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China’s 'Digital Silk Road': Pitfalls Among High Hopes

https://thediplomat.com/2017/11/chinas-digital-silk-road-pitfalls-among-high-hopes/


Will information and communication technologies help China realize its Digital Silk Road?

By Wenyuan Wu

November 03, 2017

 

 

 

 

 

 

 

In his speech at the opening ceremony of China’s 19th Party Congress, President Xi Jinping depicted China as a model of scientific and harmonious development for developing nations. Xi’s China wants to engage the world through commerce but also through environmental protection and technological advancement. This includes Beijing’s efforts to fight climate change with information and communication technologies (ICTs) that it plans to export along its “One Belt One Road” initiative (OBOR). Xi may have ambitious plans, but could China be throwing up obstacles in its own way?

In his speech, the Chinese president emphasized the need to modernize the country’s environmental protections. The Chinese state is taking an “ecological civilization” approach to development and diplomacy, with a national research and development taskforce to study and combat air pollution. The government is also invested in upgrading Chinese industries to the medium-high end of the global value chain, increasing the economic input of advanced technologies such as ICTs. The three state-owned telecommunication companies (China Mobile, China Unicom and China Telecom) are planning to pour $180 billion into the world’s largest 5G mobile infrastructure over the next seven years to alleviate data traffic and facilitate productivity gains on a massive scale.

Beyond the domestic economy, new ICTs contribute to two major Chinese initiatives: leading the global fight against climate change and creating a “Digital Silk Road.” Innovative ICTs help create low-carbon, internet-based economies. The OECD finds utilizing ICTs in smart buildings, smart electricity grids, and smart transportation and logistics, among other uses, could reduce global greenhouse gas emissions by 15 percent by 2020 – equivalent to China’s annual emissions. In agriculture, ICTs are projected to reduce water needs by 250 trillion liters per year by 2030.

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China is keenly interested in ICT’s potential to boost productivity and reduce emissions; one policy paper estimates the ICT industry will provide 7 percent of China’s economic output and prevent emissions of 1.4-1.8 gigatons of CO2 by 2020. This interest is embodied in the Digital Silk Road and the role it plays as a component of OBOR.

The Chinese government believes in a principle of “equality and mutual benefits,” and the Digital Silk Road is meant to give Chinese telecommunications companies access to new markets along the Silk Road(s). By improving infrastructure in under-served Central Asian, Southeast Asian, and African countries, the initiative offers “mutual benefits” while showcasing Beijing’s green economic model.

For all its state backing, the Digital Silk Road is a public-private endeavor. In Africa, Chinese telecommunications giant Huawei has teamed up with the ExIm Bank of China to provide technical knowhow and over $1 billion of investments to enhance internet connectivity in Cameroon, Kenya, Zimbabwe, Togo, and Niger. In Uganda, Huawei launched its “Seeds for the Future” program in April to send talented college students to China for ICT training. In September, African and Chinese scientists attended a UN-organized forum in Nairobi, Kenya, where participants discussed applying ICTs to respond to climate change and natural disasters.

Closer to home, the public sector has sometimes taken the lead. In Bangladesh, the Chinese government pledged to invest in the Sarker-3 project to create a public network linking government agencies and the MoTN project to extend telecommunications affordability and density. These investments mesh with Bangladesh’s “Vision 2021” for mitigating ecological threats through digitization and diversification, an economic future referred to as “Digital Bangladesh.” Vision 2021 is one of several megaprojects prioritized by Bangladesh Premier Sheikh Hasina.

A big push on ICTs may help China lead the global community against climate change and create “a shared future for mankind,” as Xi said in his address. The problem? Engineered in a top-down fashion and reflecting political rhetoric, the Digital Silk Road ignores institutional weaknesses in underdeveloped partner countries.

Xi’s National Congress report reaffirmed China’s emphasis on “non-interference” in foreign policy and economic exchanges. In practice, this translates into indiscriminate ICT investments in countries where markets lack the discipline and regulatory environments to sustainably develop Chinese assets. For all their investments, Chinese companies will eventually find these export markets are not developing in the ways they hope. 

In Bangladesh, for instance, the national government has announced it expects to earn $1.3 billion from auctioning off 4G spectrum to mobile operators – attracting rebukes from experts who bemoan the high fees and insist on prioritizing access over profits. Over the long term, excessive airwave fees, spectrum utilization fees, and licensing expenses will only stifle development. Bangladesh already struggles with limited 3G coverage, much of it due to an overbearing regulatory regime. It now seems the country could repeat prior mistakes with its 4G network.

For Chinese telecommunications companies considering expanding into Bangladesh, weak digital infrastructure and considerable operating costs – exacerbated by an “unpredictable” regulatory environment – will nullify the ICT bridge Xi’s policies have forged between China and a lucrative neighboring market.

China’s ICT projects face another hurdle as well: rampant corruption. Bangladesh, Kenya, and Cameroon (among others) tied for 145th of 176 countries on Transparency International’s Corruption Perceptions Index; Zimbabwe came in at 154th. Corruption eats into profits and erodes business culture. The negative effects can be especially pronounced for Chinese ICT investments, as Chinese companies are new entrants to the global market and take their cues from the central government. Added pressure to secure market share could leave Chinese companies more exposed than their counterparts.

CCP leadership could be making matters worse with its desire to promote state-owned enterprises and a centralized system in outbound investments, as reinstated during the 19th National Congress. The deficiencies inherent in politicizing investment are magnified by weak governance, corruption and counterproductive regulations in Silk Road countries. Barring a course correction, neither Beijing nor its partners will see the economic returns they are hoping for.

Dr. Wu Wenyuan holds a Ph.D. in International Studies from the University of Miami and is an independent researcher based in Miami, Florida, U.S

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