BIG IDEA | ‘BRI enables Chinese technology companies to penetrate and dominate markets.’

‘China’s Belt and Road Portal reports the Digital Silk Road has enabled six thousand Chinese internet companies and more than ten thousand Chinese technology products to enter foreign markets.’

‘Announced in 2015, the Digital Silk Road is a more focused undertaking than BRI writ large.’

• ‘A handful of China’s national champions—Huawei, ZTE, China Mobile, China Telecom, Alibaba, Tencent, Baidu, and JD, as well as a few others—are encouraged to build out digital infrastructure in BRI countries, with less overlap and a clearer division of labor.’

‘Tencent, Baidu, and JD, as well as a few others—are encouraged to build out digital infrastructure in BRI countries, with less overlap and a clearer division of labor.’

• ‘China’s Ministry of Industry and Information Technology has provided clear direction to these companies, identifying six core areas for the Digital Silk Road: 5G technology, smart cities, utilization of the Beidou satellite system, communication infrastructure, network connectivity, and telecommunications services.’

‘Under the Digital Silk Road, indigenous Chinese ICT firms receive state backing that gives them three sets of advantages:’

1. ‘First, companies such as Huawei, Hikvision, and ZTE gain preferential government treatment through policy support and major lines of credit through CDB, China EXIM, and state-owned commercial banks. This in turn allows them to sell their products 30 to 40 percent more cheaply than non-Chinese competitors.’
2. ‘Second, Beijing also extends credit to specific Digital Silk Road projects and countries to allow them to make major purchases from Chinese companies. For example, China EXIM financed 85 percent of the China-Pakistan Fiber-Optic Project and loaned to Nigeria the full cost of a Huawei-built 5G network.’
3. ‘Third, policy backing and pricing advantages allow Chinese companies to receive preferential terms when they negotiate deals with local governments.’

‘China’s Belt and Road Portal reports Digital Silk Road has enabled six thousand Chinese internet companies and more than ten thousand Chinese technology products to enter foreign markets.’

‘For a technology company such as Huawei, moving into a new market can be expensive—a problem alleviated by government subsidies that make Huawei’s products significantly cheaper than its competitors and Chinese financing to Huawei’s customers that enables them to purchase these already cheaper products at lower interest rates with more generous grace periods.’

• ‘Once Huawei is in place, it is relatively cheaper for additional Chinese companies to follow it into that market or for Huawei to gain a foothold in adjacent markets.’

‘China often offers BRI countries complete technology packages, including cloud services, mobile payments, smart cities, and social media applications from a combination of Chinese companies.’

• ‘Once these technology suites are embedded, switching to non-Chinese providers becomes far less likely and more costly for local operators, especially because telecommunications companies generally cannot mix and match components—using Huawei equipment alongside Ericsson or Nokia, for example.’

‘Moreover, if Huawei builds the entire 5G network for a given Digital Silk Road country and its neighbors, this raises the chances that it will be chosen to upgrade those systems when newer technologies become available.’

• ‘Huawei has already finalized more 5G contracts than any other telecom company, half of which are for 5G networks in Europe (see figure 11. above).’
• ‘In Africa, Huawei has built 70 percent of the fourth-generation (4G) networks on the continent and has signed the only formal agreement on 5G on the continent.’
• ‘In all, Huawei has shipped seventy thousand 5G base stations globally.'

‘The export of Huawei telecom equipment along the Digital Silk Road has also enabled the company’s share of global telecom equipment to increase by 40 percent in the years since BRI was rolled out.’

‘The Digital Silk Road provides additional backing to Chinese companies to build foreign digital ecosystems.’

• ‘Alibaba, the Chinese e-commerce giant, has come to dominate e-commerce in Malaysia, for example, and its affiliate Ant Financial has subsequently established cooperation agreements with Malaysian banks, leading to much stronger bilateral commercial and financial ties.’
• ‘Malaysia is an outlier in the extent of its embrace of Chinese e-commerce, but the Chinese government has also begun a push to export data centers, including through ASEAN, which could make members depend more on China for data storage, analysis, and exploitation.’

‘Through the Digital Silk Road, China uses the initial sales of digital infrastructure to set accompanying standards.’

• ‘The success of Chinese companies such as Huawei and ZTE in building 5G networks and setting standards for these networks in Africa and parts of Asia is making it difficult for Western companies to sell similar technologies in these regions.’
• ‘The concern for non-Chinese firms is China’s ability to use initial sales, along with service and maintenance contracts—and any accompanying standards—to lock in market share for Chinese companies, particularly in those sectors where switching to a different provider is difficult and expensive.’