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The digital side of the Belt and Road Initiative is growing

The Economist -

The digital Silk Road

Many believe it is where much of the rivalry over the plan will play out in future

Special reportFeb 6th 2020 edition

Feb 6th 2020

ONE TROPICAL evening in November, the 9,800-tonne Ile de Bréhat slipped from the quay at Honiara, capital of the Solomon Islands, and steamed out of Iron Bottom Sound. For weeks the boat had been a familiar sight as it finished its job of laying 4,700km of fibre-optic cable from Sydney to Honiara on Guadalcanal and 730km among the main outlying islands, with another branch heading to Port Moresby, capital of neighbouring Papua New Guinea. Less than a fifth of Solomon Islanders have access to the internet. The Ile de Bréhat is about to transform more lives than any ship since the Los Reyes, the first European vessel to discover the islands, in 1567.

Two-thirds of the $93m cost of the Coral Sea Cable System was borne by the Australian government. It got wind that China was proposing to do the job, led by Huawei, China’s telecoms giant. Australian intelligence types view Huawei as a national-security concern. Australia is also the biggest donor to Pacific Island nations and is used to being top dog in its backyard. It told leaders in Honiara and Port Moresby that Huawei was not to be considered.

Yet Australia has taken its eye off the Pacific in recent years, as China has stolen a march. Two-way trade with the Pacific has grown tenfold, from under $1bn in 2005 to over $8bn in 2018. Chinese tourists to the region jumped from under 4,000 a year a decade ago to more than 140,000 in 2017. China’s leaders extol the potential for BRI co-operation with Pacific nations. A “new Pacific diplomacy” has gathered pace since President Xi Jinping made his first trip to the region in late 2014. Pacific Island leaders frequently head for China.

When Australia’s security establishment woke up to the growing Chinese presence, it did so with alarm. Australia had its way over Huawei. But just weeks before the Ile de Bréhat departed (and days before the 70th anniversary of the founding of the People’s Republic of China), the new Solomon Islands government switched diplomatic allegiance from Taiwan to China—as, too, did the atoll nation of Kiribati. The switch was accomplished with offers of bribes to MPs and, according to Graeme Smith, of the Australian National University, a $500m package of loans and grants dangled by a Chinese state enterprise before the prime minister.

Huawei’s loss, in other words, is just one battle in a larger contest. Increasingly, the digital Silk Road, which Mr Xi declared at the second BRI forum last year to be a priority for co-operation, is gaining prominence. China, he says, must become a “cyber superpower”. That is fast becoming the most controversial aspect of the BRI too, as security concerns in the West grow over Huawei’s provision of fibre-optic cables and 5G networks.

Digital spending along the belt and road still lags that on energy and other hard-infrastructure projects. But, as the Mercator Institute for China Studies in Berlin points out, it is growing fast. The institute has tracked at least $7bn in loans and investment in cables and telecoms networks, over $10bn on e-commerce, mobile payments systems and the like, and more on research and data centres. The digital dimension has expanded hugely from an initial focus on fibre-optic cables to cloud computing, big data and “smart city” projects.

The approach, both with top-down guidance and bottom-up buccaneering, resembles the rest of the BRI (not least in the vagueness of the Silk Road terminology used). Most of China’s tech giants, such as Huawei, Alibaba and Tencent, are private firms and are more entrepreneurial than the state behemoths. But close links to the Communist Party and powerful financial incentives keep their activities aligned with state priorities—and help them to become global champions. Chinese banks provide funding, as they do to more traditional infrastructure companies. It was a concessionary loan that allowed Huawei to lay a 6,000km fibre-optic cable across the Atlantic, between Brazil and Cameroon.

For China, it is not just a question of fostering world-beaters in high-tech. It also wants to encourage the wider adoption of homegrown cyber norms and standards. For instance, fintech brands like WeChat Pay and Alipay can help to internationalise the yuan and establish cross-border payments infrastructure to compete with SWIFT, the American-led system which currently dominates. Undersea cables and cloud computing could provide user data around the world, boosting China’s efforts to surpass America in artificial intelligence.

While cheaper telecoms and easier ways to pay are welcome, China’s digital initiatives concern those who care about open societies. First, along with Chinese standards some countries are also signing up to its digital authoritarianism. In setting up telecoms systems, Huawei and others happily help states snoop on communications. Without its citizens’ consent, Zimbabwe supplies data to China’s facial-recognition programmes. That is one reason to predict that rivalry over BRI will in future play out more in the digital realm than in the world of concrete. A second is that, in tech, a small handful of huge firms dominate. The next 4bn internet users are a huge prize, one which China thinks it has a shot at winning.

A final reason is that, even more than other dimensions, the digital one lends itself to dual-use possibilities. For instance, the global version of Beidou, China’s answer to America’s GPS, will launch this year, and will increase China’s surveillance and its military command-and-control capabilities. Beidou requires a network of ground stations around the world, for which China needs friendly states. For Mr Xi the Marxist, technology is, as Julian Gewirtz of Harvard University puts it, “power in practice...historical change in material form”. Many believe China intends the digital Silk Road to be the main stage on which the BRI plays out in future. The question is whether the West will let it.

The answer will come in part from how Europe handles the challenge. In places the digital dimension China is pushing is indistinguishable from the others. For instance, Huawei’s 5G proposals for Greece are pitched in part to help drive the next phase of the logistics transformation under way at Piraeus port, which Mr Xi calls the “dragon’s head” of Chinese investment in Europe.

Last year Greece became the first western European country to join the 16+1 (now 17+1), a group of central and eastern European countries happy to work with Beijing. China’s influence over this group is a source of growing concern in Brussels as lines harden over Huawei’s future involvement in 5G. Europe’s biggest states are agonising over whether to let Huawei develop 5G, or ban it and face China’s wrath. America may insist that any compromise, in which Huawei is excluded from core parts of the 5G system, is unworkable. It is hard to imagine the EU splitting with America on such a profound matter—and the new government in Greece under Kyriakos Mitsotakis is more Western-friendly than its predecessor. But it is clear. The digital battle lines are about to be drawn.■

China's Belt and Road return to centre

China’s flagship foreign policy aims to put itself at the centre of the world once again

Chinese investment in Eurasia is not always smooth

China is making substantial investment in ports and pipelines worldwide

How the Belt and Road Initiative got its name

The digital side of the Belt and Road Initiative is growing

Will China sit again at the heart of its own cosmos?

Sources and acknowledgments

This article appeared in the Special report section of the print edition under the headline "The digital side of the Belt and Road Initiative is growing"


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