The Internet Is Splitting in Two Amid U.S. Dispute With China
The Internet Is Splitting in Two Amid U.S. Dispute With
China
November 09 2018, 6:59 AM
(Bloomberg) -- Western bigwigs were a no-show at China’s
biggest web conference. But in their absence, the local overseers of the
nation’s technology industry were only too happy to plug their unique vision
for the global internet.
Unlike 2017, when Tim Cook and Sundar Pichai graced the
World Internet Conference in Wuzhen, this year’s gathering was a decidedly
domestic affair, presided over by the likes of Tencent Holdings Ltd. Chairman
Ma Huateng. Given the floor, they again pushed the concept of a rigidly policed
medium that -- nonetheless -- is a wellspring of innovation to revolutionize
businesses and modernize the Chinese economy.
That first part flies in the face of the familiar
U.S.-led model, yet has produced two of the world’s 10 most valuable companies:
Alibaba Group Holding Ltd. and Tencent. That rapid ascendancy prompted former
Google honcho Eric Schmidt to declare the internet will split down the middle
within the next decade, as authoritarian governments adopt China’s
all-encompassing controls.
On one side is a cyberspace arena that espouses open
communication while the other is a walled-off, thoroughly scrubbed world where
many are eager to sign away their data in exchange for services. At China’s
most important tech industry confab this week, Ma and a clutch of government
officials stressed it’s the country’s destiny to become an internet power, and
called for more balanced governance of cyberspace.
China’s regulators have trumpeted its concept of
“cyber-sovereignty” since the inaugural conference in 2014. But the dichotomy
between the American and Chinese tech industries has never attracted as much
scrutiny as today, when the world’s two richest countries are butting heads in
a conflict that may shape a new world order. As U.S. icons like Google and
Facebook come under fire for privacy violations and enabling hate speech, their
Chinese counterparts are touting theirs as the superior model: one geared
toward the interests of the state.
“The Chinese economy is a vast ocean. Storms cannot disrupt
it,” Ma, who is also known as Pony, told delegates. “This ocean holds massive
market potential and also great room for innovation. I believe, this isn’t just
a development opportunity for the internet industry, but for all sectors. It’s
not just an opportunity for China, but for the entire world.”
Remarks from Chinese President Xi Jinping read out at the
start of the conference called for “mutual respect” in cyberspace between the
two nations. The current rift in their approaches however has profound implications
and may bar the likes of Facebook Inc. and Alphabet Inc. from any meaningful
presence in the world’s largest internet and mobile arena. It’s another
manifestation of what former U.S. Treasury Secretary Hank Paulson called an
“economic iron curtain” dividing the world if the two nations fail to resolve
their strategic differences.
Unlike the relatively hands-off American model, the
Chinese approach is geared toward one over-arching imperative -- propelling and
safeguarding the ruling Communist Party. Anything deemed to undermine that
objective, from pornography and addictive games to pockets of dissent, is
ruthlessly rooted out when discovered. To wit, China has the lowest level of
internet freedom among 65 countries polled by Freedom House.
Critics of the model say players like Alibaba and Tencent
thrive because Beijing dampens competition by making it nigh-impossible for
global players such as Facebook to operate. They say the government’s heavy
hand and unpredictability is counter-productive. Exhibit A: a months-long
crackdown on gaming that helped wipe out more than $200 billion of Tencent’s
market value this year. That cultivates a pervasive climate of fear, said Gary
Rieschel, founding partner at Qiming Venture Partners.
“Every time you see one of these vast losses, you can see
the Chinese government,” he said. “We’ve never seen a country solve the issues
that China is trying to solve, when your best and brightest people aren’t fully
committed to being there. This is new territory, we’ve not seen this before.”
The walled-garden argument fails to take into account a
level of competition that puts the American industry to shame. Despite
pervasive censorship, the Chinese internet has evolved into one of the most
vibrant town halls the world’s fever seen -- it’s tough to truly rein in a
billion people -- as an army of millenials live-stream in the millions and
super apps thrive with more users than there are Americans. From Tencent’s
WeChat to Bytedance Ltd.’s short-video repository Douyin, the global industry
is starting to realize the richness of the Chinese internet.
“Why couldn’t the U.S. and China both invest in the same
company?” Sinovation Ventures’ Kai-fu Lee said at the Bloomberg New Economy
Forum this week. “This is definitely not a war. But again it doesn’t look like
we’re on the path to be able to do that dream team investment.”
Hillhouse Capital Chairman Zhang Lei argues the
industry’s dynamism counters the specter of Beijing. Even the prospect of
losing one’s shirt in highly volatile markets can motivate serious
entrepreneurs. “You can walk away without your wallet and I think that actually
inspires a completely different set of companies born in that digital, savvy
and mobile-native environment.”
Central to the idea of a Chinese-centric internet is data
sovereignty and that information of citizens must be stored in-country and
accessible on demand, a concept enshrined in Chinese law since 2017. That
philosophy has since been embraced by governments from India to Southeast Asia.
American multinationals who operate in China have complied: Apple Inc. decided
last year to set up a venture with a local government to store iOS user data on
local servers. Alphabet’s Google explored a censored search engine to help it
get back into the country. And Facebook’s Mark Zuckerberg has been courting
Beijing for years.
And as China plays the long game selling its concept of a
closely controlled internet to the developing world - alongside the technology
needed to pull it off - the Communist Party’s vision of a web where governments
pull the strings could wind up the model for the next billion users.
“Every country is sovereign and understands its situation
better than outsiders. We should never come and tell a country ‘this is good
for you, this is bad for you’,” said former Pakistan Prime Minister Shaukat
Aziz. “A sovereign country has to decide what’s good for it. I don’t think
there’s one model that works for everything for any product around the world.”
©2018 Bloomberg L.P.
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