The “Digital Silk Road” (DSR) was introduced in 2015 by an official Chinese government white paper, as a component of Beijing’s Belt and Road Initiative (BRI). For years, it has been less an identifiable set of projects as much as it was a brand for virtually any telecommunications or data-related business operations or product sales by China-based tech firms in Africa, Asia, Europe, Latin America, or the Caribbean — home to the 100+ “BRI countries.”
Since the DSR was announced, self-proclaimed DSR projects have enjoyed substantial support from state entities as part of the BRI, which is a top policy priority of China’s leadership. Yet such support most often did not occur with the degree of coordination that Beijing has projected and foreign observers have feared. Indeed, years of Chinese tech sector growth in emerging markets preceded the DSR, and some of these efforts were only recently branded as part of it. But Beijing’s coordinating role in the DSR appears is set to grow.
As the DSR arguably faces greater headwinds now than at any time in the once-loosely-organized initiative’s five-year history, Beijing will likely double-down, setting the stage for a longer-term struggle over how telecommunications, data, financial, and other networks are built and governed, and how technical standards for these networks are set.
Until now Digital Silk Road has been less top down effort…
Official statements and documents could lead one to believe that rooms of cadres are organizing the international expansion decisions of Chinese tech conglomerates. During the state-sponsored Belt and Road Forum last April, which included a sub-forum on the DSR that attracted major attention, official media claimed that the DSR “not only promotes the development of the digital service sector, such as cross-border ecommerce, smart cities, telemedicine, and internet finance, but also accelerates technological progress including computing, big data, Internet of Things, artificial intelligence, blockchain, and quantum computing.” This sweeping statement implies that all things technology related were being coordinated through a state-sponsored DSR.
Against this rhetorical backdrop, some analyses treat the DSR as a tightly-orchestrated, top-down plan. The reality is more nuanced. Beijing wants Chinese companies to participate in building many more pieces of financial, information, and telecommunications networks globally, with the goal of increasing China’s overall capacity to participate in international technology standards setting and governance norms bodies. But both before and after the DSR was launched, normal global business expansion by Chinese ecommerce, smart infrastructure, and social media companies has coincided with overseas projects heavily supported by Beijing. Making matters more complicated, from the perspective of Chinese tech executives, branding international activities as part of the DSR even in the absence of state support has become a must-do – akin to embracing “political correctness.”
Another misperception of the DSR is that it is a masterplan by Beijing to deploy its “techno-authoritarian” model to countries along the BRI. Certainly, Chinese companies export facial recognition technology and privacy-invasive cyber infrastructure that is used in emerging market countries — yet deployment of these technologies in emerging markets is very much a demand-driven phenomenon. The DSR relates to these trends in that Beijing is seeking (paywall) to align global technology standards developed by bodies such as the International Telecommunication Union (ITU) with proprietary technologies used by Chinese suppliers — an effort that is easier if countries are already using made in China technology. This would give Chinese firms an advantage over competitors also working to meet this demand.
In short, the DSR until recently was an all-encompassing term applied by the China’s public and private sector leaders to telecommunications and other data and connectivity projects in countries that are nominally part of the BRI. Some DSR projects have received heavy state-backing; some, none at all.
…but Beijing’s focus and influence is poised to grow
Although not a perfect analogy, the DSR today can be understood as a franchise business. Projects self-brand as part of the DSR to score political — and perhaps financial — support from Beijing, while the the state, is not too involved in day-to-day operations, although it can and does intervene to advance its strategic objectives. Some projects are, however, highly state-influenced — akin to corporate-owned stores. The number of these will likely multiply in the year ahead.
Large-scale traditional BRI infrastructure projects until recently received much more attention than the DSR, but in the future, top Chinese leaders will be keen to leverage distinct advantages that the country’s tech firms have relative to international competitors, particularly in areas such as next generation infrastructure, including fifth generation (5G) mobile and cloud services. Hence, while assessing what the DSR actually constitutes has been challenging, the general outlines of how Beijing will view the DSR strategy in the year ahead is coming into sharper focus.
Across emerging markets as well as Asian and European developed economies, Beijing will invest resources to help its domestic tech giants pursue commercial business opportunities and be involved at all levels of the digital infrastructure build along the DSR: fiber-optic and mobile equipment infrastructure, telecommunications carrier services, and over-the-top providers of applications services.
Businesses will increasingly fall in line with this policy objective, particularly because Xí Jìnpíng’s 习近平 focus on technology self-reliance and R&D in key sectors neatly aligns with such DSR projects. Yet despite these developments, the DSR will remain a franchise effort with individual businesses continuing as the main drivers of the initiative, using the DSR label to gain policy support, such as loans to subsidies, to pursue overseas commercial expansion. Nevertheless, Beijing is poised to dramatically increase both financial support for and its leadership role over the DSR initiative in the coming year, creating a complex operating environment for DSR-aligned companies.
The Digital Silk Road is running up against regulatory frameworks and pandemic backlash
Indeed, growing domestic pressure on DSR-branded China tech companies to align with explicit state policy objectives will create political pressures abroad that are bad for business.
Throughout the early 2000s, well before DSR entered the lexicon, Huawei and rival ZTE and their subsidiaries were building telecommunications infrastructure, laying fiber optic tables, erecting data centers, and constructing and integrating mobile networks for carriers around the world with little fanfare — and much success. Security camera and airport scanner companies such as HikVision and NucTech were also quite internationally active, having only recently “joined” the DSR. And even after Beijing’s DSR embrace, a host of domestic tech players expanded globally primarily for the sake of profit rather than geopolitics — these include ecommerce, cloud services, and payments giants Alibaba, Ant Financial, Tencent, and JD.com in southeast Asia and Europe (see Eurasia Group white paper here for more detail), social media entrants like Bytedance/Tiktok in Asia and the U.S., smart device makers Transsion, Oppo, OnePlus, and Xiaomi in Africa and southeast Asia, and drone makers DJI and XAG in the U.S., Asia, southeast Asia, and Latin America.
Now, these and other China-headquartered companies’ overseas activities self-branded or labeled as part of the DSR are facing pushback abroad thanks to Beijing’s increasingly overt influence over these companies and its ambitious rhetoric surrounding the BRI/DSR. The uncertain global public health and economic impacts of the coronavirus crisis stand to accelerate this trend, having materially worsened China’s relations with the U.S. while increasing the likelihood that Washington and EU countries will intensify efforts to constrain China’s technological influence.
These developments would come on top of major policy changes already implemented across North America, Australia, and the EU designed to curb China-headquartered companies’ investment in key technology sectors and limit the ability of Huawei, ZTE, DJI, and state-owned carriers to operate in these markets. Moreover, intensifying strategic competition between the U.S. and China has lent new momentum to a U.S. whole-of-government effort to curb the use of technology built or maintained by leading Chinese tech firms. Initiatives such as the global anti-Huawei 5G campaign and the new Indo-Pacific focused Digital Connectivity and Cybersecurity Partnership (DCCP) threaten the ambitions of Chinese policymakers to exert more influence over technology ecosystems abroad, particularly along the DSR.
Making matters more complicated are recent changes to China’s own laws and administrative regulations — such as the 2016 Cybersecurity Law — which run afoul of international best practices in key areas such as data governance. Big DSR-branded tech players such as Alibaba, Tencent, and Huawei, all claim that key elements of their businesses, such as cloud services and payments, are in alignment with Europe’s General Data Protection Regulation (GDPR). But in the near-term, China is unlikely to pursue an adequacy agreement with the EU, and lacks key elements that would be required, such as an independent data protection authority. While this issue may become important in Europe over the next year, it will be less so in the core countries of the BRI/DSR, particularly across central Asia and Africa.
Overall, the DSR dynamic post-pandemic will be different than that of the BRI as a whole. As a Rhodium Group analysis finds, large-scale BRI lending was already becoming more conservative before coronavirus, a trend that will likely continue even as Beijing takes advantage of opportunities generated by the pandemic to play a “savior role.” For the DSR, however, effects of the pandemic will be two-sided. Countries along the BRI will need more digital infrastructure that “Team China” is well-positioned to provide as self-distancing workers and students require more broadband access. Yet at the same time, concerns about overreliance on China-headquartered companies and security fears over surveillance and data handling, which existed pre-pandemic, will continue to limit the growth of Chinese tech companies in some foreign markets. Beijing’s increasingly nationalistic rhetoric and increasing financial support for the DSR will only exacerbate these concerns.
Looking ahead: Digital Silk Road likely to become key element of Beijing’s technology policy
Ultimately, the impacts of the pandemic on how the DSR is managed by Beijing and reacted to abroad will likely cause dramatic and perhaps irreversible shifts in cyberspace governance and telecommunications standard-setting.
For the last five years, Chinese firms such as Huawei have played a significant role in setting global technology standards for 5G and building out mobile infrastructure via bodies like the ITU. Other Chinese firms are eager to follow suit and contribute more to the global standards-setting process, which would help advance Beijing’s vision of a more China-influenced technology stack. But the US government and some data privacy advocates believe that greater involvement by Chinese companies in multilateral technology standards-setting efforts could materially alter the course of global norms in ways the US and other democracies would not support. Effective global standard-setting that balances this tension with Beijing’s stated ambitions of the DSR appears to be increasingly difficult.
Instead, geopolitical trends brought about by the pandemic and Beijing’s accelerating support for DSR-branded projects could over time put greater pressure on existing internet governance frameworks and technology standards-setting processes. As BRI countries look to boost digital infrastructure capacity, Team China’s tech conglomerates will enjoy significant state support to meet this demand as state organs seek to kick-start economic growth and bolster geopolitical influence in response to efforts such as the DCCP. As their relationship with the US worsens and global criticism stemming from its pandemic response grows, Chinese technology industrial policy officials will increasingly consider abandoning cooperation with U.S., European, Japanese, and South Korean entities to develop global tech norms, and instead, pursue a separate technology stack, replete with its own standards-setting process that includes a subset of BRI/DSR countries, for example.
As this scenario plays out, the “DSR franchise” morphs into a publicly traded company corporate giant, with Beijing as the controlling shareholder, but emerging market governments holding seats on the corporate board. Chinese officials would increasingly view BRI in general and the concept of the DSR in particular as providing a potential and ready channel for deploying a technology stack that hews closer to Beijing’s concept of data and digital sovereignty. DSR projects both aligned and detached from Beijing’s geopolitical ambitions would carry on in emerging markets, but Chinese tech companies would exit the markets of countries that do not align with its vision altogether — indeed, large tech players such as Alibaba, Tencent, and Huawei have already basically abandoned the U.S. market. A fight for spheres of cyberspace influence within various emerging markets would accelerate, and two competing models of cyberspace would emerge as faith in international norm-setting bodies breaks down.
China’s worries about U.S. tech dominance
Already, concern about the dominance of large U.S. tech platforms and existing cyberspace governance is a regular theme at the annual World Internet Conference (WIC) sponsored by Chinese cyber agencies in Wuzhen, where DSR and BRI countries are well represented but the US and EU government presence is minimal. Chinese organizations have increased collaboration with the ITU on topics addressed at the conference, including Internet governance. The key theme of the WIC is “cyber sovereignty,” whereby nation-states maintain significant degrees of autonomy to control governance over and the content of cyberspace within their borders.
As one example of what the future might hold, Beijing last week launched the Blockchain Services Network (BSN), an ambitious effort to provide a low-cost platform for developing blockchain-based applications. The six-month pilot — grounded in BRI rhetoric — took place not only in mainland China, but in Singapore as well. Branded in state media as a “National Team” network, China’s State Information Center (SIC) has aggressive ambitions to deploy BSN nodes along the DSR. In line with the “cyber sovereignty” vision, applications and blockchain protocols hosted by BSN must conform to the local laws and regulations of nations where nodes are hosted — popular non-Chinese protocols like Ethereum will thus be banned from Chinese nodes. Back in December 2019 at the Hainan Free Trade Zone & Global Digital Economic Forum, when Chinese officials showcased use cases of blockchain in China with counterparts from Russia, Kazakhstan, Indonesia, and Bahrain, a senior SIC official touted BSN as a part of China’s national information infrastructure that could also be deployed globally at low cost.
China’s central bank digital currency plans also neatly align with the DSR. Just as Chinese officials criticize existing internet governance systems as excessively U.S.-dominated, SWIFT — a Brussels-based communications network that facilitates interbank transfers — is pilloried as a vehicle of the U.S. by state media outlets and officials given the body’s responsiveness to past U.S. sanctions and reports that SWIFT messages were surveilled by U.S. intelligence agencies. Beijing aspires to lead the development of a global, non-U.S.-influenced payments system, although there are major political, economic, and technological hurdles facing this effort.
Viewing all Digital Silk Road-branded projects as part of a masterfully-designed Chinese state-led effort to dominate the tech stacks of emerging markets exaggerates its relatively humble beginnings — a loosely-organized branding effort aligned with Beijing’s vision for greater participation by Chinese companies in global standard setting bodies, as well as digital support for major BRI infrastructure projects. But the geopolitical world has changed tectonically since 2015, and the DSR is becoming an increasingly important part of the BRI, and could emerge as a vehicle through which Beijing pushes for an alternative to what it sees as a U.S.-dominated technology world. Once overstated concerns that Beijing will try to use the DSR to forge a new paradigm for sovereign cyberspace could become prophecy as the pandemic shocks geopolitics, the US China tech cold war drives further decoupling, and Beijing increasingly views the DSR as perhaps the core element of Xi’s BRI vision. Regardless of outcome, this evolving and amorphous concept is well worth watching as it potentially becomes more than the sum of its many parts.