China accelerates in tech race with US

Digital silk road helps Chinese tech dominate in Asia and Africa

The digital silk road has helped over 6,000 Chinese internet enterprises and 10,000 technology products move into overseas markets since 2015. It focuses on improving internet infrastructure, deepening space co-operation and developing common technology standards among participating countries. 5G telecommunication, fibre-optic infrastructure, satellite services and smart city projects in Belt and Road countries have all benefitted.

However, tensions with the US began to affect China’s technology sector in 2018. The US Bureau of Industry and Security called for public comments on sweeping export controls on a range of foreign ‘emerging and foundational technologies’. Huawei, one of China’s most prominent technology giants, was accused of stealing trade secrets  and faced restrictions, while being vilified as a dangerous influence by the US.

Despite penning commitments with China on technology transfers and intellectual property rights, under January’s phase one trade deal, the US remains anxious about Chinese technology firms.

China holds more than a fifth of the world’s artificial intelligence patents and has moved ahead in areas such as digital currency. China’s ‘military-civil fusion’ strategy of sharing technologies between its military and private sectors could accelerate its technological dominance over the US.

The US and China have strengths in similar technologies. The strongest segments of their IT services markets are cloud computing, data centre and hosting services, IT management, security, and storage. Business process applications have been the leading area in both countries’ software markets. Between 2014-18, China’s software, hardware and IT services market value grew 15%, 0.7% and 18% respectively. In the US, the same markets grew 11%, 0.3% and 16%.

The US launched a series of digital connectivity initiatives overseas, such as a $25m digital connectivity and cybersecurity partnership under its free and open Indo-Pacific strategy, to counter China’s growing technological influence in Asia-Pacific. In November 2019, the US established the blue dot network with Japan and Australia, to look at forming global trust standards in several sectors, including the digital realm. However, US technology firms have yet to participate heavily in these initiatives.

After Covid-19, Chinese technological dominance in Asia and Africa is not likely to recede. Chinese policy-makers and enterprises continue to collaborate on expanding key areas such as 5G. In February, China Mobile, China Telecom and China Unicom, alongside Huawei, released a 5G network industry paper and are set for further co-operation. Premier Li Keqiang, in May, declared that China will develop next-generation information networks and expand 5G applications across Belt and Road initiative countries. The US, on the other hand, has focused on curbing domestic technology firms’ links with Huawei.

The People’s Bank of China recently rolled out a pilot digital currency electronic payment system in four Chinese regions. Firms like Alibaba and Tencent, which focus on digital payments, have expanded into health surveillance apps for contact tracing and insurance. These create many commercial opportunities in financial and consumer markets, but they also have legal complications. Under China’s 2017 cybersecurity law, entities operating in sectors deemed critical may be required to store their data in Chinese territory.

As economies recover from Covid-19, efforts to engage with Chinese technology firms are likely to continue generating national security concerns. For international investors, developing a ‘military-industrial-legal’ perspective in handling cross-border technology deals may help firms to balance the economic potential of the digital silk road with these concerns.

Jia Hao Chan is Research Analyst, International Tech Relations at the National University of Singapore.

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