China’s Digital Silk Road after the Coronavirus

The COVID-19 pandemic will be a history-altering event. But where will it take us? In “On the Horizon,” a new CSIS series, our scholars offer their insights into the fundamental changes we might anticipate for our future social and economic world.

Just a few months ago, China’s technology ambitions appeared imperiled by Covid-19, then raging through the center of the country, bringing its economy to a standstill, and wreaking havoc to global supply chains. But the pandemic is already providing new opportunities for China’s rise as a technology power and global provider of digital infrastructure. Indeed, in the months and years ahead, China’s Digital Silk Road will only accelerate and expand.

This comeback begins at home, where China is already doubling down on its domestic 5G expansion. In June of last year, Beijing issued operating licenses to its giant state-owned telecom operators, and in November, these firms—China Mobile, China Unicom, and China Telecom—began rolling out a functional (if limited) 5G network in cities across the country. And then came the coronavirus. Not only did this lead to the shuttering of China’s economy for nearly two months, but it was also a blow to the country’s continued rollout of 5G networks.

But even as China battled to contain the spread of Covid-19, the Communist Party of China (CCP) continued to call for the expansion of 5G investments. On February 21, as much of the country was on lockdown, the CCP’s Politburo announced that the expansion of 5G was critical to economic recovery. On March 4, the Politburo’s Standing Committee—the apex of political power in China—called for “accelerating the construction of new infrastructure such as 5G networks and data centers.”

Confronting arguably the biggest economic and political crisis of his administration, Xi Jinping still found time to personally press the issue of 5G. During an inspection tour of Zhejiang province earlier this month, he declared, “We must seize the opportunities afforded by industrial digitalization and digital industrialization, accelerate the construction of new infrastructure such as 5G networks and data centers, and step up the layout of strategic emerging industries and future industries such as the digital economy, life and health, and new materials.”

China’s largest state-owned enterprises (SOEs) responded to the call. China Mobile’s chairman Yang Jie called its efforts on 5G “a major political task,” and by year’s end, the state-owned giant aims to construct 300,000 5G base stations. Together with China Telecom and China Unicom, the three SOEs are planning on building 550,000 base stations this year alone, with coverage expanding to an estimated 300 cities, up from just 50 cities in 2019. Earlier this month, the three firms announced plans to build a 5G messaging service that would compete with other domestic social messaging platforms, including the wildly popular WeChat run by Tencent Holdings.

While these investments are publicly pitched as a part of China’s economic recovery plan, as Fitch Ratings recently concluded, the practical impact of such 5G investments on China’s overall economy are likely limited in the near term, as they would account for roughly 5 percent of the total planned infrastructure projects in 2020. According to China’s state-owned Xinhua News Agency, the big three telecom SOEs as well as China Tower (a state-owned firm focusing on communications tower construction) plan on spending a mere $27.8 billion on 5G in 2020, an amount that will do little to stimulate a $14 trillion economy.  

But the push into 5G is not just a matter of economics. It is at the heart of a geopolitical battle with the United States for control of the global technology commanding heights. This, of course, explains why the CCP continued to press the issue of 5G even during the depths of the Covid-19 crisis. And as its economy begins to slowly—and unevenly—claw its way out of stasis, the push for 5G expansion will continue not only in China, but more importantly, through many of Beijing’s proliferating global infrastructure programs, including the Belt and Road Initiative (BRI) and the concomitant Digital Silk Road. Leading the charge will China’s “national team” of SOE telecom giants, as well as state-supported firms like Huawei and Inspur.

Several forces are driving China’s tech champions along the BRI and deeper into developing economies. For starters, digital infrastructure projects remain feasible in an environment where resources are even more constrained. Money is racing out of emerging markets, and nearly half of the world’s countries are considering bailouts from the IMF. Compared to the massive transportation and energy projects that have dominated the BRI’s early years, information and communications technology projects are generally lower cost, easier to deliver, and easier to monetize. These attributes make them less risky and more attractive to investors.

Consider the China-Pakistan Economic Corridor (CPEC), which Chinese officials have touted as the BRI’s flagship. Since CPEC was announced five years ago, over 60 percent of its projects have been transportation and energy, and many have been bogged down with delays. While proposed pipeline and railway connections between China and Pakistan remain pipedreams, Huawei was able to lay a fiber-optic cable across their border and deep into Pakistan in under two years. Stretching 820 kilometers, the project cost just $44 million—less than it costs to build only four kilometers of railway in Pakistan. Given Pakistan’s mounting debt, the second phase of CPEC, much like the future of the BRI, will place a greater emphasis on smaller, higher-tech projects.

The less visible nature of digital infrastructure also fits more easily into the geopolitical environment that Chinese firms will face as the Covid-19 crisis abates. Prior to the crisis, China’s approach to delivering large projects in foreign countries, which relies heavily on its own companies and workers, stoked resentment among local communities. In recent years, Chinese workers have been attacked in Bangladesh, Kazakhstan, and Kenya, among other stops along the BRI. Given the source of the outbreak, Chinese workers are more likely to face discrimination abroad. Digital infrastructure projects are typically less visible, and less disruptive, to local communities than large transport and energy projects.

Chinese tech companies also see an opening to pitch their products as part of responding to the current outbreak and preventing future pandemics. Hikvision, Dahua, and other leading surveillance companies have introduced thermal imaging systems to detect fevers. Alipay and Tencent have developed health apps that generate QR codes indicating a user’s health status. Naturally, these companies are looking to sell these products overseas. Alibaba is already offering its cloud services to model regional outbreaks and connect health professionals. These offerings are not unique to Chinese companies, but they often come with fewer privacy protections than their Western counterparts.

Developing and emerging markets are likely to remain more welcoming to Chinese companies. Although Huawei has not been banned outright in the United Kingdom and Germany, and continues to serve other European markets, its dreams of unfettered access to advanced economies have clearly been dashed. Developing and emerging markets have fewer affordable alternatives, and the coronavirus has only underscored the importance of digital connectivity. Communities with better access to the internet have been better able to adapt, while those with poor access face greater financial and personal risks. Nearly half the world still lacks access to the internet, and Chinese firms have a track record of bringing connectivity to overlooked markets.

The strategic stakes are high and rising. The generation, collection, and control of vast amounts of data sets digital infrastructure apart from traditional infrastructure types. Data can provide broad market insights and improve applications and algorithms. It can also be used to track and target individuals. Because digital infrastructure is increasingly critical, detailed knowledge of these systems, and control over them, also provides avenues to monitor, manipulate, and disrupt information flows. These stakes will only rise as more sensors and devices join the internet of things and digital infrastructure reaches deeper into daily life.

As China’s BRI becomes a fast lane for its tech companies, the United States cannot afford to rely only on defensive measures. Despite facing increased scrutiny, and even as the global economy has slowed to a crawl, China’s tech champions are positioning themselves to win tomorrow’s markets. In most of the world, U.S. warnings will continue to ring hollow in the absence of an offensive strategy that offers real alternatives. The U.S. International Development Finance Corporation’s approval last month of a submarine cable connecting the United States, Singapore, and Indonesia is one promising example. As U.S. policymakers weigh subsequent stimulus spending, they should consider investing in the United States’ own network infrastructure, backing U.S. companies at the vanguard of open radio access network (O-RAN) technology and supporting other strategic R&D to maintain U.S. technology leadership globally.

The pandemic is a powerful reminder of how national power, and daily life, ebbs and flows with connectivity. We are utterly dependent upon data running through the air, underground, and across the bottom of the ocean. Because the infrastructure that makes this possible is mostly out of sight, it remains mostly out of mind. U.S. leadership in digital infrastructure is also taken for granted because, in historical terms, it has been the default for decades. But that lead is no longer assured. If Washington does not make strategic investments with an eye toward what it can offer developing countries, the next pandemic will come in a world that is wired by, through, and for Beijing.

Jude Blanchette holds the Freeman Chair in China Studies at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Jonathan Hillman is director of the CSIS Reconnecting Asia Project.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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Jonathan E. Hillman