The Digital Silk Road

China's Quest to Wire the World and Win the Future

Jonathan E. Hillman

• Publisher: Harper Business
• Year: 2021
• ISBN:
  9780063046290
• Topic: Economics
• Subtopic: International Economics
• Index: Economics

An expert on China's global infrastructure expansion provides an urgent look at the battle to connect and control tomorrow's networks.

From the ocean floor to outer space, China's Digital Silk Road aims to wire the world and rewrite the global order. Taking readers on a journey inside China's surveillance state, rural America, and Africa's megacities, Jonathan Hillman reveals what China's expanding digital footprint looks like on the ground and explores the economic and strategic consequences of a future in which all routers lead to Beijing.

If China becomes the world's chief network operator, it could reap a commercial and strategic windfall, including many advantages currently enjoyed by the United States.

It could reshape global flows of data, finance, and communications to reflect its interests. It could possess an unrivaled understanding of market movements, the deliberations of foreign competitors, and the lives of countless individuals enmeshed in its networks.

However, China's digital dominance is not yet assured. Beijing remains vulnerable in several key dimensions, the United States and its allies have an opportunity to offer better alternatives, and the rest of the world has a voice. But winning the battle for tomorrow's networks will require the United States to innovate and take greater risks in emerging markets. Networks create large winners, and this is a contest America cannot afford to lose.

Chapter One

The Network Wars

If history is written by the victors, so are fantasies of the future. Among the most alluring and dangerous of these tales, born in the blinding glow of Cold War victory, was the idea that communications technology would inevitably promote liberty. As former U.S. president Ronald Reagan told a London audience in 1989, “More than armies, more than diplomacy, more than the best intentions of democratic nations, the communications revolution will be the greatest force for the advancement of human freedom the world has ever seen.”¹

Having recently left office, Reagan was triumphant. America was ascendant, its archrival gasping. The Soviet Union led the world in steel, oil, and nuclear weapons production, but Soviet computers were two decades behind their U.S. counterparts. Heavy industry, Soviet leaders were discovering, matters less in the information age. “The biggest of big brothers is increasingly helpless against communications technology,” Reagan boasted.

Democracy was on the march in Hungary and Poland, and Reagan even saw it sprouting in China, where authorities had brutally suppressed demonstrations in Beijing and other cities weeks earlier. Nicholas Kristof, then Beijing bureau chief for the New York Times, witnessed the violence in Tiananmen Square and later wrote, “The Communist Party signed its own death warrant that night.”² Foreign correspondents and diplomats debated whether the Party could last weeks, months, or a year.³

Even as the CCP defied those expectations, predictions that technology would bring about its demise only became more popular. By 1993, illegal satellite dishes were popping up faster than the government could tear them down. “The information revolution is coming to China, and in the long run it threatens to supplant the Communist revolution,” Kristof wrote.⁴ Satellites failed to deliver that change, but then came the internet, and bloggers were cast as the new freedom fighters.

Few were as courageous and inspiring as Li Xinde, author of Chinese Public Opinion Surveillance Net. Li was investigating reports of government corruption, posting his findings online, and then moving on before local authorities could arrest him. “It’s the Chinese leadership itself that is digging the Communist Party’s grave, by giving the Chinese people broadband,” Kristof wrote in a 2005 profile of Li titled “Death by a Thousand Blogs.”⁵

But the fantasy that connectivity favors liberty has long faded. In its place, a much darker reality is unfolding. Democracy is retreating, and digital authoritarianism is on the march.

The CCP is harnessing communications technology to cement its control at home and expand its influence abroad. Like a medieval castle, China’s domestic internet has only a handful of entry points, giving Beijing an unrivaled ability to monitor, censor, and cut off network traffic. Surveillance cameras armed with artificial intelligence (AI) have blanketed public spaces, logging faces, automating ethnic profiling, and contributing to the imprisonment of over a million Muslim minorities.

China has become not only the biggest of big brothers but also the world’s largest provider of communications technology. Huawei has operations in more than 170 countries, but it is hardly China’s only digital giant. Two Chinese companies, Hikvision and Dahua, churn out nearly 40 percent of the world’s surveillance cameras. Hengtong Group supplies 15 percent of the world’s fiber optics and is one of the world’s four suppliers of submarine cables, which carry 95 percent of international data. China’s global navigation satellite system, Beidou, provides more extensive coverage over 165 of the world’s capital cities than does America’s GPS.⁶

From outer space to the ocean floor, these connections are all part of China’s Digital Silk Road, or DSR. Amorphous by design, the DSR sits at the intersection of Chinese leader Xi Jinping’s signature policy efforts. It was first mentioned in 2015 as a component of China’s Belt and Road Initiative, Xi’s vision for moving China closer to the center of everything through infrastructure projects, trade deals, people-to-people ties, and policy coordination. Dangling promises of investment and speaking to the aspirations of the developing world, China has convinced 140 countries to sign onto the Belt and Road.⁷

Like the Belt and Road, the DSR is a China-centric concept wrapped in warm and fuzzy rhetoric about cooperation and mutual benefits. There are no formal criteria for what qualifies as a project, but as Chinese technology companies encounter greater scrutiny abroad, the concept has proved a savvy marketing tool. The “Silk Road” imagery evokes a romanticized version of ancient times: camel caravans on the move, cultures mingling, ideas flowing. In reality, it advances “Made in China 2025,” another of Xi’s signature initiatives, which aims to capture market shares in high-tech industries that amount to global domination.

Before the DSR was formally unveiled, China’s digital reach extended quietly into American communities. Rural carriers in a dozen U.S. states purchased Huawei equipment.⁸ China Telecom and China Unicom, the country’s two largest state-owned telecommunications companies, won licenses to carry international calls within the United States. Along with China Mobile, they connect with other networks in nearly twenty U.S. cities. Hikvision cameras watch over apartment buildings in New York City, a public school in Minnesota, hotels in Los Angeles, and countless homes.

Having awoken to the dangers of allowing its chief competitor’s technology in U.S. networks, Washington has started severing these connections. The U.S. Congress banned carriers that receive federal funding from purchasing Huawei equipment, and the Commerce Department prohibited U.S. companies from selling components to Huawei. The New York Stock Exchange delisted China Telecom, China Unicom, and China Mobile. The Federal Communications Commission (FCC) is revoking China Telecom and China Unicom’s licenses.⁹ After struggling to identify Hikvision cameras, the U.S. government has removed them from its facilities. All five companies, and hundreds more Chinese entities, have been sanctioned by the United States for offenses ranging from supporting the Chinese military to committing human rights abuses.¹⁰

The United States has also been playing defense abroad. The global reach of U.S. sanctions prevents any company, U.S. or foreign, from selling components to Huawei that rely on U.S. intellectual property. Publicly and privately, U.S. officials have lobbied foreign leaders and companies to avoid using Chinese suppliers. The State Department’s “Clean Network” Initiative, launched in the Trump administration’s final year, aimed to limit Chinese suppliers of 5G equipment, Chinese carriers, Chinese cloud providers, Chinese apps, and Chinese involvement in underseas cables.¹¹

Convinced it cannot rely on access to U.S. technology, China is pushing ahead with major investments at home. Xi has called for $1.4 trillion in spending through 2025 on “new infrastructure,” which includes 5G systems, smart cities, cloud computing, and other digital projects.¹² In March 2021, China approved its Fourteenth Five-Year Plan, a blueprint for the country’s development, which for the first time declared technological self-reliance a “strategic pillar.”¹³ Xi has also called for China to follow an economic model of “dual circulation,” a concept that aims to continue China’s exports to foreign markets while reducing its reliance on foreign technology domestically.¹⁴ As China bolsters its capabilities at home, it will have more to offer overseas.

The DSR is already accelerating in the wake of the COVID-19 pandemic. While exposing the risks of physical connectivity, the pandemic also raised the costs of being on the losing side of the digital divide. Better-connected economies were able to handle massive transitions to the virtual world. The roughly half of humanity that remains unconnected to the internet had fewer options. The pandemic’s financial shock has left developing countries cash-strapped with even less room to borrow. Compared to the large transport and energy projects that characterized the Belt and Road’s early years, digital projects are often cheaper and faster to complete.

With these lines drawn, the stage is set for competition between the United States and China to intensify in third markets. Warnings from U.S. officials about the risks of Chinese communications technology are now echoed in Australia, Japan, South Korea, and large parts of Western Europe. But the United States has been less effective in offering affordable alternatives. China is exploiting that opening by pushing deeper into developing and emerging markets, where affordability trumps security. A world of competing digital ecosystems, each with its own equipment and standards, is taking shape. Practically everyone is caught in the middle.

Despite extolling the importance of networks for years, leading thinkers largely failed to consider the possibility of a world in which the United States is not the dominant hub. China’s rise and reach beyond its borders is now eviscerating long-held assumptions about technology and liberty, Western primacy, and the very nature of power. Journalists and academics have been grasping for the right words to describe this contest. Is it a trade war? A new Cold War? The reality is more complex, and the stakes fundamentally higher. The United States and China are fighting for control over the networks of tomorrow.¹⁵

The Network Wars have begun. This book shows how we arrived at this point, provides a tour of the battlefield, and explains what the United States must do to win.

THE RECKONING

The story of how we arrived here is uncomfortable, which is why there have been few honest accountings. Rather than probe how the United States contributed to China’s technological rise, Washington and Silicon Valley mostly prefer to tell stories that minimize their failures. There are many variations, but a common theme is that China cheated its way to the top. This sense of unfairness is easy on the American psyche, letting everyone off the hook, but it raises the risk of repeating past mistakes. Complaining offers no strategic insights for competing.

There was plenty of lying, cheating, and stealing. But as the following chapter recounts, what is even more shocking is the myriad of legal opportunities that China exploited. Chinese officials masterfully dangled the prospect of access to China’s market, maximizing concessions as foreign companies willingly undercut each other to hand over their intellectual property and enter into partnerships with Chinese firms. With generous state support, those partners eventually became their competitors. Everything was for sale, including the management practices that transformed Huawei from a disorganized copycat into a global juggernaut.

What made these mistakes possible was not merely foreign greed and Chinese savvy but also a powerful and genuinely held belief in the liberalizing effects of communications technology. The collapse of the Soviet Union appeared to prove that communications technology shifted power from governments to individuals, allowing them to speak freely, organize, and hold officials accountable. Every new type of connection, from the fax machine to the internet to the cell phone, was hyped as offering an express lane for carrying liberty around the world.

Few ideas have been as powerful, persistent, and wrong in recent history. It was powerful because it brought a wide range of political philosophies into alignment with the commercial interests of U.S. companies on the vanguard of developing communications technologies. Despite a few powerful warnings, such as those offered by scholars Rebecca MacKinnon and Evgeny Morozov, this view persisted because of this alignment of interests and the allure of believing that the United States could do good by doing well around the world, regardless of local context.¹⁶ And it was wrong because it confused means and ends, overlooking how these tools could be used differently.

Among the faithful were not only Reagan and Kristof, a conservative and liberal, but also John Perry Barlow, a libertarian who captured the feeling of America’s internet pioneers in what he titled famously “A Declaration of the Independence of Cyberspace.” “Governments of the Industrial World, you weary giants of flesh and steel, I come from Cyberspace, the new home of Mind,” he began. “On behalf of the future, I ask you of the past to leave us alone. You are not welcome among us. You have no sovereignty where we gather.”¹⁷

Barlow was not merely saying that governments lacked legitimacy in the information age, but writing his ode to internet freedom in 1996, he pointed out that they also lacked the capabilities to rule cyberspace. “You have no moral right to rule us nor do you possess any methods of enforcement we have true reason to fear,” he explained. “Cyberspace does not lie within your borders. Do not think that you can build it, as though it were a public construction project. You cannot. It is an act of nature and it grows itself through our collective actions.”

But Chinese strategists knew better. Where Reagan, Kristof, and Barlow saw the unstoppable march of freedom, Chinese officials saw a struggle for power. Shen Weiguang, one of China’s founding fathers of information warfare, explained in a lecture to the Chinese National Defense University in 1988, “Countries with advanced networking technology rely on networks to expand their ‘information territory’ to many other countries and threaten the latter’s ‘information sovereignty.’”¹⁸ As the Cold War was ending, the battle for information territory was just beginning.

The CCP took predictions of its death by communications technology all too seriously. “The Western world’s information strategy is composed of a public opinion offensive and ideological infiltration, the cultivation of forces within the socialist countries to act as agents to whip up hostilities, the practice ...