China’s Digital Silk Road and Southeast Asia

Southeast Asia is home to many of China’s most high-profile Belt and Road Initiative (BRI) projects, including Kyakpyu port in Myanmar, a high-speed railway in northern Laos, and now-stalled rail and pipeline projects in Malaysia. While these physical infrastructure projects have attracted widespread attention, China’s involvement in the region’s digital infrastructure has been far less examined despite holding the potential to have even greater strategic importance in the coming years.

Southeast Asia’s rapidly growing economies, buoyed by young populations living in some of the world’s most digitized societies, offer tremendous business opportunities for information and communication technology (ICT) companies from around the world. However, Southeast Asia’s strategic importance for China, the United States, Japan, and others, and the advantages that will come with control over data flows, mean that the region’s decisions on digital infrastructure and internet governance will have implications that far transcend business outcomes. The United States, Japan, and other countries have begun to focus considerable attention on this issue, but the challenge of competing with China in an environment in which its companies enjoy substantial advantages over competitors due in part to government support is daunting.

Digital Silk Road and Southeast Asia

China’s investments in Southeast Asia’s digital economy fall under its Digital Silk Road (DSR) concept. Unlike other components of the BRI that the Chinese government has aggressively encouraged through policy and financing, Beijing’s role to date in supporting the DSR has been blurrier and more low-key. Instead, China’s global push into the global digital economy has largely been driven by its national tech champions Huawei, ZTE, Alibaba, and Tencent, who have been able to deliver high-quality products at low cost, partially due to Chinese government support.

China’s tech giants are already major investors in Southeast Asia’s startup and e-commerce scenes. Notably, Alibaba operates the Singapore-based e-commerce firm Lazada Group, which counts the highest number of monthly active users in Thailand, Malaysia, Philippines, and Vietnam. Tencent and Didi Chuxing, among others, have invested in the booming car sharing industry, including Grab and Go-Jek, which dethroned the U.S. leader global ride-hailing service Uber in Southeast Asia. Jack Ma’s Alipay recently broke into the e-payment market in Cambodia, Laos, the Philippines, and Myanmar to initially serve Chinese tourists, with previous launches in Singapore, Malaysia, Thailand, and Vietnam. Ant Financial, Alipay’s mother company, has expanded its presence in Southeast Asia’s tech space through an aggressive mix of merger and acquisitions and partnerships, notably in Thailand with Ascend Money, in Indonesia with Emtek, and most recently in the Philippines with Mynt.

Huawei and ZTE are the most involved in terms of ICT infrastructure, particularly the laying of fiber optic cables. Huawei Marine has completed over a dozen undersea cable projects in Southeast Asia, and close to 20 more are under construction, mainly in Indonesia and in the Philippines. Similarly, Chinese mobile manufacturers Oppo, Huawei, and Vivo have collectively overtaken the long-time market leader Samsung in the region.

In the race to build the region’s next generation of mobile internet connectivity, Chinese ICT firms are spearheading efforts to develop 5G networks and cloud computing intended for Southeast Asian markets. Just this month, Huawei launched its first 5G testbed in Southeast Asia in Thailand, and Alibaba Cloud opened a second data center in Indonesia.

Meanwhile, while U.S. companies such as Facebook, Google, and Twitter have a massive presence in Southeast Asia and Apple retains large market shares in several countries, U.S. companies have not been nearly aggressive as Chinese ICT companies in competing on e-payment, cloud computing, and the building of 5G networks.

Strategic Implications

Southeast Asia’s internet economy was valued around $50 billion in 2017 and expected to quadruple by 2025, unquestionably presenting major, commercial opportunities for Chinese ICT companies. However, the strategic implications of China’s digital push into Southeast Asia and the advantages that Beijing gives its companies mean these developments deserve close scrutiny both in the region and by actors with major strategic stakes, such as the United States, Japan, Australia, and the European Union.

China’s control over vast amounts of data is the most obvious strategic risk, as optical fiber transports huge amounts of personal, government, and financial data, which would presumably be shared with the Chinese government if controlled by Chinese companies. Southeast Asian countries are generally increasingly aware of the risks presented by China’s investments in digital infrastructure from espionage and overall data safety, which is in line with their wariness of excessive Chinese influence more generally. As a result, while Southeast Asian countries are increasingly adopting software that China offers, they are generally more reluctant to adopt Chinese-made hardware. Ongoing U.S. government efforts to help these countries understand the risks associated with adopting Chinese technology are also contributing to Southeast Asian governments carefully considering decisions related to plans for 5G networks. Ultimately, Southeast Asian countries will face the challenge of having to choose between cost and risk.

China’s digital push into Southeast Asia also offers an opportunity for China to spread its own cyber governance system, which runs counter to principles of free and accountable governance. Rather than promoting an open and secure internet, China advocates for localization policies that enforce how data is stored, processed, and transferred, and for cyber laws that facilitate strict control over internet content. On this subject, Xi Jinping has laid groundwork through China’s “right to speak” or “discourse power” policy, aimed at elevating China’s capabilities to influence global values, particularly by shaping the emerging order in cyberspace.

Southeast Asia’s increasingly authoritarian leaders are finding China’s cyber model to be attractive, given that the Chinese government has been able to control and access data while at the same time dramatically growing its digital economy. The most high-profile case has been Vietnam, where the new cyber law draws heavily from Chinese practices by imposing regulations on data storage, among other aspects; Google and Facebook now have a few months before they will be forced to begin handing over their customers’ data to the Vietnamese government. Indonesia stands out as another major Southeast Asian country attracted to elements of the Chinese model, including data localization and control of content, with Thailand’s 5G testbed also raising concerns.

China’s push for data localization in Southeast Asia will negatively impact the United States by creating an environment that makes it difficult for U.S. and European firms to operate cost-effectively across the region. In contrast, as disparate data localization policies across Southeast Asia raise operational costs for businesses, China will have further opportunities to deepen its footprint given that China will incentivize its national tech champions to expand in the region for strategic reasons despite inefficiencies.


U.S. ICT companies still retain considerable advantages in Southeast Asia, including strong reputations and high-quality hardware. However, price and restrictive cyber governance models are creating significant headwinds, which could ultimately damage U.S. strategic interests in the region. In the coming years, as governments fine-tune their cyber governance models and lay out plans for 5G networks, the United States and its allies should accelerate efforts to work with Southeast Asian partners on issues related to digital infrastructure and governance, building on initiatives such as the U.S.-ASEAN Smart Cities Partnership. Moving forward, the strategic stakes of internet governance are yet one more reason why the United States should be comprehensively engaged in regional economic diplomacy in Asia, including through the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which would enable the United States to use its economic weight to help move the region toward a freer and more open internet.

Brian Harding is a fellow and deputy director with the Southeast Asia Program at the Center for Strategic and International Studies in Washington, D.C.

This piece was originally published as a CSIS Commentary on February 15, 2019.