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​Networking the “Belt and Road” - The future is digital

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Innovation and the Digital Silk Road are moving to the forefront of Beijing’s efforts to develop the Belt and Road Initiative (BRI). President Xi Jinping’s speech at the Second BRI Forum in April 2019 spoke of cooperation in the digital economy and innovation-driven development as priority areas for the BRI. The accompanying policy report “The Belt and Road Initiative Progress, Contributions and Prospects” echoed these sentiments.  

Yet, the digital aspect of China’s international profile has become its most controversial, in the wake of US-led security concerns about the trustworthiness of Huawei as a provider of fiber-optic cables and 5G networks. In response to concerns over security risks, Australia has provided a cheaper alternative to replace the Chinese technology company in construction of an undersea fiber optic cable link to the Solomon Islands. In Europe, the UK and the Netherlands have decided to limit Huawei equipment to non-core parts of their 5G telecoms networks

Beijing has greatly expanded the scope of the Digital Silk Road 

What does the digital side of the BRI actually consist of? The Chinese government has greatly expanded the ambition and scope of the Digital Silk Road from its early focus on fiber optic cables, as described by the National Development and Reform Commission in a paper called “Vision and Actions”, and space industry-related projects.  

Taking account of Beijing’s updated policy goals, the MERICS BRI Tracker database covers infrastructure – meaning cables and network equipment, including 5G – plus data and research centers, smart city projects, and large e-commerce and mobile payment deals (a small selection of relevant entries is shown in the map below). 

Our database shows Chinese entities have provided more than USD 17 billion for Digital Silk Road projects completed since 2013: 

at least USD 7 billion in loans and FDI for fiber-optic cable and telecommunication network projects completed since 2013  

more than USD 10 billion for e-commerce and mobile payment deals  

for smart and safe city-related projects, at least several hundred million USD 

for data and research centers, the available information is too limited to make an estimate.  

Total FDI and loans on Digital Silk Road projects lag behind China’s spending for energy projects, but the amount is growing fast, in line with the rising importance of the IT sector for the Chinese economy. We believe our calculations are conservative, given the lack of data and transparency around financing for a high proportion of the projects surveyed.  

Three main motivations drive the Digital Silk Road:  

the wider BRI push to help Chinese companies become global champions 

Beijing’s ambition to achieve broadly defined high-tech leadership 

 the explicit goal of spreading China’s homegrown cyber norms and standards by leveraging the strength of its IT sector. 

China’s fiber optic cable and telecommunications equipment industries got clear market share goals in the “Made in China 2025” industrial strategy. Beijing has since aided their international expansion with policy support and massive lines of cheap credit.  

Thriving Chinese tech giants are called upon to support the BRI  

As with BRI energy and transport projects, the China Development Bank (CDB), the Export-Import Bank of China (EXIM) and state-owned commercial banks have provided most funding for ICT hardware projects. For instance, India’s telecom operator Bharti Airtel received USD 2.5 billion and Russia’s Rostelecom USD 600 million, in part to purchase Huawei and ZTE equipment. Another concessionary loan allowed for Huawei Marine’s realization of the 6,000-km South Atlantic Inter Link (SAIL) fiber-optic cable connecting Cameroon to Brazil for a China Unicom-led consortium with a Cameroon partner. 

Meanwhile, the State Council’s “National Informatization Strategy” (2016 - 2020) called upon China’s thriving private tech giants of the digital economy – Alibaba, Tencent and Baidu – to support the Digital Silk Road while becoming global leaders in areas like e-commerce and mobile payments.  

The recent official BRI progress report also speaks of other areas including smart city projects, cloud computing and big data. Expansion in these sectors is politically supported, but state financing for them is not comparable to the hardware projects. Southeast Asia was an early focus and particular target for expansion: Alibaba has invested USD 4 billion in online marketplace Lazada, and Ant Financial’s Alipay has been rolled out in eight countries. 

After Xi Jinping’s call for China to become a “cyber superpower”, the CCP’s “Office of the Central Cyberspace Affairs Commission” depicted China’s tech giants’ growing global market share, the spread of Chinese standards, and increasing influence on discourse and legal norms as part of the same effort. The normative side of China’s vision – promoted at the annual World Internet Conferences in Wuzhen and at the UN – is centered on what it calls “cyber sovereignty,” strong data localization requirements and censorship. As part of its diplomatic outreach, China also formed a digital economy cooperation initiative with seven other countries – including aspiring EU member Serbia – and signed Digital Silk Road cooperation agreements with 16 countries overall. 

China’s Digital Silk Road challenges European norms and businesses  

Chinese activities related to the Digital Silk Road make an important contribution to providing Internet access to more communities in developing and emerging economies; quite in line with European efforts to do so. Chinese ICT infrastructure financing in Africa surpassed the combined funds from multilateral agencies, G7 nations and the African countries themselves in 2015 and 2017, with annual funding surpassing USD 1 billion.  

However, China has simultaneously buttressed the spread of digital authoritarianism and is mounting a normative challenge to EU regulations and European norms that support Internet freedoms and multi-stakeholder governance. Authoritarian governments have often received hi-tech surveillance technology - sometimes in the context of smart city projects - that they might otherwise have not been able to afford. As a result, their position is bolstered, and their control and suppression of society strengthened.  

Beijing is seeking to make diplomatic allies in its quest to shape international cyber norms, particularly via two UN-mandated working groups (the Group of Governmental Experts and the Open-Ended Working Group). Ultimately, China’s politics in these (and other) matters underlie the lack of trust that has turned the role of its companies in European critical ICT infrastructure into such a controversial issue. 

China provides generous state aid to support its geo-political vision. On top of project-related policy bank funding, state-owned banks gave companies like ZTE and Huawei generous concessionary credit lines amounting to USD 20 - 30 billion in the years prior to the BRI. Under the Digital Silk Road umbrella, they have often been able – when deals were not directly subsidized by Chinese loans to recipient countries – to offer equipment up to 30 – 40 percent cheaper than that provided by Western suppliers. This is a huge challenge European companies will have to prepare for.


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