May 12, 2018

The Invisible Silk Road – Enter the digital dragon

https://www.eias.org/eu-asia-at-a-glance/the-invisible-silk-road-enter-the-digital-dragon-may-2018/

This article was published as an ‘EU-Asia at a Glance’ policy paper at the website of European Institute for Asian Studies (EIAS)

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This piece opens the Digital Silk Road series, which will investigate high-tech and IT projects launched by China to implement the DSR.

Discussions around the Belt and Road Initiative (BRI) tend to focus on its tangible aspects; primarily related to physical infrastructure including roads, rail and power plants. However, in addition to the two tangible “Silk Roads” – the Silk Road Economic Belt (land route) and the 21st-Century Maritime Silk Road (sea route), a third “Silk Road” was also proclaimed in 2015. The “Information Silk Road”, since rebranded as the Digital Silk Road (DSR), aims to “improve international communications connectivity” and foster the internationalisation of China’s rapidly growing tech companies.

A decade ago, very few would have believed that China could develop such an advanced digital sector in such a short period of time. Yet, in 2016, China’s digital economy amounted to 30.3 percent of country’s GDP according to the China Academy of Information and Communications Technology.

By 2017, Chinese e-commerce constituted 42% of global market and tech giants including Alibaba and Tencent had seen skyrocketing valuations in line with their US peers. As well as receiving implicit state backing, Chinese tech firms have seen exceptional growth due to the size of the domestic market, unparalleled access to data as well as societal embrace of new innovations. This contrasts with developed markets where societal inertia can hinder the adoption of new technologies (e.g. mobile payments still remain a small proportion of total transactions while credit card, cheque, and cash still exist).

Consequently, Chinese firms are able to spearhead innovation and implementation in a number of areas within the digital sector, such as bike-sharing, digital wallets (with mobile payments 11 times higher than that in US), digital IDs, and a proposed social credit system that assesses a user’s trustworthiness based on their previous transactions.

In contrast to Western tech companies whose data-usage practices have been increasingly scrutinised, Chinese tech companies enjoy significant political support. Government sponsored tech-zones and innovation hubs are being established across China as part of the government’s agenda to develop key technologies including: 5G, artificial intelligence, industrial internet, big data, and cloud computing technologies. For instance, efforts to build China’s “big data valley” are being made in Guiyang, the capital of Guizhou province.

This economic and political momentum enjoyed by China’s IT sector is contributing to the development of the Digital Silk Road. As these technologies mature in the domestic market, Chinese tech firms are increasingly looking outwards. In particular, efforts are being made to link technological solutions to existing Belt and Road investments and facilitate even better connectivity and logistics. We provide three examples below:

1.    E-commerce and customs automation

One of the biggest challenges facing the land routes that make up the Belt and Road Initiative are delays, often induced by lengthy customs procedures, security checks and having to change trains to meet differing rail gauge standards. Professor Richard Griffiths, author of “Revitalising the Silk Road” estimates that up to 80% of the journey time from China to Europe by rail is made up by delays. Reducing this red tape can result in rapid improvements, for example, in 2012, a customs union between Belarus, Kazakhstan, and Russia cut the journey time from China to Europe by around 5 days.

Automation of customs procedures through DSR IT projects could greatly decrease the time a European or Chinese customer has to wait for goods. Such solutions are already being piloted in Malaysia, which together with China’s Alibaba launched a Digital Free Trade Zone. This electronic world trade platform aims to assist small and medium-sized companies to find trading partners, managing cargo authorization and smoothly navigate the customs process.

2.    Telecommunications infrastructure

DSR projects also include the construction of IT infrastructure in developing countries. China’s state-owned enterprises such as China Telecom, China Unicom and China Mobile are already developing overland cable linksbetween Europe and Asia. Similarly, Huawei has been active in the African telecommunications infrastructure space for many years now. In one recent deal, the World Bank funded Chinese private giant ZTE with $23 million to construct a fiber optic network in Afghanistan. In a recent visit to Tashkorgan, a remote area in Western China inhabited by mostly Tajik and Kyrgyz tribes, we were impressed to see that the whole town had been electrified and fitted with telecoms infrastructure. These efforts enable people previously disconnected from online trading platforms to access and participate in them.

3.   Sustainable infrastructure

Finally, the DSR can also play a constructive role in ensuring infrastructure development remains sustainable. Smart infrastructure uses sensors and advanced monitoring systems to ensure optimization of resources. For example, smart grids permit a better matching of supply and demand such that fewer fossil fuels are burnt. A body named the “Digital Belt and Road” has also been set up to help pioneer the use of technological solutions to resolve environmental challenges along the Belt and Road. The $32 million programme involves experts from 19 countries and 7 international organizations, and sets out to tackle such challenges as water security, natural disaster risks, climate change, and natural heritage protection.

 

In summary, the DSR offers opportunities to make the Belt and Road Initiative as a whole more efficient and more sustainable. Yet, it will undoubtedly come with its concerns as foreign participants become wary of the data practices adopted by Chinese firms. In recent weeks, the world has been captivated by the extraction of personal data for political usage by Cambridge Analytica. The usage of data in this manner has shocked many millions of people; however, in the case of China’s IT giantssuch as Wechat (Tencent), the links with the Chinese government and its data sharing policies are openly confirmed. Hence, we should expect the DSR to become a focus lens of debates surrounding the BRI as it simultaneously offers the greatest opportunities and causes the largest doubts

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