China’s Digital Silk Road (DSR): the new frontier in the Digital Arms Race?

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Op/Ed by Andre Wheeler

History is littered with geo-political conflicts, unfortunately many used physical assets and intelligence networks to subdue their opponents. This was underpinned by the prevailing attitude that knowledge represented real power. However, as the global community developed, there has been a shift from the physical to cyber space. This is an interesting time in history, particularly as the technology of the Fourth Industrial Revolution, has altered the playing field. Countries such as China can now challenge the USA ‘s hold on global trade without having to resort to a physical conflict.

With the Western focus on military hardware and being the policeman on watch to ensure globalised free trade, very little attention was paid to China’s 100-year plan to restore itself to a global economic powerhouse. This lack of attention was evident by the initial reactions by the West when China formally announced the Belt Road Initiative (BRI) in 2013. The plan was seen as overly ambitious and unachievable in a geo-political sense. Perhaps driven by bias and preconceived notions of China’s capability, there was universal failure to appreciate and understand the ambitions and scope of the BRI.

As a reminder, the BRI represents a significant shift in global trade, laying the foundations for a paradigm shift in supply chain and logistics management. Many failed to see that the BRI is not just an infrastructure connectivity strategy. It is the vehicle by which China is restoring the ancient Silk Road. This is achieved through the integration of maritime and land-based transportation and logistics routes. The inland Belt and the maritime Road converge on key port infrastructure through a co-ordinated pairing of maritime/port/land transport routes.

Furthermore, these new port / rail pairings signalled the start of new trade hubs and ecosystems. Whilst many focussed on either the maritime road or inland belt, China was steadily creating a supporting ecosystem. These ecosystems consist not just of the port, but includes special trade zones, services and access to inland dry ports and hubs. Initially seen as disparate entities, there was always going to be a need for a level of information and data integration that would optimise total productive output in these paired hubs.

This is much more than applying and developing Smart Port technology. Enabling port activities via digitisation has progressed the development of automation, greater supply chain visibility and efficiency through the digitalisation of manual work systems. Whilst ports such as Singapore and Rotterdam espouse their leadership in this arena, China has pursued the vision of connecting ports to the global supply chain. These smart port initiatives aim to optimise operations through enabling just in time operations as well as acting as information centres that enables optimised transport mode choices that connect with the port.

The realisation that there were gaps in digital applications, China introduced the DSR in 2015. Initially the digital revolution to improve supply chain visibility and transparency through IoT and data generation. Running parallel to these smart port developments has been the progression to “smart shipping” and ‘smart cities”. These developments highlighted that independent data silos were being created when the real need was for these independent platforms to communicate with each other. In the shipping sector, the need for digital integration created bodies such as the Smart Maritime Council. It is now shaping the discussion around interoperability, standardisation and harmonisation of the digital space within the maritime sector.

Discussion has recognised that all this activity takes place within an ecosystem. As with all ecosystems, there needs to be a level cooperation and collaboration for all entities to survive. In the case of smart ports / cities / shipping, this level of collaboration is required around digitalisation. China responded to these developments within the BRI and introduced the DSR in 2015. The first iteration of the DSR included a broad set of Chinese public policies, ICT infrastructure investments that supports the BRI strategy. Since its inception, the DSR has extended beyond simply rolling out fibre optic cable and now includes network equipment, technology and facilitating software in the form of 5G networks. The DSR plan was reformulated in November 2019, with the focus on building smart ports that incorporate integrated smart management and operations technologies.

However, during this period China established its own technological standards and principles of cyber-sovereignty. When the narrative in 2019 changed to China’s Spatial Information Corridor, the USA began really focussing its attention.

So, what is the DSR?

Essentially the DSR incorporates telecoms, media and technology to develop the BRI across Asia, the Middle East, Europe, Africa and Latin America. The three drivers are: Chinese telecoms equipment makers, Data Centre and Storage Infrastructure along the economic corridors, finally Chinese companies using this to export interpretation of smart city sensors and data platforms. Technology is an area that China feels it can compete head on with the USA and have leveraged this to create its own digital highway with its own standards.

To this end, China did not just look to cellular wireless infrastructure, but embarked on a program that built submarine and terrestrial optic fables as well as data centres. The extent of this program has seen China own or assist with the building of approximately 30% of existing cables in Asia and a 54% share of planned cables. In a global sense, China owns or supplies 11% of existing cables and 24% of planned cables. Furthermore, the domestic BeiDou satellite navigation system is now supported by more satellites (35 in total) than the USA aligned GPS navigation system. Thirty BRI nations have now signed for the BeiDou navigation network.

It appears that the West has only recently recognised this new Digital Arms Race, showcased in their response to Huawei’s 5G cellular network. Not only is the Huawei 5G more advanced than other networks, it is more affordable and will allow emerging and developing nations leapfrog technology progress. With a steady uptake of the 5G network and access to optic cables, supported by BeiDou navigation systems, China has been growing its influence within Eurasia. The USA has tried to slow this advance by advocating the military and security risks associated with the use of Chinese technology. Their advocacy does not appear to be successful, with the UK, Germany and Sweden entertaining Huawei 5G participation in network development.

The new Trade Frontier?

Unlike the earlier geo-political conflicts, the new frontier is digitally based and built on access to data and information rather than knowledge based. The new dictum has changed from “knowledge is power” to that of data being the new frontier. I see this as the New Digital Arms Race. The new world economic order appears to be splitting trade into two competing market systems. Whilst both have a liberal economic approach, there are significant socio-political differences in application.

The USA led market and digital supply chain is based on the philosophy of an open and transparent network that facilitates free market global trade. Central to this is the use of the GPS navigation system of surveillance. In contrast, China has opted for a closed ICT network that uses its own BeiDou satellite tracking systems. In other words, it is state led capitalism or as Xi Jinping labels it “capitalism with Chinese socialist characteristics”.

It could be argued that the centrist approach has given China leadership in 5G development, so much so, that they are now looking at 6G. Rather than going into the political defence of either one of these approaches, it is prudent to say that all systems present ethical and human rights issues. All tracking and surveillance technology have an element of human rights violations. What is true to say, is that the two emerging platforms appear to be creating two trade worlds, and the lack of digital integration / interoperability will create a new set of problems for global trade.

It may be the case that businesses that engage global trade and supply chains, may have to invest in two parallel ICT universes. This can be expensive and cumbersome and is contrary to the promise of an integrated and seamless technology base that will allow movement of product and services. The holy grail of digitalisation is to reduce total cost of the supply chain through optimal asset utilisation, lower inventory costs through efficient cargo management and visibility of the entire value chain from manufacture to end user.

Will this Digital Arms Race persist? Unless the geo-political issues can be resolved and a way found that will allow a secure level of interoperability between the two main players, those participating in global markets need to develop methods to work with two technology platforms or decide on what markets they want to service.

We are grateful to Andre Wheeler of Wheeler Management Consulting for contributing this commentary.

linkedin.com/in/andre-wheeler-7a9a1a23

E: andre@wheelermanagement.com.au

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About Us

Silk Road Briefing is written by Dezan Shira & Associates. The firm provides strategic analysis, legal, tax and operational advisory services across Eurasia and has done since 1992. We maintain 28 offices throughout the region and assist foreign governments and MNC’s develop regional strategies in addition to foreign investment advice for investors throughout Asia. Please contact us at asia@dezshira.com or visit us at www.dezshira.com

 

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