The Future of Internet
The Making of China’s Future Internet

A Closer Look on the Fourteenth Five-Year Plan on Digital Economy
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© iStock/ enot-poloskun

As U.S.-China technology competition heats up and China increasingly cracks down on its own digital sectors, there has been growing interest outside China in scrutinizing its seemingly unending array of announcements of new digital legislations and regulations on cybersecurity, data security and privacy, as well as others areas. But any attempt to understand where China’s strategic development is heading would not be complete without examining China’s state planning strategy documents.

Indeed, as a centrally planned economy, Five-Year Plans have been issued by the central government of the People’s Republic of China since 1953. The latest, the Fourteenth Plan for 2021-2025, was adopted on March 11, 2021, generally pointing the nation toward a “new development stage,” signified by measures to strengthen the “internal cycle” for consolidating the domestic economy and social development. However, such tactics should not be mistaken for an overall inward-looking strategic outlook for its future development goals. In particular, China’s ambition toward technology, including its Internet and digital economy development blueprint, remains highly ambitious with global aspirations.

China’s aspiration for global influence and, potentially, even dominance in this regard can be evidently seen from this latest Five-Year Plan on Digital Economy Development, issued by the State Council on December 12, 2021. Such planning documents by the State Council or various official agencies are common in China. They are typically released after each main Five-Year Plan is issued. Their aim is to elaborate on the sectoral guidance for specific policy areas. The typical hallmark of such state planning documents must be the “guiding thought” of the time. Here it is the “new age of Xi Jinping socialism thoughts with Chinese characteristics,” and "thoroughly realizing the spirit of the (most recent) Chinese Communist Party Congress.”

Digital Economy Dominance by Xi Jinping thought

So, what is digital economy as far as China’s state planning is concerned?

It begins with the information infrastructure that enables the “ABCD” technologies — Artificial Intelligence (A), Blockchain (B), Cloud Computing (C) and Data (D) — with key past accomplishments from the last five-year period, such as China boasting “the largest fiber optics and 4G communications network in the world,” as well as strong adoption in e-commerce and e-government, and from financial technology to online learning, and so on. China’s digital economy core industry is said to have added as much as 7.8% in value to its GDP.

While both the increasing global competition and the isolation from the west must occupy a substantial part in shaping China’s digital development strategy, the document predictably did not spell out the obvious, but admitted that “under the influence of multiple external factors,” China’s domestic digital economy faced an environment of “immense changes.”

In view of the “new environment,” China’s state planners identified four observations that would guide their strategic objectives and actions to follow. First, developing its digital economy sector will be “the tactic of choice to ride the next wave of technological revolution and opportunities from industry transformation.” Second, the “data factor” will be the “core engine to deepen the development of the digital economy.” Third, “digitized services will be an important avenue to fulfil an improved way of life for the citizens.” And, finally, “regulating for a healthy and sustainable digital economy must be urgently demanded,” in order for the digital economy to develop in a “high quality manner.”

The targets — from broad goals to specific measurements

Accordingly, the planning document listed five broad development targets:

1. The preliminary structure of the factor market for data will be established.

This indicates the full recognition and understanding by the Chinese Central Government of data as a critical factor of production for economic activities, in addition to traditional factors such as capital, raw materials, labor, land, and so on. This means, that data is being put under the same level of centralized planning, control and regulation as other factors of production. China clearly aims at quickly becoming the pioneer in the experimentation of the regulatory and governance framework for data trading and exchange, leveraging its market scale in data generated in many critical areas such as financial services, transportation, logistics, and others. China is aiming for the first-mover advantage: to set the standards ahead of its competitors, such as the U.S. and Europe, in order to shape and influence global compliance and the rules to be established in other parts of the world.

 

2. Digital transformation for production and service industries as well as agriculture will enter a “new stage”.

This is a recurrent message that was prominently emphasized in other planning documents, such as the Fourteenth Five-Year Plan on Software and Information Technology Service Industry Development, issued by the Ministry of Industry and Information Technology (MIIT) in November 2021, where advancements in industrial automation and software defined infrastructure were repeatedly called for. This is not only consistent with the goals of the “Made in China 2025” national policy but also clearly addresses a critical shortcoming perceived by many on China’s labor-intensive industries that have neither been able to utilize high technology in production, nor become a sufficiently competitive player in high-tech products such as semiconductors.

 

3. The level of industrialization of the digital sector will be significantly escalated.

For years, China has advocated for the development of its domestically driven innovation capabilities, including for digital services and products. Aided by its huge domestic market, many leading tech firms have achieved significant scale and profits, but its overall level of real innovation has been up for debates. With the ongoing tech crackdowns in China, its digital sector, especially the platform players, will continue to face extremely challenging environments, both at home and abroad. It is widely believed that China will attempt to mobilize its state efforts to redirect innovation to the “deep tech” areas, such as semiconductors, advanced artificial intelligence, high-powered cloud computing, quantum computing, etc.

 

4. Digital public services will be more universally accessible and equitable.

Despite the high level of mobile and broadband penetration in China and the wide adoption of some applications especially in sectors like e-payments, the digital divide remains an issue for a large country with a wide and widening income gap among its people. Calls to continually close the digital divide will suitably echo Xi Jinping’s “Common Prosperity” slogan and objective.

 

5. The governance system for the digital economy will be optimized.

Here the Chinese characteristics of governance are clearly on display, with a system that will continue to be singularly led by government at all levels, with a model of “diversified participation, protected by the rule of law.” The regulatory regimes for the digital sphere will be “perfected,” with an emphasis on the improvement in the “security” of the digital economy. Such description echoes the narrative of China’s political system and national security, which dictates that the digital governance system will firmly be in the control of the Chinese Central Government and the Party.

Blockchain-Based Service Networks and Bandwith Blockade - From Targets to Actions

In upgrading China’s information network infrastructure, the related plans are the most extensive and wide-ranging, covering domestic fiber networks and international underseas fiber optics cables to support data center clusters across the country, as well as satellite communications to improve the country’s global positioning capabilities in support of its spatial information infrastructure improvements.

A number of projects that received attention recently can be seen as China’s effort to accomplish its digital economy and information network infrastructure planning. For instance, China will build its first “free trade port for data” with an investment of US$5 billion in the southern city of Nansha, in Guangdong Province. Nansha will act as a hub of cross-border data transfer and underseas cables, possibly through collaborating with China’s Belt and Road partner countries. The concept is derived from China’s “free trade zones” in recent decades that have been offering favorable tax and other legal treatments for cross-border trading of goods. China has in the past attempted to duplicate this concept to the service sector, with limited success, and is only now extending the application to data exchange, which will be critical for firms, both domestic and foreign, to navigate the rigid control of data flows, particularly after the enactment of the Data Security Law.

The Nansha free data port can also be regarded in part as a response to the U.S. authorities’ position to disapprove underseas cable projects with American involvement to Hong Kong, because of China’s increasing control over the special administrative region, since 2020, beginning with disallowing the Pacific Light Cable Network (PLCN) to land in Hong Kong. The underseas cable project, with investment from American Internet giants Google and Facebook, would have been the first direct link between Los Angeles and Hong Kong, but eventually had to be rerouted to terminate in Taiwan, in order to obtain U.S. approval.

With no expansion of commercial underseas cable capacity in the foreseeable future for both China and Hong Kong with any involvement from firms from the U.S. or from other countries likely to be influenced by U.S. policies, Chinese authorities will have to step in to counter the “bandwidth blockade” and address its future capacity demand growth, seeking cooperation with its Belt and Road Initiative partners. The success of that strategy remains to be seen, and it will depend largely on regional geopolitical factors between the U.S. and China.

It is also worth noting that China has decided to put the underseas cable hub inside the mainland, at Nansha, and bypass Hong Kong, which has been a major international data center and underseas cable hub in Asia, up until the recent U.S. sanction, and which is only a short distance of 80 kilometers away.

As part of the document concerning cooperation under the Belt and Road Initiative, the construction of a trusted blockchain-based service network was mentioned. Indeed, China’s Blockchain-based Service Network (BSN) has been touted as the state-sponsored private-public partnership to create a “common infrastructure for the deployment and operation of blockchain applications globally,” by setting up a “global infrastructure” but operating in such a manner that the operator of the BSN will be able to censor or entirely delete blockchains that violate Chinese regulations, making it yet another example of extending China’s influence and its governance regime to outside its border.

Official Plans - What is Left out is Just as Important as What is Written

While China’s state planning documents often seem bureaucratic, mundane and repetitive in their tone and prose, they do work as a defined set of targets that officials in China are measured by and hence generally follow. They are thus offering a reasonably good indicator as to where policies, efforts and investments would be heading. However, while observers may sometimes be tempted to believe that such central planning seems carefully considered, and as a matter of fact it often is, it is still important to take into account the hidden purpose behind, and any unintended, or intended but unspoken, consequences that may result. What is not said may often be as important, if not more important, than what is being said.

Although China’s state planners adamantly advocate innovation and talent development, they hardly offer any justification as to why a centrally planned and controlled directive can help them reach that goal. China’s policymakers are usually quite confident, based on the success of the China Internet sector in the past couple of decades. It seems a little ironic then, that it is exactly these sectors that are being targeted by numerous clampdowns at present by the state to rein in the power of their “big tech,” making future success under an even more tightly controlled environment to be hardly of any certainty.

While talents and capital must also form critical parts of the innovation and technology development ecosystem, China’s “internal cycle” and growing isolation may indicate that they find it more and more difficult to draw on critical resources from outside China, especially those from the developed, free and democratic world. The jury is still out on this race between two vastly differing views to what it takes to reach success in innovation and technology development.

The ultimate purpose and agenda of practically any policy or strategy in China must be first and foremost in service of the ruling authority and the Party, and this includes the technological, economic and social goals of any state planning. While higher bandwidth and better network infrastructure should be beneficial to metropolitan as well as rural citizens, such implementations are also the backbone tools for an unrestrained state authority to further enhance the surveillance on its people and control their lives in potentially every aspect, without the safeguards of genuine rule of law, democratic institutions, and respect for human rights. And these are exactly the important rights of the people that were of course absent from China’s plan. Yet, what is missing from China’s plan may just be the differentiating strengths of the free world.

As the U.S. and other governments of the free world, as well as the industry and civil societies are contemplating how the future Internet should be developed and regulated, it is important for all the stakeholders to act with vision and to look beyond our current set of problems with the Internet or even the issues with the big tech giants. Policymakers and indeed all stakeholders must focus on the global big picture, taking into consideration China’s stated plans and strategies, as an important competitive reference, in order to develop the framework and action plan for a truly democratic, free, open and sustainable future Internet.

 

Charles Mok is a visiting scholar with the Global Digital Policy Incubator of the Cyber Policy Center at Stanford University. He represented Information Technology in Hong Kong's Legislative Council as a Member of Parliament from 2012 to 2020.