A Blog by Jonathan Low


Feb 10, 2019

One World, Two Internets: China And the West Diverge

The Chinese are determined to see their authoritarian model prevail and are doing all they can to make that happen. Western countries, including the US, are mostly staying out of the way of their tech sector (except with regard to privacy, especially in Europe), assuming that the free market will win, as it generally has for the past century.

The question is which set of assumptions is more delusional: the Chinese, that they can impose their stifling approach to rules outside China as a trade-off for speed and convenience, or the western complacency that  freedom of thought and action will always win. The danger, economically, is that they will each carve out a sphere and communication between the two will become increasingly difficult.

Josh Chin reports in the Wall Street Journal:

One side, championed in China, mobile payments have replaced cash. Smartphones are the devices that matter, and users can shop, chat, bank and surf the web with one app. (But) the government reigns absolute, and it is watching. On the other, in much of the world, the internet is open to all. Users can say what they want, mostly, and web developers can roll out anything. Silicon Valley worr(ies) the divergence risks giving the Chinese an advantage in new technologies, because they face few restrictions over privacy and data protection. The two zones are beginning to clash with the advent of 5G.
The global internet is splitting in two.
One side, championed in China, is a digital landscape where mobile payments have replaced cash. Smartphones are the devices that matter, and users can shop, chat, bank and surf the web with one app. The downsides: The government reigns absolute, and it is watching—you may have to communicate with friends in code. And don’t expect to access Google or Facebook.
On the other side, in much of the world, the internet is open to all. Users can say what they want, mostly, and web developers can roll out pretty much anything. People accustomed to China’s version complain this other internet can seem clunky. You must toggle among apps to chat, shop, bank and surf the web. Some websites still don’t seem to be designed with smartphones in mind.
The two zones are beginning to clash with the advent of the superfast new generation of mobile technology called 5G. China aims to be the biggest provider of gear underlying the networks, and along with that it is pushing client countries to adopt its approach to the web—essentially urging some to use versions of the “Great Firewall” that Beijing uses to control its internet and contain the West’s influence.
Battles are popping up around the world as Chinese tech giants try to use their market power at home to expand abroad, something they’ve largely failed to do so far.
Some Silicon Valley executives worry the divergence risks giving Chinese companies an advantage in new technologies such as artificial intelligence, partly because they face fewer restrictions over privacy and data protection.
“The Chinese approach could well lead to some large-scale improvements like better health outcomes—benefits derived from the mass capture and analysis of data,” said Nick Clegg, the former British deputy prime minister whom Facebook Inc. hired to run its global policy and communications, in a Brussels speech last week. “But it could equally be put to more sinister surveillance ends.”
“The real choice,” he said, “is between an appropriately regulated tech sector, balancing the priorities of privacy, free speech, innovation and scale—and an alternative in which ingenuity runs roughshod over some basic guarantees of privacy and individual rights.” He and Facebook declined to comment further.
The divide is clear to people like Tom Pellman who straddle it. Mr. Pellman, a director in Washington, D.C., for an international risk advisory firm, spent a decade in Beijing from the mid-2000s. His company doesn’t use Slack, the messaging app, because China has blocked it. He circumvented the Great Firewall by cycling through virtual private networks, or VPNs, which can disguise activity from monitors until getting discovered and then blocked, he said. “It’s Whac-A-Mole.”
Beijing’s censorship is like its polluted air, he said: “You’re in it and it seems OK, then you leave and you realize how bad it was.”
Yet he loved WeChat, the app that can do multiple tasks, and missed it when he left China. “When I came back to the U.S. it was like coming back to the Stone Age,” he said. “Not being able to use WeChat , everything felt just old fashioned.”These parallel universes have coexisted. In one, people buy goods on Amazon; in the other, it’s Alibaba. In the West, Alphabet Inc.’s Google is so popular it’s a verb, but you can’t Google in China—there’s Baidu for that. In London, Apple Pay can get you on the Tube; in Beijing, it’s Alipay. To do all this in one app in China, there’s WeChat, which lets a billion people also send texts, hail cabs and do many other tasks.
Beijing has blocked Google, Facebook and other services, promoting domestic champions such as Alibaba Group Holding Ltd. and WeChat owner Tencent Holdings Ltd. Outside China, though, these giants haven’t had much success.
The 5G collision
The collision of these universes as 5G arrives is exacerbating conflict between the U.S. and China and could broaden the rift and drive more of the world into China’s cyberspace model.
Networks using 5G technology are expected to download movies on phones in seconds, help enable self-driving cars, and connect components ranging from pacemakers to factory machines to the internet. Military futurists say 5G may alter battlefields, connecting tanks and drones with artificial intelligence.
China is aiming to expand its zone with 5G. It is aggressively promoting 5G networks, establishing a body in 2013 composed of regulators, companies and scientists to design and control every aspect of the process. It built a state facility where anyone selling 5G equipment in China must test it.
China’s 5G goal is to “win primacy,” said China’s leading proponent of the effort, Wu Hequan of the Chinese Academy of Engineering, last month, according to a transcript conference organizers posted. The government’s information office and the Cyberspace Administration, an internet regulator, didn’t respond to requests for comment.
That Chinese challenge has suddenly come to the fore because one giant has leapt the divide between the parallel universes. Huawei Technologies Co. is now the world’s biggest supplier of the equipment that goes into mobile-computing networks.
The 5G equipment itself won’t tilt the playing field—the gear is the plumbing of the internet, based on global standards that are agnostic as to what web developers and users run on it.
But many in Washington, from Congress to members of the national-security and intelligence communities, warn that Huawei’s Chinese ownership means Beijing could use the gear to spy on the world and more broadly be a camel’s nose under the tent to expand its influence.
Huawei has publicly rejected the accusations. Founder Ren Zhengfei in a media appearance last month said “I personally would never harm the interest of my customers…And my company would not answer to such requests.”
Chinese officials and cybersecurity experts point to former National Security Agency contractor Edward Snowden’s allegations the agency installed surveillance backdoors in U.S.-made routers designated for export. The NSA didn’t respond to requests for comment. In the past, it has said in response that it takes care to ensure that innocent users of such technologies aren’t affected by U.S. intelligence gathering.
The U.S. has also accused Huawei of stealing trade secrets and violating sanctions, raising the possibility the Trump administration could cut its access to critical U.S.-made components. Huawei denies wrongdoing.
If that happens, said Paul Triolo, a former federal government analyst who heads up global technology research at risk consulting firm Eurasia Group, China could build a version of 5G that isn’t compatible with the U.S. network. “If the global supply chain for 5G really falls apart,” he said, “we would be in totally new territory.”
Huawei Deputy Chairman Ken Hu said it has amassed 13,000 suppliers and that: “If any link in this global industry chain is obstructed in an unusual way, that would have major impact on the development of the industry chain and even the economic development of countries involved.” Huawei declined to comment further for this article.
Deploying 5G widely at home before the West does could benefit Chinese tech companies, said David Chao, general partner at DCM Ventures, a Silicon Valley venture-capital firm that invests in China. Chinese companies could have a leg up by using their huge domestic market to develop new apps and hardware that flourish with the faster speeds. “It could sprout a whole generation of mobile services that take advantage of that,” he said, “and they may be exported to the western world.”
At the heart of the divide are differing views on how to manage the internet. The U.S. pushes the open model on which the internet was built. Beijing and like-minded countries such as Russia say states should be able to censor, spy on or otherwise control internet traffic within their borders.
Beijing has sold its internet model alongside Chinese-made telecom equipment in countries as distant as Vietnam and Tanzania as part of an effort to build what it calls a “Digital Silk Road.” Last year, Tanzanian officials followed up public praise for Chinese internet censorship by approving rules that threaten online content providers with fines and jail if they don’t take down “prohibited content” at government request.
Tanzanian information minister Harrison Mwakyembe said the government backs China’s vision of strict internet policing to protect national security and to prevent “moral degeneration.”
Government officials in India have been considering ways to shelter domestic tech firms from American companies such as Amazon.com Inc. and Facebook, much as China has protected its own startups. India’s telecom secretary, Aruna Sundararajan, said the idea is to promote Indian companies “to become global champions.”To promote its notion of “cyber sovereignty,” China has lobbied at the United Nations for discussion of internet regulation to be limited to states, with industry and civil society relegated to the sidelines. In 2017 at a conference in China attended by Apple CEO Tim Cook and Google chief Sundar Pichai, the Communist Party’s top official in charge of ideology and propaganda, Wang Huning, praised Chinese President Xi Jinping for advancing China’s vision of the internet, saying it had “gained broad approval and positive responses from international society.”
Firewall rising
At first, with the internet’s spread, foreign companies were welcome in China and technology evolved faster than the government’s censorship capabilities. Google rolled out a censored Chinese-language version of its search engine. Amazon entered the market, and Chinese users flooded onto Facebook, YouTube and Twitter.
Chinese leaders took more control after the 2008 Beijing Olympics, reflecting fear of political dissent and concern Chinese businesses were struggling to compete online. Facebook, Twitter and YouTube were blocked in 2009. The next year, Google said it was no longer willing to censor search results, and it was blocked. The websites of several foreign news organizations, including The Wall Street Journal’s, are also blocked.
That left China’s search market to Baidu Inc. Alibaba vanquished eBay Inc., and its Alipay payment system gave it a lock on online payments, with foreign firms from PayPal Holdings Inc. to Visa Inc. blocked from providing payment services.
Outside China, Alibaba was an afterthought in many markets. Baidu shut down search engines in Japan and Egypt after investing in local-language products. An Alibaba spokeswoman said the company remains “fully committed to realizing our mission of making it easy to do business anywhere in this digital era.” A Baidu spokeswoman said the company still provides advertising and other services in Japan.
Despite an aggressive marketing push featuring celebrities such as soccer star Lionel Messi, Tencent has struggled to expand WeChat overseas. Since January 2012, WeChat has been downloaded about 350 million times from Apple’s App store world-wide, according to research firm Sensor Tower Inc. About 83% of those downloads come from users in China and 17% from outside, according to Sensor Tower. Tencent didn’t respond to requests for comment.
Some Chinese tech champions have struggled overseas because they came late to markets where competitors such as Google and Facebook have a foothold.
Another factor is suspicion the companies may have links to the Communist Party. Ant Financial Services Group, owned by Alibaba founder Jack Ma, made a 2017 bid to enter North American financial services by acquiring Texas-based MoneyGram International Inc. The Committee on Foreign Investment in the U.S. rejected the deal last year. It also blocked Broadcom Inc.’s planned purchase of Qualcomm Inc., citing concerns it would weaken Qualcomm, a major competitor to Huawei in 5G patents.
In September, Mr. Ma recanted a pledge to create a million U.S. jobs, citing trade hostilities. He didn’t respond to a request for comment sent through Alibaba, which pointed to an interview Mr. Ma did in which he said “trade should be a propeller of peace.”
Washington’s effort to push back on the equipment side started years ago. It blacklisted Huawei and China’s rival ZTE Corp. in 2012, when the House intelligence committee concluded they weren’t free of Beijing’s influence. ZTE and Huawei have repeatedly said they aren’t a threat. The U.S. pushback escalated last month with a U.S. indictment against Huawei’s chief financial officer for allegedly playing a role in breaking Iran sanctions. Separately, prosecutors accused Huawei of stealing trade secrets. Huawei has denied wrongdoing in both cases and said it was unaware of any wrongdoing by the CFO, who has denied the allegations.
Europe’s eastern flank is a particular battleground. In December, the Czech Republic’s top cybersecurity agency warned that sensitive data probably shouldn’t be carried over Huawei gear. But the country’s president, Milos Zeman, has criticized those findings. Last month, he took two senior Huawei executives on a tour of Prague’s castle and in a televised interview called Huawei spying allegations hysteria. His prime minister, Andrej Babis, has taken a differing view, saying Czech agencies and European Union leaders should take such allegations seriously. A spokesman for Mr. Babis confirmed his views. Mr. Zeman’s office declined to comment.
For now, motivated consumers in China can span the two internet worlds using workarounds such as smartphones with foreign SIM cards that connect to the outside internet, said Li Zhen, a Hong Kong market-research analyst who travels to China for business.
She senses the rift in the paranoia her Chinese contacts exhibit while talking on WeChat about potentially sensitive topics. “My friends in the government and media will talk in code, and it can take a long time to figure out what they’re saying,” she said. “Sometimes the topic is probably not so sensitive, but you never know.”


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