xi Jinping has called Greece's port of Piraeus "the Dragon's head"), disappointment with and scrutiny over the initiative has seen many members of this CEE group join Washington's 2020 Clean Network initiative – a treaty for internationally accepted digital trust standards acting to contain Huawei and other Chinese tech companies.
However, investments are still taking place. For example, Huawei launched a data centre in Novi Sad, Serbia, in September 2020. Chinese companies have also made headway with investments in the western European technology infrastructure, despite resistance from US allies such as Poland and the UK. Huawei established an AI innovation lab in Paris in April 2018 and has become the chosen vendor for some European 5G projects.
A key method for Huawei's European expansion is positioning itself as one of the main providers of 'smart city' solutions, a market that was booming before Covid hit, according to Banczyk. "This typically opens discussions for 5G offerings," he says. Huawei's products are implemented in more than 160 cities globally, according to Banczyk, who notes the company's regularly high-profile presence at the annual premier trade event for the sector, SmartCityExpo, in Barcelona.
According to S&P Global Intelligence, Huawei announced it had 91 commercial 5G contracts globally as of February 2020. Huawei also announced in February 2020 that it would set up manufacturing hubs in Europe while at the same time dealing with US pressure on European states to exclude the company from 5G networks. Entering the European technology supply chain may signal a move towards appeasing security concerns by having equipment made under European standard laws.
Chinese companies will increasingly participate in key digital transformation projects in select markets along the BRI as the Chinese digital ecosystem continues to expand and play a key role in supply chains. Paul Triolo, Eurasia Group
The dissenters are vocal, however. The UK announced sweeping measures in July 2020 to remove all Huawei equipment from its 5G networks by 2027 due to security concerns. As China and US tensions escalate, the DSR will become increasingly important, prompting Chinese companies denied access to these markets to look towards emerging economies for global expansion.
Emerging economies a target for Chinese tech companies
A key strategy of the DSR is helping leading Chinese tech platforms such as Alibaba, Tencent and Baidu, as well as telecoms and infrastructure vendors such as Huawei, China Mobile and China Telecom, to compete with US companies for projects in emerging economies.
In 2020, Huawei opened its cloud-based Africa Innovation Centre in Johannesburg focusing on AI-based services as well as signing a $175m smart cities and data centre contract with Kenya. Chinese companies are offering emerging economies infrastructure development and technology transfers that they might not otherwise have accessed. Huawei also partnered with South African telecoms giant MTN to deliver free tablets for the South African Ministry of Basic Education.
What were initially ad hoc investments into areas such as South East Asia and Africa have now become more structured as Chinese companies offer a broad spectrum of technologies including end-user devices servers, mobile infrastructure and cloud platforms, constituting in some cases what Triolo characterises as a "Team China" approach.
In Africa, Huawei's presence extends into governance by assuming a prominent role in writing a new national digital strategy for Côte d'Ivoire, according to Banczyk. This is an example of how Triolo imagines, more generally, that DSR-branded companies will play a key role in promoting the use of technologies and standards developed by Chinese companies. "This will translate into political clout, and influence regulatory and policy decisions to China's advantage," he says.
What does this mean for non-Chinese companies?
Demand from developing countries for inclusion in the digital economy is driving investment from Chinese companies taking the 'Team China' approach. In doing this they are offering a package that encourages reliance on Chinese technologies, according to the Eurasia Group's April 2020 Study on the DSR.
This makes it potentially more difficult for technology companies from other countries to do business in locations connected to the DSR. The report warns: "For multinational technology firms, understanding what the DSR really is and what impact it will have on the competitive and business environment in participating countries is becoming increasingly important."
On the other hand, the Chinese government's lack of a cohesive strategy underlying the DSR branding effort may provide some partnership opportunities for multinational companies, as many Chinese companies need help in expanding overseas to DSR countries despite the government's push for them to do so.
DSR in the race towards global tech supremacy
The DSR is part of a race for global tech supremacy which is multifaceted. A concerted effort by China to dictate global technology standards is part of this drive as well as state-mandated targets in emerging technologies such as AI, blockchain and digital currencies.
There is also a more existential question of ideologies at odds with one another. The issue of Chinese companies with a strong symbiosis with the Chinese state competing in free market economies raises questions over matters such as fairness and data security.
Looking ahead to the aftermath of the pandemic, Triolo sees the way Beijing handles the DSR brand and the West's reaction to Chinese corporate expansions as "likely to cause dramatic shifts in areas including cyberspace governance, technology standards, and the development of alternative supply chains that include 'trustworthy vendors' based on their country of origin".
The perception of the DSR as a coordinated and integrated outreach programme by Chinese government has, for many, been overstated. There is clearly a lack of coordination and clarity across Chinese government agencies about the DSR concept, which may lead some to regard it as simply refracting existing geopolitical tensions to make it appear more of a threat than it actually is. Others, however, maintain the DSR is a stealthy infiltration of state-backed Chinese tech platforms into free market economies, a looming threat that must be contained.
Lara Williams is a senior reporter at Investment Monitor specialising in FDI in the tech and bio-pharma sectors. An experienced writer, Lara previously worked as deputy editor of the Financial Times's fDi Magazine. Lara has a background in technology journalism writing for the UK's Computing magazine and has spent much of the past decade living in Silicon Valley.
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