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The great instability of digital disruption (I): China’s digital belt & road initiative

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Summary

  • Covid-19 has given China an opportunity to advance its Belt and Road Initiative (BRI) in digital form, which could become a global disruptive force by strengthening China’s economic transformation and altering the global economic and political dynamics.
  • The pandemic has laid bare the inequalities of the digital divide between the rich and poor nations. China’s digital BRI expansion can provide these nations with the much needed capital and technology to combat diseases and spur growth. But it could also enhance China’s global influence.
  • The digital BRI reinforces China’s strategy of drawing its neighbours towards its economic embrace and complements its “dual circulation” policy. This development will create geopolitical tensions, but it will also open up new global investment and growth opportunities; watch ASEAN.

China’s digital Belt and Road Initiative (BRI), a rebranding of the existing BRI, will help further its economic and political influence by facilitating its internationalisation process and will, thus, consolidate President Xi Jinping’s “Chinese Dream” to make China a global force, eventually that is. The process, however, will inevitably disrupt the global system by reshuffling the global power balance.

The Covid-19 shock has threatened China’s BRI by choking off its equipment supplies and workers for the projects and forcing many developing nations into economic crisis and debt distress. China has, thus, redirected its energies to the BRI’s digital development by sharing Chinese artificial intelligence (AI) technology for digital diagnostic systems, monitoring solutions and medical supplies with the partnering countries to fight the pandemic.

The two components advancing the digital BRI are the Digital Silk Road and the Health Silk Road. They were launched in 2015 and 2016, respectively, but the pandemic has accelerated their development. By drawing the developing nations closer to China’s economic and technology embrace, the digital BRI could help further China’s economic and political interests, including renminbi internationalisation, to counter the external exigencies and global demand shift that Beijing’s “dual circulation” framework seeks to counter [1].

LINKING THE DIGITAL SILK ROAD TO THE HEALTH SILK ROAD

The Digital Silk Road (DSR) aims at improving the recipient countries’ telecommunications networks and digital technologies, including AI capabilities, cloud-computing, e-commerce, surveillance technology, mobile systems, smart cities and other digital economic areas[2]. It is also part of China’s dual circulation policy by seeking cooperation with Asia on the digital economic and medical aspects. The latter is manifested in the Health Silk Road (see below), where China has established a China-ASEAN public-health cooperation mechanism to combat infectious diseases.

Some estimates suggest that a third of the BRI participating countries are working with China on DSR projects[3].
Notably, Africa, the Middle East, and parts of Eastern Europe, Latin America, and Southeast Asia desperately need affordable and reliable technology to expand broadband internet coverage and communications networks.

The pandemic has widened the inequality of the digital-divide between the poor and rich nations. China’s DSR related investments has helped fill the poor nations’ need and can spark economic growth by providing them with critical techno infrastructure.

However, much of the debate in the West[4] about China’s digital BRI has focused on the risks of espionage and surveillance[5] while the digital cooperation and development aspects have not been discussed. China’s digital expansion has only become a serious concern since the Sino-US trade war started in 2018. But China’s information and communications expansion to the developing world actually started in the late 1990s, with Chinese tech giants Huawei and ZTE building much of Africa’s digital infrastructure.
By 2017, China’s digital financing in Africa surpassed the combined funds from African governments, multilateral agencies and the G7 nations[6]. The African Union[7] also launched in 2017 the Smart Health Monitoring Room using ZTE technology. Chinese e-commerce and Fintech platforms have also focused their expansion in Southeast Asia through the DSR.

In other words, China has been paving the way for the developing countries to use Chinese technology while the West has been ignoring them. The pandemic has increased the developing world’s acceptance of and demand for Chinese telecommunications and surveillance tools for fighting the coronavirus. This has enabled Beijing to link the DSR to the Health Silk Road (HSR)[8], which is an informal global health cooperation on infectious disease prevention and information sharing, medical assistance and traditional medicine development[9].
Under the HSR, China has pledged to send Covid-19-related equipment and medical assistance to foreign partners and make Chinese vaccine a “global public good” by joining COVAX – the vaccine partnership that aims at subsidising vaccine access for poor countries and ensure equitable global distribution. At the time of writing, the US is still not part of COVAX.
Due to a scarcity of homegrown coronavirus cases, the Chinese sent their vaccines to partner institutions overseas for third phase trials, with at least 16 countries participating as of the end of 2020. Many of them have worked out agreements with their Chinese counterparts to purchase doses or manufacture the vaccine for local distribution, thus extending China’s influence through the HSR.

THE GLOBAL DISRUPTION

The DSR-HSR combo is a cheaper and more efficient way for China to expand the BRI than its traditional form of capital-intensive infrastructure options. It could also allow China to raise its national image on the global stage and leverage on the increased influence to challenge the existing global powers[10].
Furthermore, the digital BRI could boost China’s export of digital surveillance technologies to countries that seek to fight Covid-19 by monitoring quarantines and sorting populations in an effort to safely restart local economies.

This will increase China critics’ worries about the risks of espionage and abuse of surveillance capabilities. All these will create geopolitical tensions. But there is also a technological aspect of the disruption, which will affect the future landscape of the global tech industry and its supply chains. To the extent that the DSR helps recipient countries to better manage their digital communications networks[11], which data management, filtering and content surveillance are part of the process, it might accelerate a fracturing of the global internet[12] in two ways: 1) an internet bifurcation into a Chinese-led system and a non-Chinese internet led by the US[13], and 2) a difference between tech-management policies adopted by those countries that use the Chinese system and those that do not[14].

Digital transformation does spur economic development. China sees its burgeoning digital economy as a success story for sharing with other countries. Thus its effort on expanding the digital BRI will only intensify, though it will not be smooth sailing along the way. Geopolitical tensions will rise, but so will a new investment and growth landscape.

A NEW GEOPOLITICAL LANDSCAPE

Arguably, Covid-19 will transform global politics and the foreign policy priorities of many countries[15]. For China, its digital BRI will provide an increasingly important policy frame to increase its influence on the health governance of the developing world, Asia in particular, and direct BRI investments to basic public health and enlarge its role in the supplies of medical products and services.

Even before the pandemic, China supplied the world market almost half of the basic personal protective equipment[16], such as surgical masks and gloves, respirators, protective garments and medical googles and shoe covers. Its export of these supplies will not only be crucial for the poor nations to fight Covid-19 and other diseases but will also help Beijing claim regional, or even global, leadership in health governance, especially when the West is lagging behind China in Covid-19 management.

Thus, China will likely continue to expand its global medical supply chain and investment through the Health Silk Road and make inroads into manufacturing and exporting sophisticated medical products. The developing nations’ limited manufacturing capabilities of these medical products and their acceptance of Chinese technology will facilitate China’s expansion into producing basic health equipment in the industrial parks that have already been built under the BRI. This expansion, in turn, will help China establish a central role in the regional and global medical supply chains.

ASEAN TO BENEFIT

Rising Sino-US tension and wariness in the developed world of dependence on China’s protective gear and basic medical supplies have made Southeast Asia, ASEAN in particular, an ideal destination for China to offshore the production of its medical equipment and supplies. ASEAN is going to be a crucial region for China’s digital BRI expansion as it has been for the traditional BRI[17], especially when these countries have received China’s medical assistance and advice during the Covid-19 crisis.

China will engage the region with a multi-aspect approach to accommodate the different stages of economic development of these countries. Poor countries may get more Chinese assistance, trade and investment in the construction of basic public health infrastructure, while rich economies will get more scientific exchange and management cooperation through health professionals and scientists.

The purpose is to integrate the digital functions in the different countries’ healthcare systems. This will not only make them more efficient but also promote China’s digital health and biotechnological standards and, hence, increase its regional influence. This is exactly China’s new world view under its dual circulation policy that sees its internal circulation sit in the centre of Asia, engaging regional and global capital, financial and technological markets for enhancing domestic growth and driving regional growth[18]. Ultimately, all this reveals Beijing’s BRI vision to draw China’s neighbours closer to its economic embrace as a long-term development strategy to counter external exigencies and global demand shift[19].

Chi Lo, Senior Economist
BNPP AM

 

1 See “Chi on China: China’s “Dual Circulation” Strategic Pivot to Counter External Exigencies and Global Demand Shift”, 16 September 2020.
2 “The Digital Silk Road: Expanding China’s Digital Footprint”, Eurasia Group, 8 April 2020 https://www.eurasiagroup.net/files/upload/Digital-Silk-Road-Expanding-China-Digital-Footprint.pdf
3 “China’s Digital Silk Road: The Integration of Myanmar – Analysis”, Eurasia Review, April 30, 2019 https://www.eurasiareview.com/30042019-chinas-digital-silk-road-the-integration-of-myanmar-analysis/
4 “Networking the “Belt and Road” – The Future is Digital”, Mercator Institute for China Studies, August 28, 2019 https://merics.org/en/analysis/networking-belt-and-road-futuredigital#:~:text=Innovation%20and%20the%20Digital%20Silk,and%20Road%20Initiative%20(BRI).&text=In%20Europe%2C%20the%20UK%
20and,of%20their%205G%20telecoms%20networks
5 “African Union Bugged by China: Cyber Espionage as Evidence of Strategic Shifts”, Council on Foreign Relations, March 7, 2018 https://www.cfr.org/blog/african-union-bugged-china-cyber-espionage-evidence-strategic-shifts, and “Huawei Ban Timeline: Chinese Company Reportedly Considers Selling Some Phone Brands”, CNET, January 25, 2021 https://www.cnet.com/news/huawei-ban-fulltimeline-us-sanctions-china-trump-biden-5g-phones/
6 “Infrastructure Financing Trends in Africa – 2017”, The Infrastructure Consortium for Africa, 2018 https://www.icafrica.org/fileadmin/documents/Annual_Reports/IFT2017.pdf
7 The African Union was set up in 2002 and contains 55 member countries in Africa.

8 “Mapping China’s Health Silk Road”, Council on Foreign Relations, April 10, 2020 https://www.cfr.org/blog/mapping-chinas-health-silkroad
9 “Toward a Health Silk Road – China’s Proposal for Global Health Cooperation”, by Cao Jiahan, China Quarterly of International Strategic Studies, Vol.6, No.1, pp.19-35 https://www.worldscientific.com/doi/epdf/10.1142/S2377740020500013
10 “China’s Surveillance Tech is Spreading Globally, Raising Concerns about Beijing’s Influence”, CNBC, October 8, 2019 https://www.cnbc.com/2019/10/08/china-is-exporting-surveillance-tech-like-facial-recognition-globally.html
11 “Beijing Exports ‘China-style’ Internet Across Belt and Road”, Nikkei Asia, October 21, 2019 https://asia.nikkei.com/Spotlight/Belt-andRoad/Beijing-exports-China-style-internet-across-Belt-and-Road
12 “The Splinternet Is Growing”, Fortune Magazine – Tech, May 29, 2019 https://fortune.com/2019/05/29/splinternet-online-censorship/
13 “The Internet, Divided Between the U.S. and China, Has Become a Battleground”, The Wall Street Journal, February 9, 2019 https://www.wsj.com/articles/the-internet-divided-between-the-u-s-and-china-has-become-a-battleground-11549688420
14 “Will the Battle Over Huawei Kill Globalization?” SupChina, February 21, 2020 https://supchina.com/2020/02/21/will-the-battle-overhuawei-kill-globalization/

15 “COVID-19, Belt and Road Initiative and the Health Silk Road: Implications for Southeast Asia”, by Ngeow Chow-Bing, Friedrich Ebert Stiftung, October 2020 http://library.fes.de/pdf-files/bueros/indonesien/16537.pdf
16 “COVID-19: China’s Exports of Medical Supplies Provide a Ray of Hope,” by Chad P. Brown, Peterson Institute for International
Economics, March 26, 2020 https://www.piie.com/blogs/trade-and-investment-policy-watch/covid-19-chinas-exports-medical-suppliesprovide-ray-hope
17 See “Chi on China: Mega Trends of China (3): The Belt and Road Strategic Plan”, 13 January 2016.
18 See reference in footnote 1.

19 See “Chi on China: Mega Trends of China (4): The Future of the Renminbi (part 1) – You May Not Like it, But You Cannot Ignore It”, 8 June 2018.

 

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