CvT: Oct. 21, 2020

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A Glimpse Into the Past, Present, and Future of Xi’s Bellwether City, Shenzhen

Written by: Archit Oswal

Part of a sprawling megalopolis stretching from Guangzhou to Hong Kong, Shenzhen has emerged as President Xi Jinping’s showpiece for “socialism with Chinese characteristics.” With a GDP that has now surpassed that of neighboring Hong Kong, the Shenzhen Special Economic Zone (SEZ) has become a hub for China’s booming tech industry and a home to the likes of Alibaba, Tencent, and Huawei. In a speech last Wednesday commemorating Shenzhen’s impressive journey from a sleepy fishing village to a bustling metropolis, President Xi laid out Beijing’s strategic vision for the city that has become a bellwether for China’s global ambitions.

The past: opening up & integration

Shenzhen’s designation as an SEZ in 1980 opened the city to foreign direct investment, and seemingly overnight the city became a manufacturing boomtown as multinational corporations scrambled to take advantage of the SEZ’s relaxed policies and generous economic incentives. The result was an impressive trade surplus, which helped fund the educational and research institutions that form the backbone of Shenzhen’s tech economy. In his speech, President Xi attributed the city’s prosperity to the government’s opening-up policy, which he pledged that officials would “adhere to in order to enhance the current strategy of going global.”

Beijing’s commitment to staying the course on market liberalization in order to raise Shenzhen’s competitive profile in the global arena aligns with its vision to transition the city, and eventually the country, to a knowledge economy. In addition to digital infrastructure and a favorable business environment, knowledge economies require access to deep capital markets and the global talent pool to thrive. The world’s most famous knowledge economy, Silicon Valley, has unparalleled access to both.

Taking a page out of America’s playbook, President Xi promised in his speech to pursue liberalizing reforms that will continue attracting capital and, eventually, foreign talent to Shenzhen. Because innovation in the 21st century relies on collaboration, Beijing is willing to continue experimenting with economic liberalization in non-strategic sectors in order to deepen integration with the global innovation network. In President Xi’s own words, developing a sophisticated services sector will require “an open, transparent, inclusive and non-discriminatory environment for businesses to grow.”

Plans to deepen Shenzhen’s ties to the global economy pale in comparison with President Xi’s intention to make Shenzhen the “engine” for the Greater Bay Area, a densely populated cluster of economic heavyweights that includes Guangzhou, Hong Kong, and Macao. Deeper integration of the Greater Bay Area will accelerate the region’s economic development by lubricating the flow of people, goods, capital, and information. In his speech, President Xi promised the additional construction of regional railroads and educational institutes to realize his vision of an integrated Bay Area. In the long run, the transfer of knowledge and business processes from SEZs into the wider economy will drive transformation in areas of China that have not yet opened up. However, the immediate implication of Shenzhen’s surging prominence is the relative decline of neighboring Hong Kong as China’s gateway to global expertise and capital.

The present: economic transition

Released in 2016, the 13th Five-Year Plan laid out Beijing’s vision to transition from investment-driven to consumption-driven growth and allocate economic resources more efficiently. The waning efficacy of public investment in recent years has burdened China’s banks and companies with high levels of debt, and continuing to rely on investment to drive growth could lead to a debt-fueled economic bubble of monstrous proportions. A shift to consumption-driven growth will require Beijing to make structural changes to its economy that puts more money into the hands of consumers and increases worker productivity. Beijing’s predilection for using SEZs to pilot market reforms has not changed since the introduction of SEZs 40 years ago, and President Xi indicated in his speech that Beijing will continue to pilot new programs in Shenzhen that “ease market access for the services sector,” a key step toward the creation of a productive, advanced economy. Also included in President Xi’s reform package are plans to address the needs of the domestic market and “allow people to benefit more from the achievements of reform and development in a fairer and more equitable way.” Successful execution of these reforms will aid the economy’s transition to a consumption-driven model.

President Xi’s speech also marked a significant step forward in the development and implementation of a centrally-backed digital currency, which, if realized, would reduce the country’s reliance on America’s CHIPS payments system and stimulate consumer demand through regular “helicopter drops,” or instantaneous infusions of freshly minted digital currency into citizens’ bank accounts. Within 24 hours of President Xi’s speech, the PBOC piloted its indigenous payments system by digitally issuing CN¥10 million to 50,000 people in the Shenzhen area. The successful pilot not only marks the launch of the next phase for China’s digital currency initiative, but also highlights Shenzhen as a testing ground for cutting-edge technologies and reforms that will allow  China to achieve “sustainable, higher quality growth.”

The future: economic sandbox

Shenzhen’s figurative location at the nexus of China’s development strategies as well as its physical location in one of the world’s most economically vibrant regions makes it an evergreen testing ground for Beijing’s market reforms. As China transitions to an innovation-driven and consumer-centric development model, the success of these reforms will inform Beijing’s decision on the pace of economic liberalization elsewhere in China. Crucially, the influx of resources into Shenzhen will alter the Greater Bay Area’s balance of power and influence the political development of Shenzhen itself. How Beijing manages the political consequences of these changes remains to be seen. 

The Next Cyber Battleground: Washington’s CNP vs. Beijing’s DSI

Written by: Grace Spoerner

The Trump Administration recently announced the expansion of the Clean Network Program (CNP), an initiative purportedly intended to safeguard United States citizens and companies from malicious cyberattacks by the Chinese government and its affiliates. Secretary of State, Mike Pompeo, explained that the CNP expansion is a result of growing discourse within the Chinese government and the desire of the Trump administration to end its reliance on Chinese technology and decouple the two systems. 

The CNP expansion is a consequence of American companies’ growing reliance on cloud technology and their concerns about data security in relation to the Chinese government. In the United States, cloud spending from large corporations has generated an estimated US$214 billion to US GDP and created approximately 2.2 million jobs. The rise in the United States’ dependence on cloud technology has resulted in various hacking attempts traced back to the Chinese government that have stolen both US citizens’ personal information as well as classified US government data. There are concerns that should Chinese companies increase their industry exposure in the United States market, because of policies in China requiring companies to cooperate with government intelligence efforts, Beijing could potentially gain easier access to intelligence and data gathering from American users through private sector backchannels and thereby pose a threat to US consumer interests.

China’s counter offer

To combat the Chinese government’s exposure to the United States’ tech industry, the US created the CNP. The CNP is characterized by the “6 C’s” which include: Clean Cloud, Clean Carrier, Clean Store, Clean Apps, and Clean Cable. The CNP expansion, in partnership with 30 countries, aims to exclude Chinese companies from areas like corporate operations and cloud services, and prohibits Chinese web-based applications from using technical infrastructure currently used by the United States and participating countries.

Following the announcement of the CNP, the Chinese government quickly accused the United States of targeting and sabotaging its technology sector. In retaliation, on September 8, 2020, the Chinese government announced its counter-initiative, the Data Security Initiative (DSI). The DSI highlights countries’ sovereignty, introduces international policies covering data security, and calls on all participating countries to handle data security in an objective and fact-based manner. Through the DSI, China and participating countries also agree to reject the use of surveillance against other nations and work together to impose policies that reflect the interests of the majority. 

Key differences between the two initiatives

China’s Data Security Initiative directly competes with the US Clean Network Program. As it currently stands, it is unclear whether the United States’ CNP expansion will prevail or if third party countries will align with China’s DSI. As it currently stands, there are roughly 20 countries partnered with China’s DSI versus the 30 nations aligned with the United States’ CNP. As China emphasizes international policy and community, there lies a possibility of bringing its DSI forward to organizations like the United Nations, where China has a heavier hand through leadership positions in committees like the International Telecommunication Union.

As China’s technological influence continues to grow in the United States, it stresses the lengths that both the US and China are willing to go in order to protect national sovereignty and data security from prying actors. As tensions over the safeguarding of governmental, corporate, and citizen data grow between Washington and Beijing, the CNP and DSI initiatives may set the stage for the next cyber battleground between the two nations.

Further Reading

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