China enjoys structural advantages in advancing its bold plans to digitize the economy and achieve global technological leadership. Beijing channels massive amounts of capital through state guidance funds into emerging technologies. In line with the unofficial slogan “First develop, then regulate,” the government enables commercial actors to innovate and swiftly produce market-ready products for a digital ecosystem protected from foreign competition.
China is investing heavily in different areas of technological innovation: For instance, training new talent is a prioritized sphere of action. In AI, China intends to establish at least 50 academic and research institutes by 2020. China’s government hopes to gain substantial economic benefits by pushing digital innovation within and beyond its borders: for instance, it is estimated that products and developments for the Internet of Things (IoT) alone could add up to 1.8 trillion USD in cumulative GDP growth for China by 2030.
However, China’s digital strategy should not be viewed as a purely economic exercise. Civilmilitary integration has been a top-level national strategy since 2014. Efforts to become a “science and tech superpower” should be seen in close connection with ambitions to dominate in emerging dual-use technologies, advance cyber warfare capabilities, weaponize AI and achieve quantum supremacy.
Utilizing digital innovation for political and societal control
China’s drive for digitalization goes beyond economic ambitions: Beijing wants to use digital technologies for effective governance and control over companies and citizens. It is focusing on two main goals:
a) protecting critical infrastructure and data from foreign access, and
b) establishing big data-based control mechanisms to monitor enterprises and citizens in order to enforce compliant and conformist behavior.
The CCP has invented powerful tools to pursue its vision of cyber governance, social management and control. The Cyber Security Law, effective since July 2017, regulates the protection of IT infrastructure and systems, data management for public services, and governs the regulatory compliance of economic and societal actors. Access for foreign companies to China’s digital and telecommunications markets will remain restricted due to informal barriers created by strict regulations on cyber and data security.
Plans to introduce a nationwide “Social Credit System” (SoCs), a big data-fueled toolkit to enforce laws, regulations, or party-state targets by scoring companies and individuals, are progressing. Currently, they consist of more than 40 fragmented local government SoCs pilot programs and numerous commercial pilots set up by technology firms. However, they could become a powerful and comprehensive instrument to steer the behavior of citizens and organizations.
Weaknesses in China's approach
Despite the structural advantages described above, China’s digitalization strategy faces multiple internal and external challenges that could derail its ambitions. Internally, conflicting goals and stakeholder interests create substantial tensions. Heightened party control over private companies and inefficient allocation of capital may ultimately also come at the expense of innovation. China will still depend on foreign core technologies in the years to come. This became apparent last year, when ZTE almost went bankrupt after the United States threatened a ban on selling microchips to the telecommunications supplier.
More broadly, Beijing’s industrial and technology policies, as well as digital-related laws and regulations such as the Cyber Security Law are increasingly putting China in conflict with other international actors, in particular the United States. The global backlash against China’s digital and technological rise has probably only just begun.
In spite of these challenges, China will pursue its drive for digital innovation and leadership. China’s leaders view achieving leadership of global technological progress as a political project charged with nationalist and ideological significance.
China's digital policies put pressure on Europe
China’s digital ambitions already have an impact on Europe’s politics, economics, and security. The “Digital Silk Road” is likely to deepen China’s digital reach into Europe. Going forward, the EU faces the growing commercial presence of, and critical dependence on, China’s most competitive IT players. IP protection in research collaborations and other new regulatory challenges in managing interlinked digital markets will emerge as major challenges going forward.
In cyber security, the EU is confronted with a direct challenge from China’s digital outreach. European companies and government bodies have suffered commercial espionage and cyber-crime originating from Chinese institutions. The growing presence of major Chinese ICT suppliers including Huawei and ZTE creates substantial uncertainties and potential security risks for EU member states.
China’s growing digital reach is likely to have more direct negative consequences for European politics and core values. Many aspects of China’s social credit system run counter to the EU’s values, including the lack of privacy protection and freedom of expression, and to EU efforts to establish digital ethics standards. European citizens’ privacy, safety and rights need protection from Chinese government encroachment and – by extension – from commercial actors who could collect and use data on EU citizens and others within EU territory.