How China Plans to Rule The World
Infrastructure is essential to American dominance and China plans to build the next generation of it.
The future of the economy is digital and COVID-19 has accelerated that: the World Economic Forum now projects that “an estimated 70% of new value created in the [global] economy over the next decade will be based on digitally enabled platform business models.”
The same report also reveals that close to 50% of the world's population remains unconnected to the internet and that is the massive opportunity that the People's Republic of China continues to exploit and one that the U.S. repeatedly fails to do anything about.
China’s Belt And Road Initiative (BRI) is sometimes referred to as the New Silk Road and is a vast collection of colossal infrastructure projects - like dams, railway tracks, gas pipelines and seaports - in over 60 countries or two-thirds of the global population.
Part of the BRI is what observers call the Digital Silk Road (DSR) and it includes massive investments in technology projects like 5G, the internet of things and blockchain. Laying down the digital infrastructure of many Asian, African and European countries is how China aims to dominate the 21st century.
Infrastructure of empire
Great Britain ruled the world by creating the first modern system on which the global economy functioned. In the 100 years starting from 1815, London had constructed a vast network of military installations and seaports through which the world’s cargo ships passed to transport their commerce. That allowed the UK to control key naval “choke points” enabling the Royal Navy to restrict global trade at whim.
This system also included underwater telegraph cables that connected London with its vast empire and carried 80% of all telegraph communications by 1914. British ships were now responsible for half of all trade and London accounted for 75% of the global financial transactions by the early 20th century.
During World War I, Britain abused its control over international communications to force American businesses to bear high costs of sending uncoded messages and there was the risk that British censors will intentionally delay or fail to transmit information.
Another instance of Britain’s betrayal was in 1907 when President Theodore Roosevelt ordered the navy to go on a two year world tour to project’s America’s strength. The navy lacked the resources to supply the fleet with fuel and had to rely on British coal - 80% of all maritime traffic used British coal by World War I - but disruptions in their supply brought the tour to a halt in Australia. The experience convinced Adm. Charles Sperry, the fleet’s commander, that the UK was using its leverage to make the Americans “the laughingstock of the world.”
“Without access to her coaling stations, Britain’s rivals found that problems of fuel supply could drastically limit the range of their naval operations, especially in distant waters,” observed historian John Maurer.
The navy understood that its reliance on British coal meant that it would always need London’s approval before embarking on grand voyages and consequently switched to oil in order to exploit domestic reserves.
“The British taught the Americans over a century ago, whoever controls the infrastructure of empire runs the world,” wrote analyst Gregory Mitrovich.
How will China get there?
China released the “China Standards 2035” plan as a road map to set global standards on technologies like the internet of things, artificial intelligence (AI), 5G, and block chain. Baidu, the Google of China, developed the first ever open source autonomous vehicle platform which now has 130 partners including many European carmakers. China’s top-down control system is anything but decentralized. The country, however, has never rejected decentralized technology. It created the “Blockchain Service Network” (BSN), a government controlled platform that has presence in several countries including Japan, Australia and the United States.
“BSN isn’t a blockchain protocol. It is a centralized platform which developers can plug in to. It will be a key infrastructure-of-infrastructures that enables the integration of cloud computing, 5G, internet of things, artificial intelligence and big data, with fintech and other services overlaid. It will form a critical part of China’s national technology strategy, and be the backbone infrastructure technology for interconnectivity both globally and domestically via the digital silk road,” according to Adam Cotter, head of Asia at OMFIF.
Standards define technology and technology defines the world. With enough users, a protocol or a platform becomes the standard for the masses compelling people to join or risk being left out. Apple created the app store and millions of app developers have to share their profits with Apple and adhere to its policies to access hundreds of millions of iPhone users.
“U.S.-China competition is essentially about who will control the global information technology infrastructure and standards,” said Frank Rose, senior fellow for security and strategy in the Foreign Policy program at The Brookings Institution.
Recognizing the importance of standard-setting, China, which has the largest share of the 5G “standard-essential” patents, is increasingly seen leading global standards-setting bodies including UN’s International Telecommunications Union (ITU) and the industry-led 3rd Generation Partnership Project (3GPP), an integral player in 5G. According to the Wall Street Journal, the number of Chinese officials at different trade and UN bodies relating to technology is on the rise while American and other western officials remain the same.
“... such is DSR’s positive impact on global digital infrastructure that the program is now being referenced by the United Nations as a way to advance its own Sustainability Development Goals,” Sam Olsen noted for The Hill.
It is positive that China is working within global bodies but the Asian nation could potentially politicize the processes by favoring its own companies.
“Chinese companies are under strong pressure and state coordination by the Chinese Communist Party to vote against technologically superior standards when they disadvantage the Chinese industry,” said Henrik B. L. Larsen for Harvard International Review.
China has stated goals to change the architecture behind the internet itself. The Chinese telecom giant Huawei, which means “China is able,” proposed a new internet protocol or the “New IP” that would enable nation states to control the internet.
Countries hungry for cheap connectivity or those that do not want to question China citing their export interests in Chinese markets are not excited by the American led decoupling. UK, Australia and Japan have joined America in banning Huawei from laying down critical 5G infrastructure yet the recent E.U. trade agreement with China demonstrates that Europeans have very different opinions. Just last week Italy approved Huawei to install its 5G network in collaboration with Vodafone. Huawei now has a presence in 170 countries including many in Europe. The UK's over reliance on China is highlighted by the fact that some in the country are warning that China could literally turn off Britain’s lights in a future conflict.
“China’s cooperation with Greece, Hungary, and especially Serbia speaks volumes about how easily even relatively well-developed countries in Europe fall for the temptation of the cheaper and faster rather than the safer tech options.
Even if other countries have adopted legislation in line with the General Data Protection Regulation—the prime example of European rule setting—the reality of the digital economy is such that the EU cannot assume that the world around
will purchase equipment with adequate safeguards to guarantee these rights,” added Larsen.
The key to China’s influence is subsidies which allows its companies to offer robust services at a very cheap price. Huawei's state-backed credit line reached $100 billion at one point to ensure that it was able to outbid all its rivals. In 2009, China’s communist government gave Pakistan over $100 million to purchase surveillance systems. The interest-free loan came with one condition: Huawei will set up the system and there will be no competitive bidding.
So if America wants to do something about this it has to get its act together and there are strong indications that Washington is serious about the threat from China. Keep in mind, however, that time is running out fast. The world had a huge appetite for technology and the pandemic increased it several fold forcing countries to accept whatever they can get their hands on.
China has a very long-term view and sees technology as a key to increasing its influence around the world. In contrast, American companies are focused on quarterly earnings and short-term increase in the stock price and our free market approach makes it extremely hard for the government to intervene and set industrial policy.
That is changing. The Senate overwhelmingly passed legislation on Tuesday that would spend a quarter-trillion dollars in research and development to build America’s manufacturing and technological edge against China.
A sector that will profoundly reflect the tussle between the U.S. and China is the mergence of artificial intelligence with health care, known as ‘AI Healthcare.’ Experts say that this sector will create the world’s first trillionaire.
Citi recently studied the AI competitiveness of 48 countries and found that the U.S. still leads significantly while the rest of the countries face “severe difficulties in catching up to the U.S.’s AI industry in 2020-30.”
However, the study also revealed that only China is likely to “cultivate an independent strong ecosystem for the AI industry due to both economic and geopolitical reasons.”
China is aiming to make biotech 4% of its GDP against America’s 2% and observers agree that China is the only country that has the resources and the scale to challenge America’s pre-eminence in biotech.
“So they’re (China) not quite there yet, but I think we can’t rest on our laurels,” Rose said at the Brookings Institution webinar. “I think they very much can compete, and that’s what makes me very concerned, if we don’t wake up and see what we need to do to compete.”
America alone cannot counter China. Successful delivery of infrastructure requires a close collaboration between multiple players, each with its own agenda, and because of this no single player can create real change.
That creates a huge need for Europe to play a role but data from the World Intellectual Property Organization shows that Europe has fallen immensely behind the US and China’s ability to advance innovation. The continent faces a choice between America or Chinese suppliers in most technologies with the exception of 5G. It has its own 5G superstars, Nokia and Ericsson, while the U.S. has no significant 5G players. These companies can build America's 5G infrastructure and use that to push their services into European countries not willing to work with China and in other parts of the world.
If we fail at creating global standards for the technological advancements that this century will witness, the alternative to that will be competing standards which will divide the world into a Sino-centric order that will be incompatible with the U.S.-led liberal system.