Belt & Road Bolsters China’s Technological Clout

As demand for network bandwidth grows among Belt and Road (B&R) countries, China will exert its technological dominance and set global standards through centrally-coordinated fiber-optic roll-outs, the establishment of data centers, and the deployment of communications, positioning, and observation satellites. Since the original “Silk Road Economic Belt” and “Maritime Silk Road” initiatives, the Chinese government has launched programs specific to the technology, media, and telecommunications (TMT) sector, including the “Information Silk Road” and the “Spatial Information Corridor” to further its ambitions for tech superiority and informational control.

Three key trends will continue developing in conjunction with the Belt and Road Initiative (BRI) across Asia, the Middle East, Europe, and Africa:

Fiber-optic cables and other communications infrastructure projects will be launched alongside traditional transport and power infrastructure in emerging markets along the BRI. With mobile and internet usage rapidly growing across many emerging markets, such investments will be key to securing and consolidating Chinese companies’ local presence.

Chinese companies will be increasingly involved in network upgrades, the launch of consumer electronics, and the construction of data centers in BRI emerging markets. With the mobile market in China nearing saturation, China’s operators and communications providers welcome opportunities to expand organically and are looking to position themselves in less developed markets in order to benefit from the adoption of data and cloud services as they move up the technology value chain.

Chinese and overseas companies will seek to use the BRI as an opportunity to set international standards or procedures in areas such as global positioning, wireless communications, and smart-city sensor and data platforms. Countries at lower levels of development will stand to largely benefit from Chinese investment, although the risk is that they will become dependent on their benefactors.

Fiber Deployments: The Main Enabler

The Pakistan-China Fiber Optic Project, set to come online at the end of 2018, and the parallel fiber roll-out along the Turkmenistan-Afghanistan-Pakistan-India (TAPI) natural gas pipeline are among the bigger projects to have broken ground. Chinese telecommunications gear makers will seize the opportunity to provide equipment and partner with the local telecommunications companies to operate the infrastructure but are likely to keep foreign suppliers out, given the history of Chinese companies in choosing compatriot suppliers. B&R countries will benefit from added international bandwidth, which will help drive average broadband tariffs lower, as well as the prospect of collecting data transit revenues.

With more widely available energy infrastructure, which underpins most of China’s economic growth ambitions, the opportunity to construct and operate data centers at relatively lower costs has also emerged. Telecommunications equipment makers will ride on demand of operators for data-center networking equipment, such as routers, switches, and cables to drive revenue growth. To this extent, Chinese carriers have partnered with Djibouti Data Centre, which has access to key submarine cable networks, constructed data centers in Singapore and Hong Kong, and acquired Netherlands-based Linx Telecommunications, which provides cloud services in several Central Asian and Eastern European B&R countries.

Internet of Things to Enable Smart Cities

Improved data movement and storage will enable the proliferation of smart cities along the B&R route, presenting the next frontier of growth for telecommunications and tech players in regard to the Internet of Things (IoT). This will come hand-in-hand with conventional infrastructure development projects under the BRI which include urban transport and utility projects. President Xi Jinping has highlighted that development of “big data” applications, cloud computing, and smart cities will be key to the development of the digital Silk Road, with better connectivity and improved data management allowing governments to manage rapid urbanization and booming population growth more effectively than would otherwise be possible.

Telecommunications operators will be eager to roll-out machine-to-machine (M2M – remote device control and management) solutions to provincial/municipal governments and develop smart city solutions in areas such as waste management, energy monitoring, and traffic control. Schemes such as the New Manila Bay Project are among the smart city projects slated for development, and we expect many capital cities of B&R countries to be the target of ambitious tech companies.

The “Spatial Belt and Road”

Another area in which China is seeking to expand its presence and influence is the space industry. Satellite providers are finding opportunities with media companies interested in penetrating BRI markets; in 2017, state-owned China Great Wall Industry partnered with Thaicom to launch a satellite for enterprise communications, while also agreeing to supply two satellites to the Nigerian government in exchange for a stake in state-owned satellite operator Nigcomsat.

The Chinese government will also take the opportunity to set international standards, using the BRI as a source of legitimacy. Beijing is aiming to increase adoption of its own global positioning system, BeiDou as an alternative to the United States’ Global Positioning System (GPS), Europe’s Galileo, and Russia’s GLONASS. The system is now live in Karachi, Pakistan, which houses base stations and processing centers. BeiDou is a complete substitute for GPS, assisting users with urban planning, surveying and mapping, environmental supervision, disaster relief, and traffic monitoring, among others. Chinese enterprises, including smartphone makers have already backed the new standard, with Huawei and Xiaomi pledging to manufacture devices that support the system.

Downside Risks

In addition to the commercial motivations of tapping into opportunities in developing ICT markets, fiber-optic infrastructure projects along BRI routes have geopolitical and strategic implications. With cables connecting Europe to China via routes under its control, rather than through the Indian Ocean or the United States, China shields itself from U.S. and other Western intelligence agencies. Other cable projects including a long-planned cable connecting Brazil to Portugal and the BRICS cable project linking Vladivostok to Brazil, via China, India, and South Africa, also exclude U.S. technology. Growing concerns over the surveillance of data traffic and the risk of potential interception of critical financial and security information are motivations for gaining more control over networks.

At the same time, BRI countries benefiting from Chinese-led technology infrastructure projects face the risk of surveillance from China; a reliance on the BeiDou system may allow Chinese monitoring of civilian movement and activity, for example. The use of China’s positioning system will also lead to increased political clout for China, which could shift the power balance in the region. Chinese tech companies are already highly adept at using artificial intelligence to power both their internal business processes and, particularly in the case of media-centric players such as Tencent and Baidu, their relationships with customers. The data gathered from both partners and consumers will give Chinese players even more power to influence Belt and Road markets. As demand for bandwidth grows along China’s Belt and Road initiative, Chinese involvement in technology, media, and telecommunications projects will continue to rise. Along with commercial opportunities, these projects carry geopolitical and strategic implications, paving the way for China’s technological dominance and furthering its ability to set global standards under the banner of its Belt and Road initiative.

Kenny Liew is a Singapore-based analyst at Fitch Solutions’ Telecoms, Media and Technology (TMT) practice.