from Asia Unbound

Beijing's Silk Road Goes Digital

June 06, 2017

A man walks past an advertisement board showing the logos of Huawei and ZTE outside a mobile phone repair shop in Wuhan, China. Huawei and ZTE have been active participants in building the digital new silk road. Reuters/Stringer
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China

One Belt, One Road

Technology and Innovation

Rachel Brown is a research associate in Asia Studies at the Council on Foreign Relations.

The pageantry at last month’s Belt and Road Forum in Beijing highlighted the two major prongs of China’s Belt and Road Initiative: the Silk Road Economic Belt, which runs through Central Asia to Europe, and the 21st Century Maritime Silk Road, which runs through Southeast Asia, Africa, and Europe.  But a third prong of the initiative – the “digital new silk road” or “information silk road” – received less attention. Yet this component could generate significant consequences.

The idea of incorporating digital sectors like telecommunications, internet of things infrastructure, and e-commerce into One Belt, One Road (OBOR) is not new. The March 2015 white paper articulating the vision for OBOR called for growth in digital trade and the expansion of communications networks to develop “an information silk road”. A few months later, Lu Wei, then director of the Cyberspace Administration of China, told the China-EU digital cooperation roundtable that, “We can build a digital silk road, a silk road in cyberspace”. The concept even received a shout out in the joint communiqué from the recent Belt and Road Forum, with a pledge to support “innovation action plans for e-commerce, digital economy, smart cities and science and technology parks.” But outside the bland formulations of policy documents, what will the digital new silk road actually look like?

Many aspects of the concept are a natural extension of the “going out” policies pursued by Chinese telecommunications companies and could fill unmet needs for digital connectivity; greater connectivity could in turn open new markets for Chinese firms in e-commerce and other areas. But overall, the digital new silk road looks less like a cohesive concept and more like a catchall phrase applied to everything from earth observation projects at the Chinese Academy of Sciences to cell phone sales by Xiaomi. So are companies and officials simply paying lip service to Xi Jinping’s One Belt, One Road vision when they speak of the digital new silk road or is there the potential for something more? The three sectors below offer insights into the ambitions for – and possible pitfalls of – OBOR’s third prong:

1. Telecommunications and Satellites

In addition to new railways, ports, and power plants, another infrastructure priority under OBOR is improving “international communications connectivity” through “the construction of cross-border optical cables and other communications trunk line networks”. State-owned enterprises including China Telecom, China Unicom, and China Mobile have already embarked on OBOR-related projects and are building out the infrastructure to underlie the digital new silk road. Among the ambitious programs are the construction by China and Russia of overland cable links between Asia and Europe. Private companies like Huawei and ZTE have also gotten into the game with projects including a fiber optic cable network in Afghanistan.

In addition to cable networks, OBOR also offers the Chinese government a chance to encourage the adoption of its Beidou satellite network, a competitor to GPS, through a “space-based silk road”. The government aims to roll out basic services along the Belt and Road route by 2018 and the State Council Information Office is promoting Beidou’s use in everything from power transmission to transportation. Already, limited use of Beidou has been piloted in Karachi, Pakistan.

These new projects will not only enhance digital connectivity in underserved Central and Southeast Asian countries but also facilitate faster and easier to maintain data connections. However, telecommunications cables built by China and Russia could also lead to network splintering if countries seek to insulate their data from traveling through the United States or Europe due to surveillance fears. Additionally, while the expansion of the Beidou system could improve the accuracy of consumer satellite navigation, it could also squeeze foreign companies out of satellite navigation markets in China and certain OBOR nations. Beidou’s development could also have implications in the national security realm as the People’s Liberation Army improves its weapons and tracking capabilities.

2. Smart Cities

Another digital infrastructure frontier for Chinese firms is the construction of “smart cities”. Smart cities are broadly defined as urban areas that integrate information and communications technology to improve city operations in everything from traffic flows to water conservation to crime prevention. In recent years, ZTE and Huawei have expanded their efforts to supply smart city projects in OBOR nations such as Malaysia, Kenya, and Germany. Even China’s model smart city, Yinchuan, lies along the path of the path of the original silk road in a region now poised to benefit from new trade routes. Yinchuan offers citizens an array of innovative services including access to city information via QR codes and the ability to pay bus fares upon boarding through facial recognition software. Last December, ZTE’s chief information and strategy officer, Chen Jie, stressed the company’s commitment to sharing its smart cities know-how across the OBOR route. One of the company’s subsidiaries, ZTEsoft, has even co-opted the Belt and Road name for its new initiative the “Data Belt, Information Road”. The program will work with Singapore’s StarHub telecommunications to promote cross-border collaboration on smart city development, operations, and technology.

Such collaborations could help modernize cities, increase their efficiency, and promote greater standardization of technologies.  However, the increasing reliance of cities on technology also raises cybersecurity risks given the susceptibility of internet of things devices to hacking. Moreover, for countries with often tense relationships with China, there could be broader worries about depending on digital infrastructure supplied by Chinese firms. For example, the City of Pearl, a planned “city within a city” in Manila, is being touted as the largest OBOR project in the Philippines. The project aims to integrate artificial intelligence to regulate city functions, but will be built by the Hong Kong and mainland China-affiliated UAA Kinming Group, which could raise security concerns.

3. E-Commerce

Increased internet connectivity could also pave the way for more Chinese e-commerce sales along the Belt and Road route. Two of China’s e-commerce giants – Alibaba and JD.com – have already sought to link their global expansion to OBOR. According to Xinhua, JD.com plans to set up “more than 20 overseas warehouses to store and transfer goods from over 100 countries and regions including those along the Belt and Road Initiative.” Alibaba founder Jack Ma has cited countries along the OBOR route as among the most important regions for his company and plans further expansion in Russia, Central Asia, and Southeast Asia. This year, the company went even further and partnered with the Malaysian government to establish the first “digital free-trade zone”. The project will offer logistics and fulfillment capabilities as well as an online services platform. At the free trade zone’s launch, Ma argued that, “For human beings the first globalization was the silk road... today in the internet [age], I think we should transfer the silk road to an e-road”. This is a common refrain from Ma, who has argued for integrating standards and reducing trade barriers in e-commerce via an “electronic world trade platform”.

Ma’s dream of promoting greater global online trade is consistent with OBOR’s mission of expanding commerce along new routes. But despite their apparent enthusiasm, Chinese e-commerce firms could become disillusioned in certain Belt and Road nations as they face competition from local firms, infrastructure challenges, and regulatory obstacles. OBOR projects may smooth some existing challenges such as limited shipping routes and high-speed broadband access, but other impediments will remain including customs policies and a lack of trust regarding e-commerce fulfillment. Given these hurdles, companies may not make money right away. But Ma appears willing to play a long game with his international e-commerce ambitions, much like Chinese leaders themselves with the entire OBOR project. 

Surveying the digital landscape under the auspices of One Belt, One Road, many projects still appear linked by political rhetoric rather than a coherent strategy. But if the digital new silk road overcomes the challenges highlighted above and emerges as more than a catchy phrase, it will be an important step in knitting other countries into Chinese networks and could limit the influence of  the U.S. government and multinationals strategically and economically.

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