Pacific Money | Economy | East Asia

China-US Competition: Who Will Win the Digital Infrastructure Contest?

China’s vision for hybrid digital infrastructure is distinct from the United States’ emphasis on dedicated digital infrastructure.

China-US Competition: Who Will Win the Digital Infrastructure Contest?
Credit: Depositphotos

With the rapid escalation of the United States’ suppression strategy against China’s digital economy, U.S. allies and an increasing number of developing nations have joined the “de-Sinicization” bloc led by Washington. In an effort to impede the growth of China’s digital economy, the United States has promoted not only protectionist policies safeguarding its dominant general-purpose technology, but also an ideologically-driven digital security governance model designed to contain Chinese technology and companies.

In certain fields, China’s technology has even surpassed that of the developed nations, causing growing concern in the United States. From the virtual digital economy to digital infrastructure, it is evident that competitive rivalry between China and the United States has intensified and even altered the geopolitical structure.

Since 1993, the “Information Superhighway” proposed by Bill Clinton has made the United States the leading proponent and beneficiary of the digital economy. Cisco, Amazon, Microsoft, and other world-leading tech corporations came to dominate the global market. Relying on its first-mover advantage in internet and communication technology, the United States has secured self-preferential rights in digital technology and set broad laws and regulations centered on U.S. interests.

The United States was the first nation to advocate for the development of a digital strategy, but its primary focus is the creation of a dedicated digital infrastructure (DDI). Unlike a hybrid digital infrastructure (HDI), which emphasizes the addition of digital components to traditional physical infrastructure to enhance performance, a DDI is totally digital and is primarily used to support the internet architecture in order to promote the transformation and upgrading of the digital economy. Examples of dedicated digital infrastructure would be broadband cables, centers for quantum technologies, digital government services, and so on. The Biden administration’s $1 trillion Infrastructure Investment and Jobs Act continues in this tradition. The implication of network infrastructure is comparable to that of railroad construction.

The digital economy in China represents the advanced stage of economic reform efforts begun in the late 1970s. Over the past 40 years, Chinese companies created a path of independent research and development of communication technology from the ground up by undertaking production for multinational companies. The emergence of Chinese communication equipment giants such as Huawei, ZTE, and Lenovo is attributable to the technology transfer from developed countries, allowing China to complete the leapfrog development from dial-up networks and first-generation broadband communication to 5G mobile internet.

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China’s internet industry experienced explosive growth in the late 1990s. China’s international competitiveness in digital technologies such as e-commerce, big data, the Internet of Things, artificial intelligence, and cloud computing was developed in a relatively short period of time, due largely to the enormous domestic market.

Although China has become the second largest digital economy in the world, reaching a value or 45.5 trillion RMB in 2021, it is difficult for China to attain long-term stability in the internet-driven digital economy. Manufacturing is the lifeblood of China’s national economy and the basis of its foundation and power. China has realized that the real economy is the key to sustaining high-quality economic development, a lesson learned from the effects of the COVID-19, the tightening of global internet regulations, and the ongoing escalation of the Russia-Ukraine conflict. China’s digital infrastructure plan is just a tool to achieve this goal.

China is well aware that, after decades of construction, despite leading the world in mobile and broadband network speed, it lags far behind developed nations in other infrastructure fields. In 2018, the concept of digital infrastructure was included in the development scope, starting a phase of centralized planning and scientific construction by the government. In contrast to the United States’ DDI, China’s digital infrastructure plan is titled “new infrastructure” and emphasizes the implementation of digital services on traditional infrastructure. China has thus blazed a new trail, capitalizing on its strengths in communication networks by integrating them deeply into the application of traditional infrastructure. This allows China to compensate for its hardware scarcity and seek new breakthroughs.

For instance, seaports are essential infrastructure that facilitate international trade and connect more than 90 percent of the world’s trade and supply markets, but their current structure is still labor-intensive. The COVID-19 pandemic has imparted a severe lesson to the global manufacturing sector. In Europe and the United States, manpower shortages, high labor expenses, and worker accidents have caused the “worst gridlock in history”; the average ETA of cargo has increased to 8.7 days. Automation and digitization could help unlock those snarls.

In China, Huawei constructed the “Industry-Academia-Research” paradigm. Working with with cooperative enterprises, universities, and research institutions, Huawei successfully built the world’s first zero-carbon intelligent container terminal in Tianjin Port, one of the top 10 ports in the world. Huawei leveraged its own advantages in 5G base stations, Huawei Cloud Stack Online (HCS Online), intelligent security equipment, and green energy, to deploy an “intelligent port brain” for the terminal, which integrates advanced intelligent algorithms to optimize driving paths, container handling, and cargo dispatch. Huawei and Tianjin Port’s digital infrastructure project has yielded positive results, paving the way for China to explore best practice models in the technological revolution.

Interconnection, or the free flow of information, logistics, and finance, is the essence of the supply chain. As the supply chain moves from developed countries to the entire globe, the degree of interconnection has become as significant as military strength, and society has entered a period wherein supply chains are a new type of organization. Technologies and industries may emerge into a technology cluster consisting of several cross-cutting technologies, or become cloud-like in structure. Once the essential technology enables a breakthrough, it will drive the growth of the entire industry cluster, and the company or nation that leads the best practice model will become the target of other competitors.

Since the Trump administration, the United States has focused on artificial intelligence, quantum information, 5G, and advanced manufacturing, nominating those areas as four key technologies that promise to fuel U.S. prosperity in the long term. From the executive order on “Maintaining American Leadership in Artificial Intelligence” signed during the Trump administration to the 2020 “DoD Data Strategy” and then to the Biden administration’s $2.25 trillion U.S. infrastructure plan, the U.S. digital infrastructure plan has gradually changed from promoting the deep integration of society and technology and boosting the potential of the digital economy. It has evolved into a strategy for enhancing national security and stimulating domestic manufacturing, reaching unprecedented levels of containment and threats aimed at other countries.

China and the United States have an escalating strategic competition. In recent years, the United States has restrained the rise of China’s cutting-edge technologies through export controls, penalties, and technology bans, and has even collaborated with its economic allies to impose pressure on China via multilateral mechanisms. The closing gap between China and the United States in terms of economic output, technology, and soft power is a political reality, and this structural contradiction has become the “politically correct” justification for the U.S. government to retain its anti-China posture.

Compared to the United States, then, China’s digital infrastructure is more conservative, and paces greater emphasis on digital applications for physical infrastructure. China’s hybrid digital infrastructure is comprised primarily of semiconductors and data algorithms. These are exactly the areas where Washington is squeezing Chinese firms.

With the onset of the Sino-U.S. “technological decoupling,” Washington introduced the CHIPS and Science Act to strangle China and aims to follow the European Union’s lead on data protection regulation to conduct a thorough evaluation of Chinese firms’ international operations market. This caused a severe setback for China’s goals for its digital infrastructure.

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Due to the fact that the power generated by digital technology possesses characteristics like scarcity, hierarchy, and periodicity, competition between China and the United States in the digital infrastructure domain will remain for the foreseeable future. However, as a result of globalization, the United States cannot overlook China’s digital impact and significance. Both nations will have the opportunity to cooperate, as well as compete, in the implementation of laws and regulations. However, it is still unclear to what extent this “coop-etition” will persist.

The Sino-U.S. relationship needs to be managed, not only to avert a disastrous deterioration, but also increase global stability and promote world peace and development.