In­ter­net is split­ting in two amid US- China spat

Gulf Times Business - - BUSINESS -

Western big­wigs were a no-show at China’s big­gest web con­fer­ence.

But in their ab­sence, the lo­cal over­seers of the na­tion’s tech­nol­ogy in­dus­try were only too happy to plug their unique vision for the global In­ter­net.

Un­like 2017, when Tim Cook and Sun­dar Pichai graced the World In­ter­net Con­fer­ence in Wuzhen, this year’s gather­ing was a de­cid­edly do­mes­tic af­fair, presided over by the likes of Ten­cent Hold­ings Ltd chair­man Ma Hu­ateng.

Given the floor, they again pushed the con­cept of a rigidly po­liced medium that – none­the­less – is a well­spring of in­no­va­tion to rev­o­lu­tionise busi­nesses and mod­ernise the Chi­nese econ­omy.

That first part flies in the face of the fa­mil­iar US-led model, yet has pro­duced two of the world’s 10 most valu­able com­pa­nies: Alibaba Group Hold­ing Ltd and Ten­cent.

That rapid as­cen­dancy prompted for­mer Google hon­cho Eric Sch­midt to de­clare the In­ter­net will split down the mid­dle within the next decade, as au­thor­i­tar­ian gov­ern­ments adopt China’s all-en­com­pass­ing con­trols.

On one side is a cy­berspace arena that es­pouses open com­mu­ni­ca­tion while the other is a walled-off, thor­oughly scrubbed world where many are ea­ger to sign away their data in ex­change for ser­vices.

At China’s most im­por­tant tech in­dus­try con­fab this week, Ma and a clutch of govern­ment of­fi­cials stressed it’s the coun­try’s des­tiny to be­come an In­ter­net power, and called for more bal­anced gov­er­nance of cy­berspace.

China’s reg­u­la­tors have trum­peted its con­cept of “cyber-sovereignty” since the in­au­gu­ral con­fer­ence in 2014.

But the dichotomy be­tween the Amer­i­can and Chi­nese tech in­dus­tries has never at­tracted as much scru­tiny as to­day, when the world’s two rich­est coun­tries are butting heads in a con­flict that may shape a new world or­der. As US icons like Google and Face­book come un­der fire for pri­vacy vi­o­la­tions and en­abling hate speech, their Chi­nese counterparts are tout­ing theirs as the su­pe­rior model: one geared to­wards the in­ter­ests of the state.

“The Chi­nese econ­omy is a vast ocean. Storms can­not dis­rupt it,” Ma, who is also known as Pony, told del­e­gates. “This ocean holds mas­sive mar­ket po­ten­tial and also great room for in­no­va­tion. I be­lieve, this isn’t just a de­vel­op­ment op­por­tu­nity for the in­ter­net in­dus­try, but for all sec­tors. It’s not just an op­por­tu­nity for China, but for the en­tire world.”

Re­marks from Chi­nese Pres­i­dent Xi Jin­ping read out at the start of the con­fer­ence called for “mu­tual re­spect” in cy­berspace be­tween the two na­tions.

The cur­rent rift in their ap­proaches how­ever has pro­found im­pli­ca­tions and may bar the likes of Face­book Inc and Al­pha­bet Inc from any mean­ing­ful pres­ence in the world’s largest In­ter­net and mo­bile arena.

It’s an­other man­i­fes­ta­tion of what for­mer US Trea­sury Sec­re­tary Hank Paul­son called an “eco­nomic iron cur­tain” di­vid­ing the world if the two na­tions fail to re­solve their strate­gic dif­fer­ences.

Un­like the rel­a­tively hands-off Amer­i­can model, the Chi­nese ap­proach is geared to­wards one over-arch­ing im­per­a­tive – pro­pel­ling and safe­guard­ing the rul­ing Com­mu­nist Party.

Any­thing deemed to un­der­mine that ob­jec­tive, from pornog­ra­phy and ad­dic­tive games to pock­ets of dis­sent, is ruth­lessly rooted out when dis­cov­ered. To wit, China has the low­est level of in­ter­net free­dom among 65 coun­tries polled by Free­dom House. Crit­ics of the model say play­ers like Alibaba and Ten­cent thrive be­cause Bei­jing damp­ens com­pe­ti­tion by mak­ing it nigh-im­pos­si­ble for global play­ers such as Face­book to op­er­ate. They say the govern­ment’s heavy hand and un­pre­dictabil­ity is counter- pro­duc­tive.

Ex­hibit A: a months-long crack­down on gaming that helped wipe out more than $200bn of Ten­cent’s mar­ket value this year.

That cul­ti­vates a per­va­sive cli­mate of fear, said Gary Ri­eschel, found­ing part­ner at Qim­ing Venture Part­ners.

“Every time you see one of th­ese vast losses, you can see the Chi­nese govern­ment,” he said. “We’ve never seen a coun­try solve the is­sues that China is try­ing to solve, when your best and bright­est peo­ple aren’t fully com­mit­ted to be­ing there. This is new ter­ri­tory, we’ve not seen this be­fore.”

The walled-gar­den ar­gu­ment fails to take into ac­count a level of com­pe­ti­tion that puts the Amer­i­can in­dus­try to shame.

De­spite per­va­sive cen­sor­ship, the Chi­nese in­ter­net has evolved into one of the most vi­brant town halls the world’s fever seen – it’s tough to truly rein in a bil­lion peo­ple – as an army of mil­lenials live-stream in the mil­lions and su­per apps thrive with more users than there are Amer­i­cans.

From Ten­cent’s WeChat to Bytedance Ltd’s short-video repos­i­tory Douyin, the global in­dus­try is start­ing to re­alise the rich­ness of the Chi­nese In­ter­net.

“Why couldn’t the US and China both in­vest in the same com­pany?” Si­no­va­tion Ven­tures’ Kai-fu Lee said at the Bloomberg New Econ­omy Fo­rum this week. “This is def­i­nitely not a war. But again it doesn’t look like we’re on the path to be able to do that dream team in­vest­ment.” While some say cen­sor­ship sti­fles cre­ativ­ity, oth­ers point to a vi­brant ecosys­tem in China.

Hill­house Cap­i­tal Chair­man Zhang Lei ar­gues the in­dus­try re­mains dynamic and the prospect of los­ing one’s shirt in highly volatile mar­kets can mo­ti­vate se­ri­ous en­trepreneurs. “You can walk away with­out your wal­let and I think that ac­tu­ally in­spires a com­pletely dif­fer­ent set of com­pa­nies born in that dig­i­tal, savvy and mo­bile-na­tive en­vi­ron­ment.”

Cen­tral to the idea of a Chi­nese-cen­tric In­ter­net is data sovereignty and that in­for­ma­tion of cit­i­zens must be stored in-coun­try and ac­ces­si­ble on de­mand, a con­cept en­shrined in Chi­nese law since 2017.

That phi­los­o­phy has since been em­braced by gov­ern­ments from In­dia to South­east Asia. Amer­i­can multi­na­tion­als who op­er­ate in China have com­plied: Ap­ple Inc de­cided last year to set up a venture with a lo­cal govern­ment to store iOS user data on lo­cal servers.

Al­pha­bet’s Google ex­plored a cen­sored search engine to help it get back into the coun­try. And Face­book’s Mark Zucker­berg has been court­ing Bei­jing for years.

And as China plays the long game sell­ing its con­cept of a closely con­trolled In­ter­net to the de­vel­op­ing world – along­side the tech­nol­ogy needed to pull it off – the Com­mu­nist Party’s vision of a web where gov­ern­ments pull the strings could wind up the model for the next bn users.

“Every coun­try is sov­er­eign and un­der­stands its sit­u­a­tion bet­ter than out­siders. We should never come and tell a coun­try ‘this is good for you, this is bad for you’,” said for­mer Pak­istan prime min­is­ter Shaukat Aziz. “A sov­er­eign coun­try has to de­cide what’s good for it.

Ten­cent Hold­ings chair­man and CEO Ma Hu­ateng at­tends a fo­rum on dig­i­tal econ­omy in the new era at the fifth World In­ter­net Con­fer­ence in Wuzhen, Zhe­jiang province. At China’s most im­por­tant tech in­dus­try con­fab this week, Ma and a clutch of govern­ment of­fi­cials stressed it’s the coun­try’s des­tiny to be­come an In­ter­net power, and called for more bal­anced gov­er­nance of cy­berspace.

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