The US-China war for tech supremacy is splitting the world in two

It’s important for India to understand the Sino-US ‘techonomic’ rivalry in emerging technologies like AI, 5G, and IoT, and China’s efforts to carve out a sphere of influence. So that it can tweak its own relationship with China. Read part one of this two-part essay

G Venkat Raman

[Image by Gerd Altmann from Pixabay]

Last month, the Trump administration announced it would pass executive orders banning TikTok, Byte Dance’s video sharing app with about 80 million users in the US, and WeChat, Tencent's super app with about 19 million users. It escalated the ongoing rivalry between the US and China, and sent ByteDance scrambling for a way to salvage its US operations. The drama has not ended yet.  

Publicly, the Trump administration said these apps—powered by artificial intelligence and collecting humongous data—posed a serious threat to US national security interests. 

However, the US concerns about China’s technology go far deeper than what its reaction to TikTok or WeChat (or Huawei) reveals. In short, it’s worried about the big leap China has made in the emerging technologies in the last few years. It’s important for India to understand this rivalry, so it can tweak its own relationship with China, guided by facts, reasoning and a healthy dose of pragmatism, rather than by pride or fear, especially during these emotionally charged times.    

China's Emergence as an AI Superpower

For a long time, the dominant narrative around China was that it is good in manufacturing (“the factory of the world”), but the core technology, it had to import (or steal) from the West. However, that has changed now. 

Leading US opinion makers say that Chinese dominance in the AI-based applications has already made it a technology powerhouse. Beijing's technological capabilities are no more based on the imitation of Western technological products. Nor are they based on stealing others’ technology and engaging in IPR violations. It would be a grave error to dismiss China as merely a “near-peer competitor”. Today, China has successfully acquired more than a certain degree of expertise in the AI domain and, in this sense, is a “full-spectrum peer competitor” of the US. 

That has huge implications. “Advances in AI have the potential to change the character of warfare for generations to come. Whichever nation harnesses AI first will have a decisive advantage on the battlefield for many, many years,” Mark Esper, US Defence Secretary said in a conference of the National Security Commission on AI.  

Today, the Sino-US ‘techonomic’ war is mostly seen as a race for dominance in AI.

Technology as a Weapon to Choke Adversaries 

However, dominance in AI doesn’t mean an army of computer engineers sitting in a lab writing code. It has deep political implications. For AI to work well, you need good data. And to get good data, you have to control the nodes. Welcome to the world of ‘weaponized interdependence’ and its inevitable outcome, balkanisation of the internet. 

Today, the US and China are vying for tech supremacy by installing billions of devices connected to the internet—collecting and disseminating. The internet of things (IoT) architecture is seen as a strategically critical node within the framework of weaponized interdependence. 

The concept of weaponized interdependence gained currency after two US political scientists, Henry Farrell and Abraham Newman, coined and popularised the idea. They argued that the distribution of power in the international economic order rests on control over its critical nodes: financial communications, supply chains, and the internet. Therefore, the outcome of any future competition for power in the international political and economic order will be overdetermined by whether the incumbents retain their control or not. 

Whichever great power and coalition capture this node will be well-positioned to dictate terms in the international order in the coming decades. Therefore, monopolizing and regulating this node will be a vital objective of the contending parties in the on-going US-China dispute. 

Suppose there is no resolution of the US-China dispute, the world is likely to stare at a possibility where the internet world will be divided into two worlds. Some refer to this as ‘one world, two systems’. According to this view, each of the two systems will be lorded by the US and China, respectively. This development will inevitably lead to splitting the internet world into two spheres of influence. Many are terming this split the ‘balkanization of the internet’. 

Sino-US Tech Rivalry a Matter of Concern for India

This war is coming to India too. 

Recently, a group of drivers for food delivery startup Zomato, burned their red uniforms protesting in Kolkata against Chinese investment worth billions of dollars into India's tech sector. Zomato is backed by Ant Financial, an affiliate of Chinese tech giant Alibaba, which has pledged support worth $150 million. The recent boundary dispute has led to India banning 59 apps, including TikTok and PUBG. In the post-Covid world, there is a new wave of nationalism across all levels, from individuals to governments. 

The downward spiral in India-China ties has led to the US tech firms suddenly showing more than a keen interest in occupying the space vacated by the Chinese tech firms. It means more share in a market of 1.4 billion people. As soon as India banned Chinese apps, Google pledged a $10 billion investment in the India Digitisation Fund. Facebook soon followed, investing $5.7 billion in Jio Platforms. It was followed by Google again, investing $4.5 billion in Jio.

The swiftness with which the US tech giants have shown interest in India bears ample evidence that India is already a significant sphere of influence. US tech giants like Google and Facebook are more than keen to occupy the space vacated by their Chinese counterparts. The Chinese presence in the Indian digital space was negligible five years back. However, tech players like Alibaba and Tencent have made considerable investments in the last three years. According to Venture Intelligence, which provides information and analysis on private company financials, Chinese tech firms have invested $4.3 billion in venture capital funding between 2017 and June 2020. According to Tracxn, a technology research firm, 28 Chinese corporations have invested in India since 2010. Some of the top Chinese VC players like Shunwei Capital, Fosun RZ Capital, and CDH Investments have bet big on Indian startups apart from the ones owned by the tech giants Alibaba and Tencent. Among the top ten tech unicorns valued at more than $1 billion, seven are backed by Chinese investors. 

Some analysts have argued that India's concerns related to Chinese VC funding lack substance and have been hyped, pointing out that as a percentage of outbound investments for China and inbound investments into India, they are small. 

But the Chinese VC funding of Indian unicorns has seen a rise against the background of some key developments worth keeping in mind. First, they are coming in when growth rates in their home market are decreasing. Therefore they started looking for new investment opportunities abroad. India, a vast market with a large and young tech-savvy population, is an attractive destination.

Furthermore, Chinese investors firmly believe that successful business models in their domestic markets can be emulated in India. However, post-India-China boundary skirmishes and the recent upsurge in nationalist feelings, Chinese plans to invest in India are bound to get impacted. Further, such nationalist sentiments are likely to determine the alliances we will form in the tech space—especially as the tech world seems to be moving towards ‘one world, two systems’.

China's Digital Silk Route: A Vehicle to Occupy Larger Share in the International Digital Estate

The emergence of ‘one world, two systems’ in the digital space rests on the exponential expansion in China's indigenous technological prowess that threatens US dominance in this arena. A deeper understanding of the Digital Silk Route will help us appreciate China's current and potential tech arena capabilities. Digital Silk Route, the third pillar of the Belt and Road Initiative, refers to China's initiative to create a China-centric digital infrastructure by promoting homegrown technological corporations. China’s successful execution of plans related to the Digital Silk Route will confer vital geostrategic advantages. It will significantly dictate the rules of governance associated with the standardization of regimes in the technology domain.


If any thoughts occur or questions come up in your mind as you read this essay, post them on Founding Fuel’s ‘Thriving in Volatile Times’ Slack Channel and tag @Venkat. He has promised to engage with all of us there. The conversation will remain open till Thursday, October 22, 6:00 PM  


The DSR was first mentioned in an official document—as ‘information silk road’—in March 2015. This was a white paper jointly issued by the National Development Reforms Commission (NDRC) and the Ministry of Finance and Commerce (MOFCOM). In May 2017, President Xi Jinping declared China's plans to build a ‘digital silk route’ for the twenty-first century. 

The DSR is being projected as a geopolitical strategy that catapults China to manage data flows worldwide. This initiative will see the exclusion of Western tech firms and policymakers and is likely to lead to more effective data traffic monitoring and increasing China's capabilities to exploit its ability to interfere with sensitive information, especially those related to security and financial information. 

China seeks to actively promote its major tech players to boost their competitiveness with their Western counterparts in a wide range of OTT (Over the Top) services. These OTT services cover a wide range of services covering smart city projects, cloud computing, and digital payments. The private players, projected as ‘national champions’ in the tech domain, have been wooing the state for active support. In turn, the government has provided all possible support under the aegis of DSR to showcase its emergence as a technological superpower. 

China has used the DSR effectively to promote its homegrown technology in digital payment systems and 5G. A leading group of the Chinese Communist Party for promoting BRI has advocated adding new impetus to the DSR initiative calling for fresh investments in cloud computing, nanotechnology, quantum computing, and Big Data. In the recent past, China has accelerated its ‘go global’ policy and has given a major boost to its technology giants to present themselves as ‘made in China’ to the whole world. 

Chinese policymakers have started giving more focus to the DSR initiative in the post-Covid world. China's apparent success in combating the coronavirus epidemic compared to other countries has prompted Chinese policymakers to appreciate the virtues of centralizing its policy towards digital innovation, continually investing, and providing support to ensure Big Data access to technology giants. 

Further, it will help realize the merits of a high level of smartphone adaptation and penetration and achieve the people's willing co-operation. In short, China's experiences in dealing with the Corona epidemic made it realize the relevance of IoT as a potent tool to increase its digital outreach. For instance, in February 2020, under the aegis of DSR, the Chinese government engaged Huawei Marine Networks to lay down 37,000 miles of undersea cable in more than 95 different projects covering the Indo-Pacific, South Pacific, and the Atlantic Ocean regions. According to a study, China’s share in undersea cable projects increased from a mere 7% in 2012 to 20% in 2019. The latest project will further enhance China’s digital outreach capacity.

Impact of DSR and China's Growing International Digital Footprint

One of the significant impacts of DSR has been the newfound focus on new technologies like mobile payments and 5G. The ever-increasing presence of China's payment platforms in the form of Alipay and WeChat in foreign markets, especially in the BRI-covered regions, has led to the generation of a vast cache of data, an indispensable and critical resource for building sophisticated AI systems. The urge is to generate more and more data in a period that computer scientist, businessman and writer Kai-Fu Lee calls the ‘age of implementation’ in his bestseller AI Superpowers: China, Silicon Valley, and the New World Order. To cast their net as wide as possible Chinese policymakers plan to invest approximately $180 billion in creating a 5G infrastructure by its three major telecom state-owned enterprises, namely, China Mobile, China Unicom, and China Telecom, over the next seven years. Such initiatives would provide China with new opportunities to popularize its 5G infrastructure and adopt 5G standards in those regions where it invests in 5G infrastructure.

Furthermore, such initiatives would enable China to export complex ecosystems to trendsetting new norms and standards in smart city and smart port projects. This ability will influence China to push for relevant standards, promoting industrialization and standardization of critical technologies. China has already launched the Belt and Road Digital Economy International Co-operation Initiative in 2019 with countries like the UAE, Thailand, Turkey and Laos.

Conclusion

Under the current leadership of President Xi Jinping, China has announced to the world that its model of governance is a possible alternative to the Western governance models. Despite having an authoritarian streak, it has been able to project the party's power to respond to people’s problems. The apparent success of China in controlling the spread of the coronavirus by smartly using its IoT and AI has coincided with the glaring failures and vulnerabilities of the Western systems to deal with the Covid-19 pandemic. Policymakers in different parts of the world are likely to be enamoured and possibly willing to emulate China. Many countries would find China's technology-related exports too challenging to resist, given the reliability of quality and affordability to pay for the products and services. 

Some would also like to promise to their domestic constituencies technology-induced lifestyles in the form of OTT services that are increasingly becoming part of public life in China. China's edge lies not only in its growing technological capabilities but possibly tacit acceptance of its governance models. Some critics contend that China's emergence as the ‘Saudi Arabia of data’ and its rapidly growing footprint in digital real estate might lead to muted approval and even endorsement of its governance, compromising some basic liberal norms. Unique technology innovations like Tencent's super-app WeChat, ByteDance’s TikTok, and the popularity of online video games like PUBG are nothing short of ammunition enabling China to sharpen its technology edge further in the ‘age of implementation’. 

But what has made countries like the US, India, and even its all-weather-friend Pakistan (which recently banned TikTok) to ban some of these viral applications? How is this age of implementation different from the earlier era which is characterised as an ‘age of discovery’? How is China’s innovation model different from that of the Silicon Valley, giving it a huge advantage in the AI domain? 

For some answers, read the second part of this article, Should the world be worried about Chinese tech? 

Correction: The sequence of investments by Facebook and Google in Jio has been corrected.

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About the author

G Venkat Raman
G Venkat Raman

Associate Professor, Humanities and Social Sciences

IIM Indore

Dr. G Venkat Raman is an Associate Professor in the area of Humanities and Social Sciences, IIM Indore. He is a Sinologist. He received his doctoral degree from the School of Government in China’s oldest and premier university, Peking University, Beijing. He has also worked in Beijing as a professional for two years and eight months, and has a native speaker’s fluency in Mandarin. 

At IIM-I he teaches Doing Business with China, Geopolitical Perspectives in Business and Business Ethics. Venkat is also a Business Excellence assessor and has been part of the Business Excellence assessment team under the auspices of the Confederation of Indian Industries. His areas of research interest are China and Global Governance, and Business Ethics pedagogy. He has published in the Journal of Business Ethics, the International Journal of Emerging Markets, among others.

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