China is the world’s second largest digital economy, second only to the United States, and leads the world in the value of many digital applications, including e-commerce and mobile payments. This extensive online activity by Chinese netizens also provides huge amounts of data that can be used to train artificial intelligence (AI) algorithms. China’s dominance in 5G infrastructure will further support China’s digital economy and early 5G rollout in China could give Chinese entrepreneurs a head-start developing new digital applications. China’s digital economy and the importance of data and digital services is also intertwined with its manufacturing activity and the centrality of China in global value chains (GVC), providing enormous scope to export digital services as inputs in manufactured products.
Yet, China remains largely closed to foreign competition, with restrictions on digital services imports, a heavily restricted and regulated internet that requires data to be localized, and limited access to online information. These limits to foreign competition stand in contrast to China’s outward focused efforts to shape the international environment and the development of norms and rules affecting data governance consistent with its domestic approach. This includes in international standard-setting bodies, through its support for broadband connectivity and smart cities as part of its Digital Silk Road (DSR) and broader Belt and Road Initiative (BRI).
These Chinese efforts abroad and restrictions domestically are harmful to U.S. interests. The United States has been leading efforts supporting an open internet, particularly through its development of digital trade commitments and support for similar efforts in the G20 and Organisation for Economic Co-operation and Development (OECD). However, more is needed to effectively counter China’s efforts globally including as part of its DSR, or risk an internet bifurcated between the United States and China, with security and economic consequences for the United States and its