The Emergence of China's Smart State by Creemers, Papagianneas & Knight

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The Emergence of
China’s Smart State
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DIGITAL TECHNOLOGIES AND GLOBAL POLITICS

Series Editors: Andrea Calderaro and Madeline Carr

While other disciplines like law, sociology and computer science have engaged
closely with the Information Age, international relations scholars have yet to bring
the full analytic power of their discipline to developing our understanding of what
new digital technologies mean for concepts like war, peace, security, cooperation,
human rights, equity, and power. This series brings together the latest research from
international relations scholars—particularly those working across disciplines—to
challenge and extend our understanding of world politics in the Information Age.

Governing Cyberspace: Behaviour, Power and Diplomacy edited by Dennis

Broeders and Bibi van den Berg
Internet Diplomacy: Shaping the Global Politics of Cyberspace edited by Meryem
Marzouki and Andrea Calderaro
The New Knowledge: Information, Data and the Remaking of Global Power by
Blayne Haggart and Natasha Tusikov
Hybridity, Conflict, and the Global Politics of Cybersecurity edited by Fabio
Cristiano and Bibi van den Berg
The Emergence of China’s Smart State edited by Rogier Creemers, Straton
Papagianneas, and Adam Knight
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The Emergence of
China’s Smart State
Edited by Rogier Creemers, Straton
Papagianneas, and Adam Knight

ROWMAN & LITTLEFIELD

Lanham • Boulder • New York • London
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Contents

Introduction 1

PART I: DIGITAL CONCEPTS AND INSTITUTIONS 7

Chapter 1: The Cyberspace Administration of China: A Portrait 9
Jamie Horsley and Rogier Creemers
Chapter 2: The Stumbling Smart State: Fragmented Policy
Experimentation and Dubious Consolidation 35
Straton Papagianneas and Adam Knight

PART II: STRATEGIC EMERGING TECHNOLOGIES 53

Chapter 3: China’s Industrial Policy for Semiconductors 55
John Lee
Chapter 4: Fintech in China: Trading off Growth and Risk,
Innovation, and Control 83
Martin Chorzempa

PART III: INTERNATIONAL ENGAGEMENT AND

CONFRONTATION 101
Chapter 5: China: A Technical Standardisation Power? 103
Tim Rühlig
Chapter 6: China and Global Data Transfers: Implications for
Future Rulemaking 123
Hunter Dorwart
Chapter 7: China and Global Internet Governance: ITU, ICANN,
and the World Internet Conference 153
Gianluigi Negro
v
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vi Contents

Chapter 8: Becoming a Cyber Superpower: China Builds Offensive

Capability with Military, Government, and Private Sector
Forces 171
Mei Danowski

PART IV: LOCAL DYNAMICS 197

Chapter 9: China—A Rising Tech Power?: National Ambitions and
Local Realities 199
Genia Kostka
Chapter 10: Opening the City Through Debordering IT: The
Making of an Innovation Ecosystem in a Post-Industrial Special
Economic Zone in China 227
Yujing Tan
Index 243
About the Editors and Contributors 247
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List of Abbreviations

3GPP Third Generation Partnership Project

AMS Academy of Military Science
BRI Belt-Road Initiative
CAC Cyberspace Administration of China
CBDC Central Bank Digital Currency
CCP Chinese Communist Party
CCPCC Central Committee of the Chinese Communist Party
CCIC Central Cybersecurity and Informatization Commission
CII Critical Information Infrastructure
CIIF China Internet Investment Fund
CLGCI Central Leading Group for Cybersecurity and Informatiza-
tion
CNCERT/ National Computer Network Emergency Response Techni-
CC cal Team/Coordination Center of China
CNNIC China Internet Network Information Center
CPD Central Propaganda Department
CSL Cybersecurity Law
DDoS Distributed Denial of Service
DNSO Domain Name Supporting Organisation
DoJ Department of Justice
DSL Data Security Law
DSR Digital Silk Road
EDA electronic design automation
EU European Union
FRAND fair, reasonable, and non-discriminatory terms
FT Financial Times
FTA free trade agreement
FYP five-year plan
GATS General Agreement on Trade in Services

vii
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viii L
 ist of Abbreviations

GVC global value chain

GBA Greater Bay Area
GGI Group of Government Experts
GPA Agreement on Government Procurement
GDSI Global Data Security Initiative
ICANN Internet Corporation for Assigned Names and Numbers
ICT information and communication technology
IEC International Electrotechnical Commission
IETF Internet Engineering Task Force
IP Intellectual Property
ISA Instruction Set Architecture
ISO International Standardisation Organisation
ITU International Telecommunication Union
IW Information Warfare
MFA Ministry of foreign Affairs
MIIT Ministry of Industry and Information Technology
MOFCOM Ministry of Commerce
MoST Ministry of Science and Technology
MPS Ministry of Public Security
MSS Ministry of State Security
NDRC National Development and Reform Commission
NPC National People’s Congress
O2O Online-to-offline
OEWG Open-Ended Working Group
PBoC People’s Bank of China
PIPL Personal Information Protection Law
PLA People’s Liberation Army
PRC People’s Republic of China
SPC Supreme People’s Court
SCR Smart Court Reform
SCS Social Credit System
SDO standard development organisation
SEP standard-essential patent
SEZ Special Economic Zone
SIIO State Internet Information Office
SPS Agreement on Sanitary and Phytosanitary Measures
SME small and mid-size enterprises
SSF Strategic Support Force
SWIFT Society for Worldwide Interbank Financial Telecommunica-
tions
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List of Abbreviations ix

TBT Technical Barriers to Trade

TC260 Technical Committee 260
TPP Third-party
UN United Nations
US United States
W3C World Wide Web Consortium
WGIG World Group on Internet Governance
WIC World Internet Conference
WLAN Wireless Local Area Networking
WSIS World Summit on the Information Society
WTO World Trade Organisation
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Introduction

Rogier Creemers

In February 2014, the Chinese government established a new, top-level

coordinating body for the digital realm, the Central Leading Group for
Cybersecurity and Informatisation. On this occasion, Chinese Communist
Party (CCP) General Secretary Xi Jinping, the chair of this new entity, out-
lined a simple but ambitious aspiration. China had become a “large network
country” (wangluo daguo) but now should develop into a “strong network
country” (wangluo qiangguo). This entailed that China should generate
world-class indigenous technologies, top-notch information services, flour-
ishing online culture, solid network infrastructure, and a powerful digital
economy. This all should be supported by increasingly capable scientists
and engineers, and strongly improved research and development (China
Copyright and Media 2014).
In pursuit of this strategy, the leadership ordered a complete overhaul
of the digital governance architecture, establishing several new bodies and
reorganising lines of authority of existing ones (Creemers 2020). A whole
range of policy plans emerged, with the 13th Five-Year Planning cycle
in 2016. For the first time, a dedicated document was devoted to national
informatisation, listing seventy-four discrete issue areas ranging from
expanding cloud computing centres and 5G access to expanding funding
channels for higher education in STEM (State Council 2016). Specific plans
were drafted for critical areas including artificial intelligence, big data and
“Internet Plus,” or the integration of digital capabilities with legacy manu-
facturing activities. Major policy initiatives on “novel infrastructure,” smart
cities, and the application of blockchain technologies in non-fintech areas
not only intend to facilitate growth, but to increase the quality of life and
access to public services of ordinary Chinese individuals. The urban-rural
divide is being targeted through projects involving long-distance education
1
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2 Rogier Creemers

and healthcare. Legislative initiatives produced the Cybersecurity Law, the

Personal Information Protection Law, the Data Security Law, and a host of
subordinate regulations that provided more clarity on the leadership’s goals
and aims and sought to build the protective exoskeleton needed in a con-
nected society. A national cybersecurity centre was established in Wuhan,
with the purpose of training half a million cybersecurity professionals over
the next decade (Cary 2021). New methods for financing these projects came
into being, ranging from local government guided investment funds (Pan
et al. 2021), the Shanghai STAR stock exchange market (Lu and Ye 2019)
and the “Big Fund” (Li 2021), which has mobilised over 500 billion RMB
for investment in the semiconductor industry. Naughton has described the
combination of prioritising high-tech development and informatisation with
using market-oriented mechanisms such as investment funds, subsidies, and
tax breaks as “grand steerage,” a part of a government drive to search for
new sources of economic growth. These efforts not only took place at the
central level. Local governments, too, have responded vigorously to the call
to develop technological capabilities.
Yet it is one thing to impose a “top-level design” (dingceng sheji) as an
expression of political will and virility, it is another to navigate the many
complexities that beset digital development. The grand steerage approach
carries significant risks of duplicate or excessive investment, destroying
economic value. The large amounts of money sloshing around in these invest-
ment funds make for tempting opportunities for corruption. In the summer
of 2022, multiple senior semiconductor executives and officials came under
investigation, including Minister of Industry and Information Technology
Xiao Yaqing (White and Liu 2022). A wave of regulatory action was required
to bring China’s large platform companies under control, among others to
maintain stability in the financial system and rectify market failures aris-
ing from their dominant positions (Creemers 2023). The introduction of
AI-enabled automated decision-making processes in judicial and regulatory
entities has run into headwinds over both technical and political difficul-
ties. Most damagingly, however, was the pushback coming from abroad.
China’s digital ambitions and achievements were at the core of greater
tensions between Beijing and Washington, which have translated into ever
broader and more impactful sanctions. These started with companies such
as Huawei and ZTE being banned from some Western markets in 2018 and
have reached a high water mark with the blanket prohibition of cooperating
with Chinese companies in the production of high-end semiconductors in
October 2022. The impact of these sanctions is severe: Huawei briefly was
the largest smartphone manufacturer in the world but has now dropped out
of the global top five. The semiconductor sanctions are intended to consign
China to permanent second-class status in this core area of technology, by
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Introduction 3

severing the networks of financial, technological, and personnel exchange

between China and the United States. Moreover, concerns about China’s
growing international footprint have led to its facing ever more resistance in
its bid to become more influential in setting technical standards, as well as in
the establishment of norms for governing the Internet itself, or the conduct
of states in the digital realm. Both in China and elsewhere in the world, glo-
balisation choices are being reassessed as the increasing territorialisation of
the digital realm imperils cross-border data flows, and information exchange
taken for granted hitherto.
These evolutions raise diverse and complex empirical, conceptual, and
theoretical questions. How does the overall, abstract ambition to become
a digital power, or to “smarten” the state, translate into specific goals, and
achievable outcomes? How do state institutions reform to meet the challenges
this entails? Which tactics and techniques are used within specific sectors or
in particular localities to achieve these goals? How do changing domestic and
international circumstances facilitate or challenge the achievement of these
objectives? How do different interest groups and policy considerations inter-
act? And how are compromises or trade-offs between them navigated? Yet
the academic importance and real-world impact of these topics notwithstand-
ing, preciously little academic attention has been devoted to them. Nearly a
decade after its foundation, for instance, not a single publication addresses
the functioning of the Cyberspace Administration of China (CAC), arguably
the most powerful Internet governance body in the world. China’s progress
in strategic emerging technologies, as well as in expanding its international
influence, remain blind spots in the scholarly literature.
The goal of this book is to understand and explain the various facets of
China’s digital ambitions and the policies by which it seeks to realise it. That
means this is a book, first and foremost, about China itself. That means two
things: first, it does not primarily approach the subject of technology in China
from the angle of Sino-American tensions, a dominant theme in the literature
at present. Instead, the goal of this book is to adopt a Beijing-centric perspec-
tive. Second, this book does not take an evaluative approach that attempts to
gauge the extent to which China meets the criteria of any particular academic
or normative framework. As Don Clarke (2003) already warned two decades
ago, doing so actually tells us very little about what animates or informs
decision-making and policy evolutions in China. It also often leads to us con-
sidering China to be an aberration and blinds us to perceiving the logic and
rationality of the Chinese system on its own terms. Lastly, the point of this
book is not to declare victory or defeat of the digital power strategy or smart
state ambitions. Rather, it is to highlight the dynamic changes, complexities,
and contradictions inherent in China’s digital development policies.
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4 Rogier Creemers

This book brings together authoritative voices from the academic and
think tank world to open up these debates across four topic areas. The first
is conceptual, discussing how China conceives of the role of digital tech-
nologies in its development process, and how institutional reforms are made
to realise these. The second addresses China’s progress in certain strategic
emerging technologies, including fintech, semiconductor manufacturing, and
blockchain-enabled services. The third addresses the local component of the
digital power strategy, reviewing how local governments have responded to
the gradual expansion of digital ambitions. The last reviews cross-border pro-
cesses and China’s engagement with global technical governance processes.

REFERENCES

Cary, Dakota. 2021. China’s National Cybersecurity Center: A Base for Military-Civil
Fusion in the Cyber Domain, CSET, July. Available from: https:​//​cset​.georgetown​
.edu​/publication​/chinas​-national​-cybersecurity​-center.
China Copyright and Media. 2014. Central Leading Group for Internet
Security and Informatization Established. 1 March. Available from: https:​ //​
chinacopyrightandmedia​.wordpress​.com​/2014​/03​/01​/central​-leading​-group​-for​
-internet​-security​-and​-informatization​-established.
Clarke, Donald. 2003. Puzzling Observations in Chinese Law: When Is a Riddle Just
a Mistake? In Hsu, C. Stephen, ed. Understanding China’s Legal System. New
York University Press, 93–121.
Creemers, Rogier. 2020. China’s Cyber Governance Institutions. Leiden Asia Centre
Report. Available from: https:​//​leidenasiacentre​.nl​/report​-chinas​-cyber​-governance​
-institutions.
Li, Yin. 2021. The Semiconductor Industry: A Strategic Look at China’s Supply
Chain. In Spigarelli, Francesca, and John McIntrye, eds. The New Chinese Dream.
Palgrave Macmillan, 121–36.
Lu, Lerong and Ningyao Ye. 2019. Promoting High-tech Innovations through Capital
Markets Law Reform: Deciphering the Sci-Tech Innovation Board of the Shanghai
Stock Exchange. Journal of International Banking and Financial Law 35: 140–43.
Naughton, Barry. 2022. Grand Steerage as the New Paradigm for State-Economy
Relations. In Pieke, Frank, and Bert Hofman, eds. CPC Futures: The New Era of
Socialism with Chinese Characteristics. NUS East Asian Institute, 105–12.
Pan, Fenghua, Fangzhu Zhang, and Fulong Wu. 2021. State-led Financialization in
China: The Case of the Government-guided Investment Fund. The China Quarterly
247: 749­­–72.
State Council. 2016. “Shisan wu” guojia xinxihua guihua (13th Five-Year Plan for
National Informatization), issued 15 December. Available from: http:​//​www​.gov​.cn​
/zhengce​/content​/2016​-12​/27​/content​_5153411​.htm.
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Introduction 5

White, Edward and Qian’er Lu. 2022. China’s Big Fund Corruption Probe Casts
Shadow over Chip Sector. Financial Times, 29 September. Available from: https:​//​
www​.ft​.com​/content​/8358e81b​-f4e7​-4bad​-bc08​-19a77035e1b4.
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PART I

Digital Concepts and Institutions

7
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Chapter 1

The Cyberspace
Administration of China
A Portrait

Jamie Horsley and Rogier Creemers

INTRODUCTION

Within the space of a short few years, the Cyberspace Administration of

China (CAC) has become arguably the most powerful digital institution in
the world. It lies at the centre of a new institutional architecture whose task
is to build China into a “cyber superpower” (wangluo qiangguo 网络强国)
and realise the ambitious “cybersecurity and informatisation” agenda, but
it defies easy description. It operates within both the Chinese Communist
Party (CCP) and the state hierarchies and, while it has clear regulatory tasks,
it is not merely a regulator. It coordinates the implementation of policies of
the Party Central Cybersecurity and Informatisation Commission1 (CCIC),
reportedly composed of the heads of all digital-relevant Party and State bod-
ies, but it is not an interagency body itself. Its tasks range from overseeing
the vast Chinese online censorship apparatus to promoting the expansion of
connectivity in rural regions, from highly technical tasks such as regulating
algorithms, overseeing cybersecurity standards, and managing cyber incident
response, to more political and diplomatic ones such as international out-
reach. Bureaucratically, it is a sui generis entity that does not neatly fit exist-
ing categories of ordinary Party or State bodies. Moreover, its early history
is overshadowed by the towering ambitions and subsequent fall of its first
independent director, Lu Wei.
The CAC inevitably must navigate many of the contests and contradic-
tions characterising Chinese digital politics. On the one hand, China intends
9
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10 J amie Horsley and Rogier Creemers

to become a technological leader with greater international competitiveness

and self-sufficiency, universal high-bandwidth connectivity and a powerful
digital economy. On the other, Beijing has just conducted a wide-ranging
regulatory offensive to reshape the online platform economy, it maintains
perhaps the most elaborate content censorship system in the world, and it is
imposing ever stricter regulations surrounding data protection and cyberse-
curity. Surprisingly, in view of the importance of Chinese digital policies for
China’s overall future as well as global cyber affairs, and the centrality of the
CAC’s role in it, little academic and analytical attention has, thus far, been
devoted to this institution.
This chapter will explore the multiple faces of the CAC, providing a por-
trait of the institution in the breadth of its roles. First, it will discuss its histori-
cal development, describing its rapid emergence from obscurity to become a
leading player in the digital space by 2014, as well as the personalities and
political dynamics of that period. A second section will focus on its institu-
tional composition, the scope of its powers and responsibilities, as well as the
mechanisms by which it oversees its local subordinates and the specialised
technical bodies over which it has authority. A third section will discuss the
CAC’s nature and functioning within the broader Chinese bureaucratic land-
scape. The final section identifies emerging questions about the efficacy and
strength of the CAC and, more broadly, Chinese digital policies in the light
of the ambitions outlined in the recent 14th Five-Year Plan.

THE HISTORICAL DEVELOPMENT OF THE CAC

The CAC was founded in May 2011, under the name of the State Internet
Information Office (SIIO). At that time, it was a relatively unobtrusive
department of the State Council Information Office, itself the State face of the
Party Central Propaganda Department (CPD), without independent staffing.
The litany of problems it was intended to address remain well-recognised,
including “false information and malicious speculation, pornographic and
vulgar information, fraud and gambling, illegal marketing, etc..” Moreover,
presaging Xi Jinping’s dialectic view of cybersecurity and informatisation,
the vision that the SIIO was set out to realise in the online information space
was that “development and management complement each other, develop-
ment requires management, and management enables sound and fast devel-
opment.” The list of responsibilities this new department should bear was,
however, rather out of kilter with its relatively low bureaucratic status and
shortage of resources, including licensing of online businesses, overseeing
online games, video and publishing, managing online news and propaganda,
law enforcement against illegal websites, and coordinating the management
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The Cyberspace Administration of China 11

of telecommunications and internet access providers, the domain name sys-

tem and other elements of infrastructure (Xinhua 2011).
Very rapidly, however, that started to change. The establishment of the
SIIO reflected a growing awareness in the central leadership that the Internet,
and particularly smartphone-driven user-generated content, was starting to
have a transformational impact on information circulation. This became
particularly apparent through a raft of political scandals emerging on social
media platform Weibo (Wright 2017). At the same time, other security con-
cerns gained prominence, highlighted by incidents such as the Snowden
revelations and Microsoft’s announced cessation of security support for
Windows XP at a time when over two thirds of Chinese computers still used
that system (Creemers 2017). Following Xi Jinping’s accession to the CCP
General Secretaryship in 2012, the SIIO’s profile rose rapidly. This happened
under the leadership of Lu Wei, the previous propaganda chief in the Beijing
Municipal Government who was appointed as SIIO’s first independent direc-
tor. Lu had already made himself a reputation in countering the raucous social
media sphere, developing new approaches to deal with the “big V” online
celebrities. He immediately started turning the SIIO into a very visible force
against undesirable online information. This would result, in the summer of
2014, in its gaining explicit responsibility for the governance of all online
content (State Council 2014).
In the meantime, a bigger change had taken place as well. To integrate
digital policy and increase its political visibility, a new top-level coordinat-
ing body, the Central Leading Group for Cybersecurity and Informatisation
(CLGCI) had been established in 2014. Xi Jinping chaired this group,
with State Council Premier Li Keqiang and previous propaganda chief Liu
Yunshan as deputies. Secretarial responsibilities were given to SIIO, which
now took the additional title of the Office of the CLGCI. In English, it started
using the name Cyberspace Administration of China in the summer of 2014,
while its Mandarin name remained unchanged. As a result, CAC’s actual
bureaucratic nature remains vague. As the SIIO, it appeared to be subordinate
to the State Council, but as the Office of the CLGCI, it was a Party institu-
tion. As such, its bianzhi, the official inventory of its responsibilities, internal
structure, and staffing numbers, has not been made public. The ramifications
of this dual Party-state structure will be discussed in depth below.
With this new elevation came expansion. Soon after the establishment of
the CLGCI, two departments of the Ministry of Industry and Information
Technology (MIIT), together with their staff, were transferred to CAC
(CIOC 2015). One of these was the Cybersecurity Coordination Department,
which holds certain authority over Technical Committee 260 (TC260), the
technical cybersecurity standard-setting body. CAC also gained enforcement
competences, with the transfer of the China Internet Unlawful and Harmful
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12 J amie Horsley and Rogier Creemers

Information Reporting Centre from the Internet Society of China (CIUHIRC

2014). In December 2014, CAC took authority over the China Internet
Network Information Centre (CNNIC), whose responsibilities include act-
ing as China’s domain name registry (Guangming Daily 2014). A charitable
foundation for Internet development and an in-house think tank, the China
Academy of Cyberspace Studies, were established in 2015, followed the
year after by the China Internet Investment Fund (CIIF), managed together
with the Ministry of Finance (CAC 2019). This fund holds ownership stakes
in businesses including ByteDance, Weibo, and SenseTime (Economist
2021). In 2018, CAC also gained authority over the National Computer
Network Emergency Response Technical Team/Coordination Center of China
(CNCERT/CC), the entity that is also assumed to run the technical side of
the Great Firewall (Marczak et al. 2015). This transfer was part of a broader
reorganisation (Central Committee 2018) that saw the CLGCI upgraded to
a Central Commission status, directly under the Party Central Committee,
although there are no clear indications that its previous membership or man-
date have undergone significant alterations.
The flamboyant Lu Wei also sought to build his international profile. In
June 2014, he made his first high-profile foreign appearance, delivering a
keynote speech at the 50th ICANN meeting in London (Lu 2014). He also
visited the United States in that year, chairing the Sino-US Internet Forum
and cultivating warm relationships with several technology executives. Mark
Zuckerberg, eager to gain access to the Chinese market, welcomed him to
Facebook’s headquarters (Kan 2014). His initiative with the most durable
legacy is the World Internet Conference, organised in the Zhejiang town of
Wuzhen. This gathering intended to echo the London Process and NetMundial
and grow China’s “discursive power” (huayuquan 话语权) in the burgeoning
debates on global digital governance. Organised annually since 2014, it was
reformed into an “international organisation” in 2022 (Xinhua 2022).
Lu’s flamboyance and empire-building had, however, gained him powerful
enemies within the system, and he left his position in June 2016. He would
later be sentenced to fourteen years in prison on corruption and malpractice
charges (Gao 2019). Lu’s successors, Xu Lin and later Zhuang Rongwen,
were both far calmer apparatchiks, tasked with turning CAC into a coordinat-
ing body that could cooperate effectively with the State Council ministries
involved in digital policy, as well as a competent executive department.
While interdepartmental relationships and tensions are difficult to gauge
from outside the system, there are indications that CAC has come to work
more closely together with its counterparts. Regulation, enforcement, and
management have become multientity tasks, as detailed below. At the same
time, the multidepartmental regulatory environment has allowed CAC new
opportunities to consolidate its position: as the primary drafting body for
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The Cyberspace Administration of China 13

major documents including draft State Council regulations implementing

the Cybersecurity Law (CSL), the Data Security Law (DSL) and Personal
Information Protection Law (PIPL) (NPC 2016, 2021, 2021a), all assign-
ing substantial regulatory powers to CAC (Creemers 2022), its position and
authority seem assured.

THE CAC’S POWERS, RESPONSIBILITIES,

AND ACTIVITIES

As indicated earlier, no enumerated list of CAC competences currently exists,

and thus its powers and responsibilities need to be inferred from broad leg-
islative and policy frameworks, media reports, and its own statements and
issued documents. Here, a measure of fuzziness is inevitable: CAC might
formulate a document because it has responsibility in a certain policy area,
or, sometimes, because it claims it. Furthermore, CAC is more than purely a
regulator. It not only sets, implements, and enforces rules for the conduct of
businesses and individuals in digital processes but also plays important roles
in supporting the work of the CCIC to realise China’s ambitious “informa-
tisation agenda.” It holds authority over specialised technical bodies as well
as the sector-specific business associations that form the interface between
the state and private industry. It engages in international outreach and is
even a shareholder in several Chinese tech firms through the CIIF. In short,
CAC’s mission concerns, on its own or in coordination with other bodies, the
overall governance of the Chinese digital realm in line with overall national
policy goals.

Regulatory Responsibilities
Online Content
Online content management, assigned to CAC by the State Council in 2014,
is arguably the area where it has been the most successful and effective. This
is unsurprising: CAC has inherited and continued content control practices
going back decades, and the necessity of censorship and content management
are not politically contentious. CAC did bring a new approach to the online
environment. Hitherto, legacy regulators had governed online media like
traditional media, relying on tools such as prepublication review that were
increasingly obsolescent in times of social media and user-generated content.
CAC, in contrast, outsourced management tasks to platform companies them-
selves, culminating in the concept of “principal responsibility” (zhuti zeren
主体责任). This makes companies liable for the legality of content posted
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14 J amie Horsley and Rogier Creemers

on their platforms, requiring them to dedicate sufficient human, financial,

and technological resources to monitor content adequately, and respond to
reports, complaints, and incidents (CAC 2021).
Initially, the CAC acted principally on the basis of the State Council’s
2014 authorisation decision to regulate online information content (for
instance, CAC 2015). The CSL changed this, including explicit provisions
identifying undesirable content as a cybersecurity concern, and appointing
CAC in charge of coordinating all cybersecurity-related work. Subsequently,
CAC has issued regulations on content and related services including, but
not limited to, search engines, mobile apps, livestreaming, forums, posting
and commenting functions, public social media accounts, community infor-
mation services, online news services, microblogs, blockchain information
services, live-streamed marketing, financial information services, religious
information services, algorithms, and AI-generated “deep synthesis” content
(Creemers 2022). In other words, CAC not only regulates online information
content per se but also the means to produce and distribute it.

Personal Information Protection and Data Security

The CSL only contained very basic provisions on data protection, and, apart
from its overall coordination role, only explicitly empowered the CAC to
oversee the export of personal information. This lack of clarity led to rivalry
between the CAC and the Ministry of Public Security (MPS) as they both
sought to establish authority over personal information protection and the
emerging field of data security. Both institutions issued several draft regula-
tions addressing elements such as data protection in critical infrastructure
and data export, as well as general implementing regulations for personal
information and data security. Most of these, however, were never adopted
and implemented. The sole exception was a CAC document on the personal
information protection of minors (CAC 2019), as child protection became a
major overall priority of the leadership (Daum 2022). The regulatory conflict
was only resolved with the promulgation of the PIPL and the DSL (Creemers
2022a). The former assigned overall responsibility for personal information
protection work to CAC. The latter indicated that CAC would be responsible
for “overall coordination” of data security regulation, albeit under the leader-
ship of the CCP’s National Security Commission. Since then, CAC has issued
a draft of general implementing rules covering the CSL, DSL and PIPL (CAC
2021a) and definitive data export rules (CAC 2022), as well as detailed rules
for the automobile industry (CAC 2021b). More sector-specific documents
are likely on the way.
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Cybersecurity
The CSL gave CAC responsibility for overall planning, coordination, and
supervision and management of cybersecurity work. It also established sev-
eral specific technical mandates for CAC, including the protection of critical
information infrastructure (CII), cybersecurity review of online products and
services, and cybersecurity incident response. The first of these mandates
again caused friction with the MPS, as there were clear overlaps between the
mooted CII regime and the already existing Multi-Level Protection System
(MLPS) run by the MPS. This imposes incremental security requirements on
network operators, depending on the importance of their systems. Resolution
of this overlap came in 2021, when the State Council issued comprehensive
regulations on CII protection, giving a coordinating role to CAC and an
executive function to MPS (State Council 2021).
CAC also holds responsibility for “cybersecurity review” (wangluo
anquan shencha). Originally, because of 2017 rules under the CSL, this was a
relatively limited mandate, focusing predominantly on assessing whether par-
ticular online products could be securely included into telecommunications
networks (CAC 2017). At that time, CAC also established a Cybersecurity
Review Committee, which has since been upgraded into the Cybersecurity
Review Office. This Office has gained quite some notoriety in recent years,
however, imposing cybersecurity reviews on, among others, ride hailing giant
Didi after its IPO on the New York Stock Exchange in 2021, and on academic
database operator CNKI in 2022 (DigiChina 2022a, Chen and Bandurski
2022). Both these reviews were broadly seen as having political grounds,
rather than technical cybersecurity concerns. Revised cybersecurity review
measures reflected this shift, expanding the grounds for review to include
nontechnical elements such as foreign listings of businesses holding large
amounts of data on Chinese citizens and compliance with DSL requirements
(CAC at al. 2021). This effectively turns CAC into a securities regulator of
sorts and creates new questions about its interaction with legacy financial and
securities authorities.
A last important CAC task is cyber incident response. This is where
CNCERT/CC plays an important technical role in countering the sources
of an attack, but the CSL’s conception of cybersecurity is far broader than
hacks or intrusions alone. Consequently, CAC has issued an overall plan
that defines incidents into categories including malware, attacks, equipment
failures, natural disasters as well as information security incidents. It also
established a National Cybersecurity Emergency Office that continuously
monitors the cybersecurity status and maintains a readiness state consist-
ing of blue, yellow, orange, and red tiers. These, in turn, affect the level to
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16 J amie Horsley and Rogier Creemers

which other government departments must maintain the state of alert of their
resources and personnel (CAC 2017a)
In these different areas, CAC’s authority is rarely completely exclusive.
Even in content, traditional media regulators such as the National Radio and
Television Administration retain powers over, for instance, the production
of audio-visual programmes, even if their distribution primarily takes place
online. In other areas too, CAC collaborates with a range of line ministries in
passing, implementing and enforcing regulations, a sign of both its growing
maturity as a coordinating body and the nature of the governance questions it
is tasked to address: as “the digital” penetrates into ever more aspects of daily
life, digital policy will become less of a discrete regulatory sphere.

Policy Coordination
In its role as Office of the CCIC, CAC has prime responsibility in coordinat-
ing the drafting and promulgation of overall policy documents pertaining to
digital policy. To be sure, none of the three major documents in the 14th Five-
Year Plan cycle dealing with the digital realm was published under CAC’s
name. Instead, the overall plan was issued by the CCIC itself (CCIC 2021),
with the more detailed documents for digital government and the digital
economy published respectively by the National Development and Reform
Commission, and the State Council. Still, it can be expected that the CAC
had considerable input, most notably at the level of the CCIC. CAC also
convenes deliberation events at the working level, such as a recent “National
Online Civilisation Construction Work Progress Meeting” attended by rep-
resentatives from fifty-seven member entities of the CCIC and the Central
Civilisation Committee, as well as provincial representatives (CAC 2022).
Lastly, CAC has a particular role in coordinating different agencies in fur-
thering the advance of connectivity, publishing regular plans including, since
2020, annual plans for developing the “digital countryside” (CAC 2020).
The CAC also oversees the activities of subordinate, technically special-
ised bodies. In most cases, that line of authority is direct, with CAC having
either established them itself, as in the case of the Chinese Academy of
Cyberspace Studies, or having its authority recognised by official writ, such
as with CNNIC. One exception is TC260, the National Information Security
Standardisation Technical Committee nominally affiliated with MIIT. This
has been chaired, for many years, by Zhao Zeliang, whose main function is
CAC Chief Engineer and Deputy Director, and was previously the head of its
Cybersecurity Coordination Bureau (CAC undated). On top of this personnel
linkage, the most authoritative policy document on cybersecurity standardisa-
tion was issued with CAC as lead entity (CAC, AQSIQ, and SSMC 2016) and
CAC and TC260 regularly co-organise relevant events. Although there is no
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direct evidence of administrative oversight, it can be assumed that CAC can

exert considerable influence on the functioning of TC260, even if the latter’s
membership is predominantly made up of either technical experts and schol-
ars, or representatives from private businesses. CAC also supervises several
industry associations, such as the Cybersecurity Association of China (CSAC
2019). These organisations act as an interface between the Party-state and the
private sector, enabling communication in both directions. They also have
“self-regulatory” roles, with their members committing to codes of conduct
outlining not just best industry practices, but also politically expected behav-
iour. Another link between CAC and private industry is, sometimes, direct
ownership through the CIIF, which may enable CAC to exercise more direct
control over companies but certainly is a manner to obtain internal corporate
information more easily.

The CAC as Cheerleader

Outside of its regulatory and policy responsibilities, the CAC often acts as
a cheerleader for the expanding connectivity of Chinese society, and the
Centre’s digital agenda more broadly, and in setting the tone of public dis-
course. Sometimes, these efforts may appear rather campy to Western observ-
ers, such as the performance of the rousing patriotic anthem “The Spirit of
Cyberspace” at a televised Lunar New Year performance in 2015 (Mozur
2015). Its lyrics included “Unified with the strength of all living things,
devoted to turning the global village into the most beautiful scene” and “An
Internet power: Tell the world that the Chinese Dream is uplifting China.”
Somewhat more seriously, Lu Wei adopted the phrase “positive energy”
(Lu 2013), which emerged in documents on propaganda around the time Xi
Jinping came to power. This has become a core term in digital culture, with
CAC posting a list of five hundred recommended pieces of positive energy
content it deemed sufficiently imbued with the correct Party values (Boyd
2022). Conversely, it also tackled fake news, launching the “China Internet
Joint Rumour Countering Platform” (Zhongguo hulianwang lianhe piyao
pingtai) in 2018. On this website, CAC and State Council ministries provide
official refutations of supposed online rumours, thus acting as antimisin-
formation fact checkers. Illustratively, it published a top-ten list of rumours
dubbed “historical nihilism,” the general denomination for historical accounts
deviating from the officially adopted one (Boyd 2021).
Not all CAC propaganda is ideological in nature. It also aims to foster
cybersecurity awareness and propagate China’s triumphs in its technological
advance. Since 2014, CAC has organised an annual National Cybersecurity
Week. This encompasses a series of events, exhibitions, radio and televi-
sion programmes, academic and policy exchanges, co-organised with other
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18 J amie Horsley and Rogier Creemers

ministries or private companies, to raise cybersecurity awareness among the

general population. Much of the Wuzhen World Internet Conference serves
as a showcase for the prowess of Chinese technology companies, for instance
through the “Light of the Internet” exhibition taking place every year (WIC
undated). More broadly, the CAC has propagated the role of technology
in broader Party initiatives, such as the drive to eliminate extreme poverty
(Xinhua 2020).

Foreign Engagement
In its early days, under Lu Wei, CAC not only attempted to make its mark
domestically, it also sought to establish itself as the primary Chinese body
engaging with global digital commerce and governance processes. As indi-
cated earlier, Lu Wei racked up several high-profile appearances at events
like ICANN’s London meeting and the China-US Internet industry Forum.
Furthermore, CAC sent its own delegations to international events such as
the 2015 Global Conference on Cyberspace, where CAC Deputy Director
Wang Xiujun gave a speech (Xinhua 2015). Following Lu Wei’s departure,
however, CAC’s role in foreign affairs has diminished considerably. It still
participates in international diplomatic and publicity-oriented engagements,
but with the Ministry of Foreign Affairs (MFA) in the lead. For instance, CAC
has promoted Xi’s vision of jointly building a community with a shared future
in cyberspace with Africa (CAC 2021c) and sponsored an APEC symposium
on using digital technology for poverty reduction (CAC 2021d) together
with the MFA. It has also lobbied for international support of China’s Global
Initiative for Data Security (MFA 2020), a proposed model for handling
data storage and digital commerce security (DigiChina 2022; Webster and
Triolo 2020).
CAC’s most notable effort to connect with the outside world remains the
World Internet Conference (WIC), organised annually in the Zhejiang river
town of Wuzhen since 2014. Within China, this event has become very pres-
tigious. A completely new conference centre was built for it, and Politburo
Standing Committee members routinely speak at its opening ceremony. In
2015, Xi Jinping personally attended, delivering a speech that still forms the
foundation of China’s approach to digital diplomacy (Xi 2015). In terms of
gaining international traction, however, Wuzhen has had little impact. At the
WIC’s first iteration, consternation arose among foreign attendees as a pro-
posed ‘Wuzhen Declaration’ was posted under the doors of their hotel rooms,
to be announced as reflecting their support for, essentially, China’s approach
to global Internet governance (Shu 2014). After heated arguments during
the night, the draft declaration was, eventually, not released but did cause
lingering mistrust about Chinese tactics. A subsequent ‘Wuzhen Initiative,’
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presented as the product of the WIC’s High-Level Advisory Council (WIC

2015), has equally not been taken up outside of China. A few years later,
another initiative for digital economic cooperation and regulatory harmoni-
sation only gained support from six other countries (WIC 2017). Overall,
the WIC has never been as global as its name suggests, with foreign guests
comprising a small minority of total attendance, and participation granted
on an invitation-only basis with opaque conditions. The COVID-19 pan-
demic and the associated travel restrictions further limited foreign presence.
Nonetheless, in July 2022, CAC announced the establishment of an opaque
World Internet Conference International Organisation reportedly comprised
of Internet-related organisations, enterprises, experts and scholars, as a plat-
form to contribute to global Internet development and governance (WIC
2022). How this differs from the earlier WIC remains to be seen.

THE CAC’S INSTITUTIONAL IDENTITY WITHIN

CHINA’S BUREAUCRATIC LANDSCAPE

As outlined above, the CAC is charged by law with many responsibilities

associated with government regulation, outside of its content control man-
date. However, the CAC is not a traditional government agency. It is an
opaque, seemingly dual Party-state institution, referred to as ‘one institution,
two nameplates.’ This means that the “CAC” and the “Office of the CCIC”
are two names of a single institution; the corresponding names can be used
externally according to the party or state needs and nature of the work (CIOC
2014). As such, it is solely accountable to the CCP Central Committee, not
the State Council, China’s central government. Its original institutional par-
ent, the State Council Information Office, is similarly a single institution
with dual Party-state identities under the Central Committee, reporting to
the Central Propaganda Department. CAC’s current institutional parent is
the CCIC, which as a deliberative and coordinating body under the Central
Committee, takes its marching orders directly from the Party General
Secretary Xi Jinping (Central Committee 2020).
Underlining the propaganda link, all CAC directors have concurrently held
a deputy directorship of the CPD, which traditionally has overseen all party
ideology and information dissemination and censorship work. Moreover,
many—if not most—directors of provincial and lower cyberspace admin-
istrations (local CACs) are likewise concurrently deputy directors of the
local propaganda department, and some local cyber authorities continue to
be funded by the propaganda system. Even so CAC, in its party capacity,
appears to now be of equal institutional stature with the CPD. Functionally,
the CAC is arguably now the more powerful one of the two, as the Internet
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has become the dominant platform for information dissemination, and the
CPD has become considerably less prominent in recent years.
CAC uses its Party identity as the CCIC Office when undertaking
Party-related activities, such as policymaking and Internet-related cheerlead-
ing and propaganda initiatives. Little is known about how CAC interacts with
the CCIC, whose membership, procedures, and meetings have not been dis-
closed. Unofficial reporting suggests the Commission includes minister-level
officials from all Party and State bodies with a substantial stake in digital
affairs, as well as the military (Guancha 2014). Reports on its work meetings
have identified General Secretary Xi Jinping as the CCIC chairman, with
Politburo Standing Committee Members Premier Li Keqiang, and ideologi-
cal theorist Wang Huning as vice chairs (China Copyright and Media 2018).
Other meeting reports provide the names and affiliations of some thirty
attendees, but those appear to include members of both the CCIC and another
body, the Central Civilisation Commission, so CCIC’s exact membership is
still not entirely clear (CAC 2022b). CAC uses its state identity, which in
Mandarin remains the original “SIIO” (guojia hulianwang xinxi bangong-
shi) and includes the designation of “State,” when conducting traditional
government affairs. These include rulemaking (although it is not clear that
its rules have the same status as government departmental rules), licensing
and enforcement, which it appears to generally conduct in accordance with
administrative law procedures that govern the State Council government
agencies (Horsley 2022). For example, CAC typically publishes its draft rules
for comment and incorporates input into the final version, which it generally
files with the State Council for review and recording.
With cyberspace viewed as the main battleground of ideological struggle,
impacting regime security as well as national security (Central Committee
2017), putting a directly led party institution in charge helps ensure the
Party’s leadership over the cyberspace domain. CAC’s Party pedigree, com-
bined with the range of regulatory responsibilities it has been assigned, would
seem to provide it a status somewhat higher than the State regulators of the
internet and informatisation sector, or at least on a par with the superminis-
terial National Development and Reform Commission (NDRC), with all of
which CAC must collaborate.
Paradoxically, to an extent not seen with other dual Party-state institutions,
the Party has buttressed CAC’s political power with State legal authority
through laws adopted by the national legislature—the CSL, DSL, and PIPL—
and nationwide regulations enacted by the State Council. Endowing CAC
with a state aspect enhances its legitimacy as a regulator, even while it creates
challenges for China’s administrative law system (Lin 2019). Nonetheless,
CAC’s statutory role outside of its few clearly demarcated direct responsi-
bilities, is generally framed in terms of coordinating and overseeing relevant
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State departments such as MPS and MIIT as they carry out their respective
duties. This is in line with general Central Committee instructions for the
Party to support public and state security authorities to safeguard national
security and investigate crimes and terrorist activities, and for industrial or
sectoral ministries like MIIT to be primarily responsible for front line work,
including cybersecurity inspections and handling cybersecurity incidents,
while keeping the local CACs informed (Central Committee 2017).
As also required by the relevant law, CAC frequently collaborates with
one or more State departments and Party institutions on policy documents,
rulemaking, and enforcement actions, often but not always taking the lead
when those impact the cybersecurity and informatisation sector. Jointly issued
documents often call on different departments to implement them indepen-
dently in accordance with their respective responsibilities. In other cases,
CAC is supposed to share implementation responsibilities with State depart-
ments, such as through joint cybersecurity assessment review mechanisms
housed within CAC’s Cybersecurity Coordination Bureau (CAC 2021g). It
also joined in 2019 with MIIT, MPS, and SAMR, as well as several associa-
tions and technical institutions, to form a working group to better regulate
the illegal collection of personal information by online apps. The online app
working group initiative included announcements, various measures, a new
standard and publicised campaigns by different ministries and localities to
crack down on app violations (Fang and Yu 2020). Also in 2019, the State
Council tasked the NDRC to lead work with the CCIC Office, MIIT, SAMR
and MPS to ensure sound development of the platform economy (State
Council 2019). CAC, together with tax authorities, participated at least twice
in interdepartmental regulatory guidance meetings led by SAMR with tens of
platform companies to curb monopolistic and other unfair and illegal online
conduct, including tax evasion and infringing personal information.
Possible bureaucratic tensions surface at times. CAC led an interagency
drafting and issuance of cybersecurity review measures that stipulated
general procedures in 2020. However, it acted more unilaterally in quickly
publishing for comment and approving, with the “agreement” of twelve other
regulators, the revision in 2021 that gave CAC new authority to review over-
seas listings by companies holding the personal information of one million or
more users (CAC, etc. 2021) That revision provided retroactive authority for
CAC’s unexpected cybersecurity review of Didi and other Chinese platforms,
accompanied by restrictions on related apps and new user registrations (Liu
and Jia 2021). CAC’s actions contributed to an extended regulatory onslaught
that triggered market devaluations, employee lay-offs and foreign investor
jitters. In March 2022, financial regulators appeared to push back, calling for
greater regulatory coordination in announcing new policies that might impact
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the market (Xinhua 2022a). CAC subsequently assured the public of its sup-
port for Chinese companies to list overseas (Xinhua 2022b).

Central-Local Relationships
CAC’s own website links to thirty-one provincial CACs, and higher-level
CACs are to supervise lower-level CAC work. However, institutionally,
China’s perennial problem of fragmented authority remains. Local CACs are
established directly under the provincial party committees, with overlapping
leadership including with the propaganda departments. CAC, in its guise
as the Office of the CCIC, reported in August 2022 that all party commit-
tees at the levels of the center, provinces and municipalities had established
cybersecurity and informatisation commissions to consolidate cyber ideology
and security work under the Party’s leadership (Xinhua 2022b). Lower-level
CACs are similarly under the party committees at the same level, just as CAC
is under the Central Committee, again highlighting the Party nature of the
CAC network. Unfortunately, information concerning the structure, funding
and missions of local cyber authorities is also incomplete.
The CAC and, where they exist, local CAC websites offer scant insight
into the local CACs, other than the top leadership and scattered, and not
always up-to-date, public events. The Guangdong Provincial CAC website,
for example, discloses the names of the director and two deputy directors,
announces some local activities such as training and policy-related meetings,
but does not report any enforcement actions. More information is available
on some local CACs through publicly-disclosed annual budget reports, which
are not available for CAC itself. These describe in varying detail the main
functions, institutional structure, staffing, and income and expenditures of
those local CACs, but this information is largely a matter of speculation—
other than its functions—in the case of the CAC.
While CAC is an active rule maker, issuing rules to regulate on a nationwide
basis the sectors and activities subject to its authority, the local CACs are not.
However, both CAC and the local CACs conduct enforcement activities, cov-
ering a range of actions, with a jurisdictional division of authority. CAC leads
on issues of national scope, working with other relevant departments, for
example, on cybersecurity reviews. For seemingly most enforcement matters,
the CAC network implements the territorial principle, with local CACs taking
general and specific instruction or ‘guidance’ from higher levels with respect
to companies and matters falling within their regions. For example, the CAC
requested Beijing CAC to summon the online question-and-answer platform
Zhihu for publishing illegal information, after which Beijing CAC filed an
administrative punishment case against Zhihu (Global Times 2021). CAC
reportedly first admonished, and then instructed the Beijing CAC to fine,
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The Cyberspace Administration of China 23

China’s leading social media platform Sina Weibo US$470,000 for allegedly
repeatedly publishing or transmitting illegal information, the forty-fifth and
largest fine so imposed against the company in 2021 (Song 2021). That fine
surpassed the over US$1.4 billion in fines for content transgressions that the
Beijing CAC imposed that year on popular online entertainment discussion
platform Douban.com (Lin 2021), in which Beijing CAC, upon orders from
CAC, stationed inspectors in March 2022 to deal with “serious online chaos”
(CAC 2022c). As another example, CAC outlined a series of more internet
content actions planned for 2022 that task local CACs, as well as key website
platforms, to formulate work plans based on CAC’s rectification priorities to
ensure unified standards and actions (CAC 2022a).
CAC and the local CACs also rely on sectoral government departments to
be involved in or on the front line for many regulatory actions (CAC et al.
2021). For example, the Shenzhen Municipal CAC in Guangdong province,
jointly with the local public security, market supervision and transportation
authorities, met with more than twenty Internet companies to discuss and
have them sign publicly-disclosed pledges to better protect personal infor-
mation on their apps (CAC 2021e). CAC also looks to the public to help
with enforcement, including through the Reporting Centre for Illegal and
Unhealthy Online Information that receives complaints and passes them
along to individual online operators, monitoring their handling. Illustratively,
in April 2022, the Centre accepted nearly 440,000 reports, the vast major-
ity of which concerned the Weibo platform (CAC 2022d). Local CACs also
receive reports from the public, amounting to 806,000 instances in the same
month (CAC 2022e)

The Legality of CAC’s Role

CAC’s relationship to its regulated public is complicated. Under the above
mentioned principle of “principal responsibility,” it has assigned companies
increasing responsibility for the content on and management of their web-
sites. It often initially takes a “soft” enforcement approach that prioritises
compliance over punishment, first summoning one or more companies to
admonish them concerning various unlawful behavior and seek commitments
to rectify the behaviours, or else face fines and possibly harsher punish-
ment. Such commitments are often publicised to increase social pressure on
the companies. However, CAC can also act seemingly arbitrarily, as in the
Didi case, where it did not provide a clear legal rationale for its punishment
decisions as other ministries tend to do. It released little information about
what exactly triggered the reviews or their process, which continued for just
over one year, generating much uncertainty for the companies involved and
the broader market (Horsley 2022). CAC, through its investment fund with
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the Ministry of Finance, CIIF, has taken shares in regulated companies and
reportedly may take one in Didi (Reuters 2021), ostensibly to have a more
direct voice in their management.
The CAC network is seemingly immune from administrative law require-
ments on transparency that apply to government agencies, including publish-
ing its structure, finances, powers, and responsibilities, and accountability
through an appeal process and litigation. A proposed overhaul of 2017 CAC
rules on enforcing internet information content requirements would supple-
ment and expand the coverage of CAC’s enforcement authority as provided
under the CSL, DSL, and PIPL to apply as well to cybersecurity, data
security and personal information protection obligations (CAC 2022f). The
draft provisions incorporate some but not all procedural requirements in the
Administrative Procedure Law that was substantially revised in 2021, which
would to a certain extent constrain the CAC’s enforcement authority by pro-
viding more protections to the parties subject to enforcement. They, however,
do not incorporate disclosure requirements or an obligation to provide com-
pensation to injured parties that are imposed on its regulatory counterparts
like MIIT and MPS (MPS 2018). Surprisingly, however, unlike CAC itself,
many provincial and lower-level CACs publish their annual budgets and
accounts; some local CACs also publish annual open government information
reports. Such diversity suggests that the CAC network is in practice decen-
tralised in some respects.
The Party under Xi Jinping has promoted law-based governance to put
power in a ‘cage of regulations.’ As part of its concurrent drive to enhance
party leadership, however, it created in CAC an opaque, complex, active,
and seemingly unaccountable party regulator with tentacles in many sectors
and issues.

QUESTIONS RAISED

A portrait of the CAC as an institution cannot but remain incomplete. Much

information surrounding its composition, tasks, and institutional contexts
has not been made public. Yet another problem has, thus far, been the rela-
tively limited bandwidth of foreign analysts trawling through the significant
amount of information it produces, or that are published about it in Mandarin.
Furthermore, CAC must be understood as an evolving department. Not only
is it relatively new itself, with all the consequences that entails, the policy
areas over which it presides equally move at breakneck pace, pushing CAC
toward continuous adaptation. Further inquiry is thus indispensable, and the
following questions provide ample grist for the analytic mill.
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About the CAC as an Individual Regulator

CAC is still a young institution and likely feeling its way along, including in
its interactions with other party and state institutions. There is still much to
learn about CAC, given the shroud of secrecy under which it operates. It does
appear to be both generally acting in accordance with procedures required
for state institutions when engaging in rulemaking and most enforcement
matters, and also in line with its party nature. It fulfils its ‘leadership’ and
coordination role on behalf of the CCIC, a high-level party deliberative body,
in policymaking, regulation and enforcement. However, it looks not only to
local CACs, which serve a similar function within their localities, but princi-
pally to the functional state regulators to organise and carry out enforcement
within their competencies and under guidance from the centre.
But what is its working relationship with those regulators? In the social
credit field, the central bank, which shares with the NDRC overall responsibil-
ity for developing that mechanism, has reportedly managed to keep its credit
reporting information—much of which, as in the West, is confidential and
only shared with entities authorised by its customers—separate and distinct
from the NDRC’s social credit database. The CAC, MIIT, and MPS appear
to have achieved a workable division of labour. Are there still bureaucratic
complexities and occasional divergence of interests at play in the cyberdigital
regulatory space, or does CAC’s party nature confer greater status that trumps
all others’ and helps ameliorate or at least resolve any tensions?
The situation becomes even more opaque when turning to the CAC’s
embedding in the institutions of the Party Centre. How does it receive instruc-
tions, through the also secretive CCIC or directly from the Politburo Standing
Committee or from General Secretary Xi himself at times? What is its deci-
sion making process? And what is its precise relationship with the CPD,
given CAC’s mandate to regulate and enforce online information content?
How much of CAC’s staff and work are devoted to propaganda-related mat-
ters? How is it organised and staffed internally? Is it growing still, expanding
its remit, or has it settled into an increasingly clear and uncontested role?
All these are questions that merit further investigation and, hopefully, some
eventual sunlight.

About Its Role in Realising Chinese Tech Policy

CAC was established to help unify cyberspace regulation and achieve a work-
able balance between national security and economic development with the
innovation that leaders recognise is critical to China’s success. Is that happen-
ing in practice? Does CAC’s party status help or hinder its cooperation with
others? Alternatively, does CAC have the clout to compel other Party or State
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26 J amie Horsley and Rogier Creemers

bodies to abide by the legislative and regulatory frameworks it oversees?

The Shanghai Public Security Bureau data breach of July 2022 (Arcesati and
Hmaidi 2022) could provide an insightful test case in this regard.
Further analysis should also be devoted to the sorts of coalitions that CAC
builds up in its attempt to design, implement and iterate technology policy
and regulations. Little is known, for instance, about the operations of its
own in-house think tank, CACS, in comparison to the MIIT-affiliated China
Academy for ICT (CAICT), which issues frequent reports and white papers
on the state of digital affairs. How, then, does CAC generate policy sugges-
tions, or where does it acquire them from? How does it work together with
other Party and State departments, universities, the technical community, and
the private sector? How does it respond to social concerns, as it seems to have
done in relation to gig workers and delivery drivers (Sheehan and Du 2022)?
One useful case study is that of the National Cybersecurity Centre in Wuhan
(Cary 2021), and much more information is available in the public domain
to be mined.
On the international stage, more work should be done on the structure of
China’s foreign engagement and the role that the CAC plays. In a sense, CAC
more directly represents the top-level of decision making (Xi Jinping and the
Politburo Standing Committee) than the Ministry of Foreign Affairs does.
Yet very little information is available on lines of communication between
CAC and MFA, how specific foreign policy mandates are created, or possible
strategies formed.
Such questions are largely descriptive in nature. Yet the theoretical dis-
cussions they inform require our factual knowledge of Chinese institutional
processes, including the interplay between Party and State dynamics, to
increase drastically. Perhaps the major guiding question in contemporary
Chinese studies comes down to how the Chinese Communist Party leader-
ship envisions China’s future and attempts to adapt to the exigencies of its
circumstances. This is not merely a rational intellectual exercise, but is riven
with more prosaic and pragmatic considerations, institutional interests, and
human foibles. With its central position in digital affairs, CAC will lie at the
heart of China’s development agenda for the decades to come. Its functioning,
or dysfunctionality, will significantly impact China’s economic trajectory, its
social stability and its standing in the world. We ignore it at our peril.

NOTES

1. The official English-language name of this body is the Central Cyberspace

Affairs Commission. However, this chapter uses the above translation, which is more
faithful to the original Mandarin name.
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The Cyberspace Administration of China 27

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The Emergence of China's Smart State by Creemers, Papagianneas & Knight
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 The Emergence of China's Smart State by Creemers, Papagianneas & Knight
/ Open Access PDF from Rowman & Littlefield Publishers

Chapter 2

The Stumbling Smart State

Fragmented Policy Experimentation
and Dubious Consolidation

Straton Papagianneas and Adam Knight

INTRODUCTION

China, like all modern states, has sought to introduce digital and data-driven
practices into its domestic governance as it adapts to the challenges of the
twenty-first century. Evolving out of an emerging scientism in the 1980s, this
process of informatisation (xinxihua) can be understood as one element of a
broader package of neoliberal tools and techniques applied in public manage-
ment (Pieke 2009; Gewirtz 2022; Bray and Jeffreys 2016). Governance in
China’s post-Tiananmen era has been characterised by its application of more
complex, diffuse, and immersive methods—both foreign and home-grown—
to the heart of China’s state building project, modernising, and strengthening
the Party’s leading role in society in the process (Shue and Thornton 2017;
Bray and Jeffreys 2016). A major goal of this process has been the automa-
tion of certain aspects of public administration as a way of stimulating eco-
nomic activity and streamlining bureaucracy, all without compromising on
the Party’s absolute authority on matters of ideology and morality. As with
the rollout of other key government initiatives, the construction of China’s
‘Smart State’ has relied on a process of experimentation whereby overall
principles are set centrally, but the specifics of execution are trialled at the
local level (Knight 2020). While providing significant benefit in terms of
adaptability, policy outcomes are often hampered by ‘implementation gaps,’
as entrenched technical, legal, and political standards and interests frustrate
the smooth realisation of central objectives (Chen and Greitens 2022).

35
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36 Straton Papagianneas and Adam Knight

This chapter assesses the progress of China’s ‘Smart State’ through the
lens of such fragmented policy experimentation by examining two case stud-
ies, the Social Credit System (SCS) and Smart Court Reform (SCR). Both
examples—in particular the SCS—have received relatively wide coverage
in English-language media, though little work has been done to situate the
systems within broader patterns of governing practice and informatisation.
Anglophone coverage of the SCS has grown in recent years, owed in part
to significant—though often problematic—media coverage of the topic. A
significant strand of this literature is rooted in the framework of ‘authoritarian
resilience’ and questions of whether big-data enabled projects such as social
credit will strengthen or weaken the Chinese Communist Party’s (CCP) con-
trol over society (Chen and Cheung 2017; Hoffman 2018; Liang et al. 2018).
A limited number of empirical studies have been carried out to date, mostly
based on survey data to show levels of public awareness and acceptance of
social credit (Kostka 2019). Similarly, a handful of case study–based projects
have illuminated specific applications of the system on-the-ground (Knight
2020; Knight and Creemers 2021). Some limited work has been done to
situate the SCS within China’s broader governance and reform agenda, upon
which this chapter will build (Creemers 2018; Zhang 2020).
English-language scholarship on SCR has tended to focus on its legality
and functional purposes (Peng and Xiang 2020; Wang and Tian 2022a). Other
scholars have depicted SCR as a means to strengthen central control over
judicial power (Zheng 2020; Stern et al. 2021). In general, English-language
scholarship has expressed its concerns for the potentially undermining effect
of automation and digitisation to judicial adjudication (Shi et al. 2021). In
contrast, Papagianneas (2021b) found a generally positive attitude toward
SCR and their effect on justice in the Chinese language scholarship. This
is explained by the positivist organisational and ideological principles of
Marxism-Leninism: technology and automation provide a way forward
toward achieving the dream of rational Marxist governance (Munro 1971;
Bakken 2000; Hoffman 2017). This is why automation projects such as the
SCS and SCR are so enthusiastically embraced by both central and local
state actors.
This chapter asks a simple question: Where are we now? In this short over-
view, we discuss and assess the latest regulatory developments of the SCS
and SCR. In addition, we examine example case studies as a way to discuss
the Smart State ‘in action,’ concluding that they ought to be viewed as part of
a broader attempt to recentralise vertical governing power through technol-
ogy. The first section will explore the origins and principles of both systems,
paying particular attention to their roots in the desire to automate elements of
public administration that gathered pace from the 1990s through to the 2010s.
The second section will then examine the processes through which the SCS
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The Stumbling Smart State 37

and SCR have been implemented as part of a broader pattern of governance-

through-experimentation, as well as the unique challenges posed by technol-
ogy. Finally, the third section will document domestic critiques of both the
SCS and SCR, as well as reforms carried out since 2020 to consolidate and
strengthen the ‘Smart State’ in these areas.

THE CSC AND THE CSR: PRINCIPLES AND ORIGINS

The desire for standardisation, informatisation, and automation is deeply

connected with the emergence of the modern nation-state and bureaucracy
(Porter 1995). Both in public and corporate governance, numerical indica-
tors have become the primary tool to achieve efficiency and accountability
(Demortain 2019). The CCP has an extra affinity with quantification and
automation due to its interpretation of Marxist-Leninist ideology. This ideol-
ogy holds that social reality is reducible to a set of objective truths that simply
exist and are waiting to be extracted (Munro 1971; Hua 1995; Bakken 2000).
It underscores the importance of a vanguard institution, finding these objec-
tive truths and transforming them into actionable decisions to lead the masses
on a path of national progress. The vanguard institution uses this input-driven
decision making process to control the masses and simultaneously adapt its
capacity to maintain this control, with the ultimate goal to sustain itself as
a so-called benevolent and efficient rule. Therefore, the CCP blends public
participation with top-down control, which allows it to constantly shape,
manage, and respond to society and itself (Hoffman 2017; Gueorguiev 2021).
The SCS and SCR are the latest iteration of the digitisation and automation
of this governance process.

The Social Credit System

The definition and direction of the SCS has evolved significantly through-
out its existence. Receiving its first high-level political mention in 2002,
the search for a credit system with Chinese characteristics began at least a
decade earlier, as economists and policymakers alike sought to resolve early
existential threats to China’s nascent market economy. The opportunity of
Reform and Opening brought with it significant risk. Private business was
encouraged, but China’s regulatory system was ill-equipped to mediate such
new commercial relationships. The potential cost of defaulting on contractual
promises was so low that cases of fraud reached near-endemic levels (Yan
2021; Lee 2014). Banks sought out new tools and indicators to determine
the risk profile of borrowers without a history of financial transactions and
behaviour (see Chorzempa’s chapter in this book). The goal of the original
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38 Straton Papagianneas and Adam Knight

architects of the SCS was simple: to find a solution that mitigated these risks
and institutionalised the kind of commercial trust required for the free flow
of finance, goods, and services in marketized economies.
To achieve this, policy researchers from the Chinese Academy of Social
Sciences turned to credit systems around the world for inspiration, in particu-
lar the United States. Yet while the SCS may have had its roots in Western
financial practice, the system quickly evolved to take on several uniquely
Chinese features. These developments mapped neatly onto other prevailing
trends in Chinese governance and politics as a response to a wide range of
regulatory challenges, most notably the revival of traditionalist strands of
virtue-based rule and the elevation of the Socialist Core Values across all
aspects of law and governance (Gow 2017; Creemers and Trevaskes 2020).
In the early 2010s, the definition of ‘creditworthiness’ or ‘trustworthiness’
(chengxin) was expanded beyond the merely financial to incorporate addi-
tional meaning in the social, judicial, and governmental realms. This was
codified in the State Council’s 2014 Planning Outline for the Construction
of a Social Credit System, often referred to as the first true SCS document
(Creemers 2018). The Planning Outline described a credit system whose
scope covered not only economic but also social management, encouraging
and discouraging a wide range of behaviours and sectors, from taxation to
transportation, and the environment to education.
At its core, the SCS can be distilled to a single principle multiplied across
the many jurisdictions in which it is operational. The system’s guiding logic
is to ensure that ‘those deemed untrustworthy in one area shall be restricted
everywhere’ (yichu shixin, chuchu shouxian). Participating ministries at both
the central and local level maintain ‘blacklists’ (hei mingdan) of entities
deemed to have violated relevant rules within the jurisdiction of that particu-
lar authority. Details of blacklisted entities are then published online through
the department’s own website, as well as on the national level ‘Credit China’
platform managed by the NDRC. Businesses and individuals can search these
databases for offending parties, while departments undertake to mutually rec-
ognise and jointly impose ‘disciplinary measures’ (chengjie) within their own
jurisdiction (known as the ‘joint punishment system’ (lianhe chengjie zhidu)
through a network of MoUs. The goal here is twofold: (1) to increase the cost
of ‘untrustworthy’ (shixin) behaviour through additional layers of punish-
ment so as to (2) gradually transition from a postevent regulatory regime to a
preprevention model in which ‘untrustworthiness’ is reduced across the board
(Shen Y. 2019).
In social credit, we see an attempt to use information to increase account-
ability for one’s actions—both directly through punishments, as well as indi-
rectly through reputational damage—and for the fear of such accountability
to encourage compliance with rules and directives. In delegating such control
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The Stumbling Smart State 39

down to the individual person or entity, we should understand the SCS as

part of a broader push to streamline and even automate governance in China.
Indeed, the Planning Outline explicitly states that a core goal of the system is
to urgently ‘reduce administrative governmental interference’ in the economy
and society. Subsequent high-level social credit documents have repeatedly
linked the construction of the system with the delegation of control as part of
a wider transformation of governing techniques. This includes an emphasis
on social credit as a tool for greater enforcement of judicial decisions, as
well as ‘social governance,’ a practice that differs from previous attempts at
‘social management’ through its emphasis on ‘co-construction, -governance,
and -sharing’ with a variety of actors, both public and private, as well as
an increasing reliance on principles of individual self-governance (Snape
2019; Ma 2018).

Smart Court Reform

Smart Court Reform (SCR) started in 2016 when Chief Justice Zhou Qiang
delivered the Annual Working Report of the Supreme People’s Court (SPC).
He mentioned that the smart court system should

Make full use of technologies such as the internet, cloud computing, big data,
artificial intelligence and so on, to promote the modernization of trial system
and judgement capability, so as to achieve the highly intellectualised operation
and management of people’s court.

Subsequently, the SPC published the Five-Year Development Plan for the
Informatisation of People’s Courts (‘Development Plan’), the 2016 Opinion
on Comprehensively Promoting the Synchronous Generation and In-depth
Application of Electronic Archives, and the 2017 Opinion on Accelerating the
Building of Smart Court (‘2017 SPC Opinion’). The main task of informatisa-
tion at the time was primarily to support other judicial reforms, such as the
circuit-courts, improving judicial services, increasing judicial responsibility,
and expanding and improving channels of oversight in courts. SCR is only
one part of a series of unprecedented vast and broad reforms of the entire
judiciary, which started in 2013.
At a basic level, the goal of SCR is to create courts where judicial officers
use technological applications to facilitate their internal and operational judi-
cial and administrative work, provide better judicial services to the public,
and improve enforcement of judicial decisions. The term ‘smart court’ (zhihui
fayuan) is used to indicate any (physical or online) court where the judicial
process is conducted on a digital platform. This platform is integrated with
advanced applications based on algorithms, AI, and big data analytics, which
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40 Straton Papagianneas and Adam Knight

allows for the automation of specific judicial processes. They are enthusiasti-
cally embraced by both frontline and senior judges because they facilitate the
day-to-day work of the former and the oversight and management tasks of the
latter (Stern et al. 2021; Papagianneas 2022).
The first step of SCR was to digitise the entire judicial process (i.e.,
case-submission, trial preparation, trial hearing, issuing of judgment, serving
court documents). It improved and facilitated the work of judicial officers
(e.g., frontline judges, senior supervisors, and court leadership). Full digitisa-
tion allows people to submit cases via the internet or via automated dockets
in court halls, therefore improving access to justice (Xu 2017). It also allows
a complete recording of every procedural step and the real-time monitoring
of frontline judges’ work by their superiors. This possibility improved trial
management and oversight by the court leadership over their subordinates,
which also improved uniform adjudication (Papagianneas 2022).
The second step came when full digitisation of the judicial process allowed
for the automation of certain processes. The possibility of AI indepen-
dently adjudicating complex (politically or socially) sensitive cases remains
minimal, as this is the discretion of the Chinese Communist Party (CCP).
Nonetheless, AI is used in other ways: software application exist that can
automatically index the facts of a case, match it with similar legal cases,
provide applicable legislation and regulations, and give recommendations to
the case-handling judge on how to rule, based on big-data analysis of similar
cases (Faxin 2020; Ma 2020). Another example is the use of AI to adjudi-
cate similar cases (e.g., online financial borrowing and small loan contract
disputes) automatically in bulk. These kinds of applications are integrated in
courts’ digital case management platform (Guo 2019).
Nonetheless, automation refers not so much to the automation of adjudica-
tion. Rather, in SCR discourse, automation refers to the reduction of human
agency in the making of discretionary decisions during the judicial process:
the Development Plan implies that the end-goal of informatisation, and,
therefore, SCR is to build a ‘systemic iron cage’ or a ‘digital big-data iron
cage’ around adjudicators. The 2017 Opinion states that smart courts should
promote ‘the organic unification of substantive and procedural justice.’ This
implies that digitisation should improve the adherence to procedures, but that
these procedures remain in service of substantive outcomes. Together with
other judicial reforms, SCR is about improving and better enforcing judicial
procedures at the cost of human discretion. Judicial reformers believe that
this makes the judiciary more efficient, more consistent, and, therefore, fairer
(Hu 2019).
According to a research report in 2022, the third phase of People’s Court
Informatisation has been officially completed. It means that smart courts
can conduct all judicial operations completely online, have achieved full
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The Stumbling Smart State 41

disclosure of the judicial process through digitisation, and are able to provide
all-round intelligent services. By the end of 2021, electronic or online litiga-
tion was used in eighteen percent of judicial trials nationwide, which is a
seventeen percent-point increase from 2016. The next phase, People’s Court
Informatisation 4.0 will be about building ‘all-round intelligence, full system
integration, full business collaboration, full ubiquity over space and time, and
full system autonomy’ (Wang and Tian 2022b)
In the next section, we give an overview of the way that SCS and SCR have
been implemented and the consequent issues.

IMPLEMENTATION: FRAGMENTED
EXPERIMENTATION

Governance in China is no monolith. The size and diversity of the country’s

geography and population present unique challenges, while its political sys-
tem lacks some of the inherent mechanisms for popular feedback and reform
(such as elections or a free media) that are found in democratic systems.
As a result, the Chinese government has needed to find alternative methods
to build in the kind of agility and responsiveness necessary to adjust to an
increasingly complex world of issues. A model of ‘adaptive governance’
has emerged, wherein guerrilla-style policy experiments that blend central
visions with local realities allow the state to deal creatively with pervasive
uncertainty (Heilmann and Perry 2011).
Both the SCS and SCR have relied heavily on a highly decentralised model
of decision making and localised piloting as part of their rollout (Knight
2020). Foundational documents such as the 2014 SCS Planning Outline
and the 2017 SPC Opinion on Smart Courts are purposefully light on detail
beyond providing a general direction of travel, with decisions as to how those
priorities should be executed devolved across all levels of government as a
way of fostering policy innovation, appraising cadre performance, and shield-
ing higher authorities from potential public criticism.
In the case of the SCS, this has led to a system that is best described as a
network of networks, consisting of many hundreds of interconnected systems
built between 2014 and 2020 that while underpinned by the same guiding
logic, operate largely independent of each other (Liu 2019). At the central
level, at least forty-seven bodies are currently involved in the system’s design
and management, collectively publishing thousands of individual documents
(Drinhausen and Brussee 2021). At the top of this pyramid sits the NDRC and
PBoC, co-leads of the InterMinisterial Joint Conference on the Construction
of the Social Credit System, as well as the State Council in charge of coor-
dinating cross-departmental collaboration. Beneath this are more than fifty
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42 Straton Papagianneas and Adam Knight

MoUs guaranteeing mutual recognition of blacklists and joint punishment

had been released (Wu and Liu 2020). In addition to centrally administered
systems, hundreds of local schemes have emerged since 2014, each vying for
acknowledgement by their superiors at the provincial and national level. Three
sets of model pilot cities have been published since 2016 and most recently
in September 2021, with case studies of successful implementation circulated
and then emulated across the country. Each of these systems maintains its
own blacklists and redlists. A small minority have incorporated some degree
of point scoring in their municipal systems. Within certain parameters, these
actors have historically determined what behaviours should and should not be
included, how data should be collected and stored, and what punishments or
rewards should be applied. These lists are then (sometimes, but not always)
shared with other localities through a series of MoUs and provincial-level
data-sharing agreements and technical interfaces. This fragmentation of the
system has led to a bewildering array of social credit applications in response
to specific, often localised governance challenges.
SCR has followed a similar trajectory. Courts in China are responsible for
adhering to reform objectives on their own. Given the great disparity between
courts in terms of finances (Ng and He 2017), some have bigger budgets
for costly digitisation projects than others. Courts across the country have
started digitising their operations way before the SCR was formally launched
in 2015–2016. It is only from then on that this transformed into a top-down
driven policy, starting with the designation of two pilot programs in the Jilin
and Zhejiang High Courts (Xu 2017).
The provincial high courts took the lead in developing smart systems that
were then implemented in intermediate and basic people’s courts. In addition,
courts developed their new systems in cooperation with a private partner,
such as Alibaba or iFlytek. One of the first courts to develop an artificial
intelligent system for the judicial process, was the Shanghai High Court.
It developed a ‘trial centred litigation reform software’ in partnership with
iFlytek. The system was originally meant for criminal cases but has now
expanded to civil and commercial cases as well, and is used across courts in
Shanghai (Cui 2020). In Zhejiang, the Hangzhou Internet Court, developed
an online e-commerce court platform in cooperation with Alibaba (Mingay
2019). While it shows the government’s willingness to work with private
industry to implement reform, it also exacerbates the issues of fragmented
policy implementation, as we will see below.

The Stumbling Smart State: Emerging Critiques

This model of implementation has been central to the rollout and innovation
of both the SCS and SCR, providing maximum agility and responsiveness
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The Stumbling Smart State 43

while also shielding the central government from criticism should the sys-
tems have met with public pushback. This honeycomb-like pattern of siloed
schemes with differing technical standards and practices has, however, caused
no end of problems when it comes to integration at the regional or national
level. Such unfettered expansion has come at the expense of uniformity and
moderation, causing bottlenecks in the systems’ standardisation that threaten
their continued rollout, as well as their legitimacy in the eyes of policymakers
and the wider public.
At the heart of this issue lies the critique that programmes such as the SCS
and SCR have become overly ‘generalised’ (fanhua), incorporating all man-
ner of technological efforts outside of their original scope. This has led to
accusations of policy short-cuts, with ‘lazy’ officials ‘hijacking’ the SCS and
SCR as vehicles for their short-term goals to avoid the more arduous process
of creating actual legislation (Wang 2020). In the case of the SCS, this has
led to numerous examples of system overreach, wherein localities introduce
new behaviours or incentives into the SCS without any legal grounding,
essentially introducing a system of extrajudicial punishment and reward. This
has been particularly controversial in the twenty or so municipalities where
points-scoring mechanisms have been constructed. Many of the system’s
earliest architects have looked on with a degree of horror as the SCS has
expanded in this way since 2014, fearing that such a lack of legal foundation
risks undermining the overall legitimacy of the SCS (Knight 2022).
Similarly, in the case of SCR, the term ‘smart courts’ has provided rhetori-
cal cover for all manner of technological applications, from the most basic
digitisation efforts (e.g., enabling digital filing) to the automation of processes
with sophisticated algorithmic software (e.g., automatic analysis of cases and
pushing of relevant legislation, past decisions, and sentence recommendation
to adjudicating judges). Just as with the SCS, the introduction of such tech-
niques outpaced their incorporation into law. Without a coherent legal frame-
work, there exists no strong legal basis for the digitised judicial process, as
procedural laws do not yet recognise the legal validity of electronic versions
of submitted evidence, witness statements, etc. While local courts, such as the
Internet Courts had issued relevant documents for digital processes, such as
e-filing, they did not have national effect. Therefore, concerns have emerged
that this legal uncertainty and inconsistent regional regulations could under-
mine the credibility and ambition of the smart courts (Peng and Xiang 2020).
The legal issues created by these uses of technology in governance have,
in the minds of many scholars and officials, undermined access to justice and
fairness in China. Of course, official discourse claims that the SCS and SCR
will only increase judicial accountability and fairness. These kinds of state-
ments typify a kind of technological solutionism common among Chinese
officials. In the case of SCR, however, the reality is that its emphasis on a
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44 Straton Papagianneas and Adam Knight

more efficient, standardised, consistent, and politically controlled justice sys-

tem risks reducing the importance of legal interpretation, judicial discretion,
and consideration of individual circumstances. In this sense, technology will
have a dehumanising effect on justice administration, potentially affecting
perceptions of fairness among litigants. It also has the potential to undermine
the agency of judges, turning them into mere law-applying bureaucrats, rather
than law-interpreting professionals (Ji 2018; Sun 2019). Therefore, automa-
tion has serious implications for judicial pluralism. Especially in a unitary
judicial system such as China’s, technology does not have to fully replace
human judges to have a dehumanising effect or significantly reduce human
discretionary decision making.
Such legal issues aside, another key problem caused by the rapid growth
and ‘generalisation’ of Social Credit and the Smart Courts has been a lack of
technical interoperability between systems. This issue came to a head dur-
ing China’s response to the COVID-19 pandemic in particular (Knight and
Creemers 2021). On the one hand, the localised nature of the SCS allowed
for a rapid retooling of some of the system’s features to adapt to the unfold-
ing public health crisis. Certain features of the SCS were paused temporarily,
while new behaviours such as facemask-wearing and isolation were folded
into the system’s enforcement mechanisms. Yet this flexibility also proved a
weakness as the transregional nature of the pandemic required increased lev-
els of data-sharing. Local administrations quickly found that social credit sys-
tems built to differing technical standards as part of their rapid rollout were
unable to ‘talk’ to each other, sometimes even within the same province. This
was not a new problem; indeed, ever since the launch of the SCS, the breakup
of ‘information islands’ (xinxi gudao) has been a key reform priority. The
COVID-19 crisis amplified these voices and catalysed a process of centrali-
sation and reform to which we will return in the next section of this chapter.
This push for greater technical integration of the sharing of data between
different nodes of China’s Smart State has naturally led to significant privacy
and cybersecurity challenges, however. During the first wave of the pan-
demic, analysis by Chinese state media found that only three out of fourteen
provincial ‘health code’ systems included any kind of provisions for the
protection of personal data (The Paper 2020). Similar issues have plagued
SCR from the very outset. For example, in 2013, the SPC launched a public
database for court decisions as a build-up to SCR (Ahl and Sprick 2017). The
digitisation of all court decisions was an important first step to provide the big
data for machine learning. Later, smart systems were connected to these kinds
of databases to support automated suggestions to judges. Courts were tasked
to upload as many of their decisions onto it. However, initially, courts did
not remove the personal information of litigating parties, including minors,
in criminal cases, divorce, and custody cases (Liebman et al. 2019). This
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The Stumbling Smart State 45

was only done later as new national rules require smart courts to align their
data-management practices with new personal information protection laws.

CONSOLIDATION STAGE

Considering the above issues and the potentially existential threat they pose
to the continued development of the Smart State, the last two years have seen
a concerted effort by many scholars and policymakers to bring reform to both
the SCS and SCR. Indeed, after a period of rapid expansion and experimen-
tation, both systems have now firmly entered a phase of consolidation and
reform, with the primary focus of introducing greater regulatory or proce-
dural standardisation at the national level.
In the case of the SCS, the last two years have seen a raft of new regula-
tions published with the goal of upgrading the system beyond the original
2014 Planning Outline. This shift has come against a backdrop of an increas-
ingly hawkish stance among the SCS’s key planning bodies. In August 2019,
the deputy director of the NDRC Policy Research Office stated, ‘We have
noticed that [the SCS in] some places violates laws and regulations by incor-
porating behaviours that are not applicable within the scope of the punish-
ment mechanism for untrustworthiness within personal credit records. We are
correcting and dealing with the situation without further delay’ (Credit China
2019). The spokesperson went on to lay out a strategy of ‘three prevents,’
namely to avoid the generalisation and expansion (1) of what is defined as
an untrustworthy behaviour and their incorporation into credit records, (2)
of further blacklists and other punishment measures, and (3) of the creation
of further credit-building measures such as personal credit points and scores
(Credit China 2019). The goal was to create a SCS that sits within China’s
legal system, not in parallel to it. This rhetorical shift was quickly matched
in terms of legislative updates, with five major new documents published by
the State Council, NDRC, and PBoC between July 2020 and March 2022
(Knight 2022). Since 2019, progress has also been made toward the creation
of a Social Credit Law, with multiple symposia between policymakers, aca-
demics, and industry held to discuss its design.
Taken in sum, these updates have sought to rein in the SCS at its fringes,
curtailing the excesses of its phase of fragmented experimentation. They clar-
ify what data should be collected and classified within the remit of the SCS,
when those data should be shared publicly and how, what punishments could
be applied, and how one’s credit record could be appealed and altered. The
new draft rules look to further standardise blacklisting and punishments in
particular, ensuring that any disciplinary measures taken are rooted in law and
are not overly punitive. If officials feel that a particular law is not adequately
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46 Straton Papagianneas and Adam Knight

tough, they must lobby for changes to that law rather than simply fabricat-
ing their own administrative punishments through the SCS. Crucially, these
documents stipulated that all local or ministerial systems would be evaluated
in due course, with noncomplying versions then shut down.
Likewise, SCR has seen the introduction of regulatory and procedural
standardisation at the national level. In 2021 and 2022, the SPC introduced
national rules to standardise and unify SCR. In quick succession, the SPC
issued the Online Litigation Rules (OLR), the Online Mediation Rules
(OMR), the Online Courts Operation Rules (OCOR), and the Opinions on
Strengthening the Judicial Application of Blockchain (Blockchain Opinion).
The publication of these documents indicate that the stage of consolidat-
ing experiences and unifying practice has begun. They are most likely the
first step in standardising smart court procedures. In the future, we might
see the development of a national law related to online procedures, on par
with the Civil and Criminal Procedure Laws (Papagianneas 2021a). These
documents aim to unify and standardise the smart systems as well as their
application, operation, and management (OCOR, article 1). They ask for
more coordination and planning from the top (OCOR, article 2.3), which is a
strong signal of more centralised planning and coordination. The Blockchain
Opinion also signals a focus on improving interconnectivity, collaboration,
and information-sharing between courts and other sectors and standardis-
ing the use of blockchain systems in the judicial system at a national level
(Deng 2022).
These updates have sought to address key concerns around human agency
and control in particular. New national regulations aim to provide increased
agency to litigants during the digital judicial process, giving them a concrete
sense of control over the process. Litigants have, for example, the right to
choose the method of litigation (online or offline) (OLR, Article 2). It obliges
courts to obtain the explicit consent of litigating parties and inform them
of their rights and obligations, the practicalities, and legal consequences of
online litigation (OLR, Article 4). It allows parties to separate procedures
between online and offline, that is, consenting to conducting part of the
judicial process online may not be seen as consent to conducting the entire
judicial process online (OLR, Article 4.4). Consent to online litigation may
be revoked at any time during the judicial process, and the court is obliged to
transfer the process back to offline if it does not find any objections (OLR,
Article 5). The courts may also conduct the process on a double offline—
online track if one of the parties does not consent to online litigation (OLR,
Article 10). The OLR also has multiple provisions that allow litigants to
maintain control over and access to the judicial process as much as possible:
Article 14 and 20 allow parties to participate in the litigation process at
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The Stumbling Smart State 47

separate times within a certain time period. Therefore, litigants’ procedural

rights are protected, at least on paper.
Despite the criticisms regarding human agency and discretionary deci-
sion making of judges, SCR is clearly intended to increase consistency and
efficiency through enhanced vertical control (Zheng 2020; Stern et al. 2021).
Therefore, the consolidation stage has not seen a reversing or addressing of
the issue, rather a continuation of this chosen path. For example, smart sys-
tems at both local and provincial-level, in combination with local and national
regulations, have standardised and institutionalised the well-known ‘trial
management and oversight’ mechanism. This mechanism allowed senior
court leadership to intervene in politically and socially sensitive cases but was
frequently abused for personal gain and a significant source of judicial cor-
ruption (He 2012; Li 2012; Wang 2020). Through the standardisation, digi-
tisation, and then automation of specific processes of the ‘trial management
and oversight’ mechanism, these smart systems enabled a stricter and more
consistent application of the mechanism, where the system also monitored
every step undertaken by both supervised judge and supervising court leader.
Automation of justice, in a sense, does not necessarily refer to the replace-
ment of humans in the judicial process, but rather a significant reduction of
human agency in the judicial decision making process.

CONCLUSION

The conception, construction, and consolidation of the social credit and

smart court systems has been emblematic of China’s Smart State rollout
more broadly. In these systems, we see a reflection of the CCP’s evolving
governing logic, fusing views of informatisation as an answer to governance
and legal challenges with a reassertion of state-arbitered morality and the
Party’s ‘leadership over everything.’ Since the mid-2010s, two of the govern-
ment’s flagship ‘smart’ projects—the SCS and SCR—have relied heavily on
a decentralised model of experimentation at the departmental and local level
as a way of fostering innovation at speed. This has led many local adminis-
trations to interpret and apply the meaning and methods of social credit and
smart courts as they saw fit, in response to a range of governance challenges.
This ‘generalisation’ of the Smart State led to a mission creep that proved
highly controversial, with many questioning the system’s legality and thereby
legitimacy. An increasing clamour for reform has led to renewed legislative
attention, as the government upgrades and bolsters both social credit and
smart courts in order to ensure their longevity.
After a period of relative decentralisation in terms of the systems’ rollout
and experimentation, the process of recentralisation should be understood as
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48 Straton Papagianneas and Adam Knight

part of a broader effort to leverage artificial intelligence and automation to

increase vertical control of governance and society as a core goal of the Smart
State. In the case of SCR in particular, while China’s judiciary believes that
taking a leading (global) role in AI will give them leverage against unwanted
incursion from the party-state, it in fact does the opposite (Hall et al. 2005).
It has become clear that SCR is a way for the central judiciary to increase
vertical control over their courts and judges. Various initiatives are explicitly
oriented towards reducing the discretionary decision making power of human
judges by embedding their work process in a tightly circumscribed and digi-
tally surveilled environment. Therefore, SCR is meant to reshape the judicial
bureaucracy into a legally rational institution by institutionalising channels
of political control.
As the advancement of the Smart State rolls on to the point in which
defining between ‘smart’ and ‘non-smart’ elements of government becomes
moot, the issues highlighted in this chapter—the legal and practical impact
of tech-enabled governance—will only become more prescient. These are
global challenges, but the speed with which China is looking to information-
alise its governing practice requires an expedited response.

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PART II

Strategic Emerging Technologies

53
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Chapter 3

China’s Industrial Policy

for Semiconductors

John Lee

Semiconductors are foundational to modern electronics. As the basis for

integrated circuits (ICs), they shape the possibilities offered by almost every
category of contemporary and emerging technology. This brings implications
for national power and security that run against the transnational character of
the semiconductor value chain. The central role in this picture of China, and
of China’s increasingly antagonistic relations with the United States and its
allies, has made semiconductors a focus of the new ‘geopolitics of technol-
ogy.’ Understanding the Chinese state’s approach to semiconductors, and
China’s aggregate position within the global semiconductor value chain, is
required to assess the overall international balance of power and the prospects
for China’s Party-State to achieve its long-term goals (MERICS 2021).
A dominant position in globalised high technology industries provides
a source of structural power in the international system (Malkin 2022;
McCarthy 2015). ICs were invented in the United States, and their production
process has retained strong continuities over the decades, only with rising lev-
els of complexity and specialisation. Accordingly, the influence of US firms
and the presence of US-owned technology throughout the semiconductor
industry remains high and provides an instrument through which the US state
can exercise power against China. As described by senior US officials (White
House 2022; Office of the USTR 2022), the US export controls of October
2022 targeting China’s semiconductor industry are meant to ‘freeze’ or at
least severely constrain China’s progress, thereby sustaining US technologi-
cal leadership and the preponderance of power that this embeds.
Yet this goal seems to not be accepted uncritically by US-allied states
whose firms hold key positions in the semiconductor value chain (Bloomberg

55
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56 John Lee

2022; SCMP 2022). The structure of this industry limits Chinese prospects for
dominance but also provides Beijing with sources of power that Washington
will find difficult to constrain. As a unique example of technological catch-up
by a developing country in the era of ‘asymmetrical globalisation,’ and in
view of semiconductors’ crucial role in the Chinese Party-State’s’ goals,
China’s place in this industry sheds light on the structural nature of power in
the international system and the trajectory of China’s national development.
This chapter explains China’s place in the globalised semiconductor indus-
try, and its policy goals, development ecosystem, and prospects for advance-
ment in this most foundational of technologies. The discussion highlights
major obstacles to Chinese progress that are presented by this industry’s
features, and the limited capacity to meet these challenges that still character-
ises China’s domestic semiconductor ecosystem. But it also shows how even
limited Chinese success in this industry has potentially far-reaching conse-
quences for international politics, even if these falls short of the Party-State’s’
ambitions by leaving China as a ‘partial power’ (Shambaugh 2013) in high
technology.
The chapter first examines China’s involvement in the transnational value
chains that typify information technology (IT) industries under ‘asymmetrical
globalisation,’ and in the semiconductor value chain specifically. Second, it
reviews the Party-State’s’ strategic goals that guide its policy for developing
the nation’s semiconductor industry. Third, it looks at the value chain’s objec-
tive features, and how these shape priorities in targeting specific processes
and technologies. Fourth, it describes China’s semiconductor ecosystem—the
‘government-research-industrial complex’ that drives outcomes in this indus-
try—and China’s aggregate position in the global semiconductor value chain.
The chapter’s conclusion returns to the implications for international power
relations, in the context of weaponised interdependence and drift toward
strategies of technological containment.

BREAKING THE MOULD OF

‘ASYMMETRICAL GLOBALISATION’

China modernised its IT industries by joining a new model of globalised trade

that emerged during the 1990s. This form of globalisation is based on trans-
national production networks (‘global value chains,’ GVCs), with advanced
economies keeping ownership of core IP and outsourcing lower value-added
functions to developing economies (Ernst and Kim 2002). This trend goes far
to explain the durability of US international power, which is embedded in the
dominance of US firms ‘upstream’ in GVCs, controlling the core technology
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China’s Industrial Policy for Semiconductors 57

that downstream firms require to perform their functions and thereby reaping
most of the profits from this economic activity (Malkin 2022).
Since the 1990s, developing economies’ participation in GVCs has deliv-
ered disappointing results in moving up the technological ladder and so cap-
turing a larger share of value generated by economic activity, resulting in a
failure to achieve broad-based wage growth (UNCTAD 2018). This trend has
been reinforced by evolution of the WTO trading regime, which has opened
developing countries’ markets to industry-leading firms from advanced
economies, while restricting national autonomy to assist domestic firms with
interventionist and protectionist policies. Such measures had previously been
used by Japan, South Korea, and Taiwan to help domestic firms to accumulate
market share and IP, allowing them to upgrade their technology and thereby
their competitive position in globalised industries, notably semiconductors
(Matthews and Cho 2009).
China is the salient case of a developing country that, with uneven success,
has broken out of this asymmetrical relationship with advanced economies
in GVCs. During the 1990s, as China’s integration with the global economy
proceeded, policymakers tried to push technological upgrading through both
command economy style interventions—for example, in semiconductor
fabrication (Fuller 2016)—and joint ventures with foreign industry leaders
in GVCs. By the early 2000s, these approaches were widely recognised as
ineffective (Zhou, Lazonick and Sun 2016, 44). The Party-State adapted its
method of involvement in China’s economic and technological development
to one that has been described as ‘grand steerage,’ channelling resources
through indirect, market-conforming instruments to ‘steer’ the economy
towards broadly defined goals (Naughton 2022).
This approach was still premised on China’s integration into a global econ-
omy driven by market principles, and into GVCs dominated by foreign firms.
But it recognised that ‘domestic determinants,’ notably state-led industrial
policy and the capabilities accrued by domestic firms, are crucial factors in
capturing benefits from international trade, including technological advance-
ment (Coe et al. 2004; Ernst 2016; Poon 2018). Chinese state interventionism
was enabled by the scale of China’s workforce and markets, which attracted
foreign industry leaders to China and gave Chinese authorities leverage to
impose policies that foreign actors would not accept in smaller developing
countries (UNCTAD 2018; Ernst 2016).
These state interventions in the market—creating infrastructure, compen-
sating for firm-level externalities, developing human capital, creating markets
for domestic firms, facilitating technology transfer from foreign actors, and
subsidising strategic but uncompetitive industries—have created the condi-
tions for China’s comparative advantages to be used effectively (Lin and
Zhang 2019; Zhou, Lazonick, and Sun 2016). China’s exports have shown
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58 John Lee

increasing technological specialisation and rising global market share despite

rising domestic factor costs, indicating progressive upgrading by Chinese
firms into more sophisticated activities (Malkin 2022: 11). This record con-
trasts starkly with that of India, which has benefited much less than China
from integration with GVCs (Ernst 2016), including specifically in the semi-
conductor sector (Fuller 2012). India is now adopting a policy approach to
semiconductors that looks increasingly like China’s (Economic Times 2022).
That said, this ‘loosely coupled’ system of state-led industrial policy has
produced varied results across sectors, reflecting variations in market condi-
tions and policy execution (Rho and Kim 2022). In the semiconductor indus-
try, state interventions have frequently been ineffective and wasteful (Fuller
2019). One reason for this is the structure of the transnational semiconductor
value chain, which is an extreme case of the asymmetrical concentration
within GVCs of market power, and hence of incumbent firms’ capacity to
maintain control over core IP and high value-add functions.
In 2020, firms headquartered in advanced economies (including Taiwan)
captured 95 percent of revenues from the global semiconductor sector, with
the United States alone reaping close to 50 percent. This reflects the domi-
nance of US firms in chip design, which accounts for around 50 percent of
total value added in the sector. Chinese firms’ market share was around 5
percent (SIA 2021). This asymmetry is being amplified by the semiconductor
sector’s strong growth, estimated at 26.2 percent in 2021 and 16.3 percent in
2022 (WSTS 2022), with robust long-term secular growth predicted (see e.g.
Deloitte 2022).
Japan, Taiwan, and South Korea established their firms in the semiconduc-
tor value chain through ‘industry creation’ rather than technology creation:
they identified trajectories in technological development and hence markets,
then targeted these markets by absorbing existing technology and diffusing it
to domestic firms that received extensive state support (Hwang and Choung
2014; Matthews and Cho 2009, 313–314). All three achieved this while the
semiconductor value chain was evolving, and so had established their posi-
tions by the time the value chain matured in the 1990s.
By contrast, China’s industrial policy in this sector delivered lacklustre
results prior to the last decade, leaving Chinese firms facing more technically
advanced foreign incumbents entrenched across the value chain, many steps
in which have high barriers to entry (Figure 1). These barriers have grown
larger over time with specialisation and rising capital costs, as the demand
for ever more computing power has driven semiconductor manufacturing
to push the limits of physics (Lee and Kleinhans 2020). One well-known
example is photolithography, where performance at the technological frontier
is monopolised by a single firm, ASML. ASML’s most advanced machines
sell for US$150 billion and are a critical tool for cost effective production
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China’s Industrial Policy for Semiconductors 59

of recent generation computer processors, due to the precision required to

achieve the necessary transistor density.
The negative implications of Chinese industry’s weakness in semicon-
ductors have grown in tandem with the technological upgrading of China’s
export-oriented manufacturing sector, and with the Party-State’s’ ambitions
for China’s digital transformation. China’s emergence as the global hub
for electronics manufacturing has made it the world’s largest consumer of
semiconductors (McKinsey 2014), resulting in China now spending more
on importing semiconductors than oil: in 2020, around US$300 billion
(Brookings 2021). Despite China being among the leading locations for IC
fabrication, domestic production—two-thirds of which was controlled by
foreign (including Taiwanese) firms—accounted for less than 16 percent of
China’s consumption in 2020 (IC Insights 2021).
Under these conditions, China adopted a ‘fast follower’ strategy for the
semiconductor sector (Verwey 2019), focused on creating conditions for
Chinese firms to gain footholds in the different value chain steps and progres-
sively accumulate the capital (financial, human, and technical) to upgrade and
become internationally competitive. This approach involved Chinese firms
basing their business operations on exchanges with foreign industry leaders,
most notably cutting-edge fabrication providers like Taiwan’s TSMC. It was
hoped that such participation in the semiconductor GVC on asymmetrical
terms would produce results comparable to those from Apple locating its
manufacturing supply chain in China, which stimulated growth of a competi-
tive Chinese supplier ecosystem and upskilling of China’s workforce, not-
withstanding the success of Apple and its non-Chinese suppliers in avoiding
direct technology transfers to Chinese firms (Grimes and Sun 2016).
Compared with past efforts to catapult selected state-owned firms to
the industry’s technological frontiers, this gradualist, broad-based, and
market-oriented approach is more aligned with that which has arguably
defined China’s successful cases of technological upgrading (Lin and Zhang
2019). But because semiconductors are such a foundational technology, the
Party-State is not satisfied with modest results in this sector over the long
term: the ultimate goal is to break free of asymmetrical interdependence with
the United States and its allies in the semiconductor value chain, creating the
technological basis for China to interact with these states on equal or domi-
nant terms.
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THE PARTY-STATE’S’ STRATEGIC GOALS

AND THE SEMICONDUCTOR INDUSTRY

Building the foundations for ‘cyberspace superpower’

Over the late 1990s and early 2000s, China’s top leaders identified ‘infor-
matisation’—the comprehensive application of digital IT—as an organising
principle for the nation’s development (Austin 2014; Naughton 2002). Since
Xi Jinping’s accession to the highest leadership positions in late 2012, this has
been rearticulated as a vision for making China a ‘cyberspace superpower,’
with security in cyberspace now given coequal importance with develop-
mental goals (Xinhua 2014). This vision is broadly defined as typical under
‘grand steerage,’ but it implies that China should develop IT capabilities
comparable to the dominant actor in cyberspace, the US (Lee 2022).
Semiconductors are critical enablers for the various systems that constitute
cyberspace. Dependence on foreign countries for such ‘core technologies’ was
already identified by Xi Jinping in 2016 as China’s ‘greatest hidden danger’
(Xinhua 2016). This concern was vindicated by the damage done to Huawei,
perhaps China’s most successful digital technology firm, by US export
controls targeting its dependence on foreign semiconductor manufacturing
services and software. These and other US measures targeting individual
Chinese firms have highlighted the larger Chinese economy’s vulnerability to
foreign pressure, even in sectors where it has achieved significant progress,
due to incapacity to produce foundational components like semiconductors.
As a physical product, semiconductors also belong to the manufacturing-based
‘real economy’ that has been increasingly emphasised in official rhetoric as
the true foundation of national power, and which must be integrated with fur-
ther development of China’s digital economy (Xi Jinping 2021). The Chinese
government’s much reported ‘tech sector crackdown’ has focused on internet
services firms (MacroPolo 2021), leaving hardware producers generally
unscathed.
The National Informatisation strategy released in December 2021 sets out
a comprehensive development vision based on integrating the real and digital
economies (Oxford Analytica 2022). This document puts ICs at the front of
the list of ‘core technologies’ for which major breakthroughs in addressing
shortcomings and building innovation capacity should be made by 2025
(Cyberspace Administration of China 2021). It represents the next stage in
Chinese industrial policy’s turn toward securing the ‘commanding heights’ of
next-generation technologies, which if achieved would flip the asymmetrical
character of GVCs to China’s advantage.
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China’s Industrial Policy for Semiconductors 61

Supporting Leadership in
Next-Generation Technologies
By the early 2000s, lacklustre results in sectors such as semiconductor fab-
rication (Fuller 2016, 122–125) led Chinese policymakers to recognise the
poor prospects for technology transfer under conditions of asymmetrical
globalisation. This stimulated the policy drive for ‘indigenous innovation’ to
bootstrap domestic technological progress, and the promulgation in 2006 of
a fifteen-year ‘National and Medium Long-Term Plan (NMLTP) for Science
and Technology’ (To 2022, 74–75; Zhou, Lazonick, and Sun 2016), which
included list of sectoral ‘mega-projects’ with one dedicated to ICs (Lee and
Kleinhans 2021a, 12). However, the NMLTP still recognised multiple innova-
tion pathways and the benefits of incorporating foreign technology (Cheung
2018, 309–311).
Policy evolved again under Xi’s leadership from the early 2010s, respond-
ing to the need for upgrading China’s development model in the face of
accumulating economic and demographic pressures, and to the new political
imperative to show a ‘great rejuvenation of the Chinese nation’ through tangi-
ble metrics such as technological progress (To 2022; MERICS 2021). In 2015
the ‘Made in China 2025’ (MiC-25) plan set out ambitious industrial upgrad-
ing and import substitution goals for multiple sectors focusing on emerging
technologies, and the accompanying industry roadmap addressed various
semiconductor-related technologies. The focus on building high technology
industries also justified perpetuation of an investment and supply-side driven
approach to economic growth, instead of rebalancing the economy towards
consumption, which would have required more radical and politically risky
changes to China’s political economy (Naughton 2022).
Growing pressure on China’s access to critical technology inputs from
abroad has reinforced the urgency of upgrading domestic industry. China’s
current (2021–2025) Five-Year Plan lists semiconductors as one of seven
‘frontier technologies’ prioritised for breakthroughs. In September 2022, a
top-level statement was issued on the need for a whole-of-society, Party-led
mobilisation to make breakthroughs in ‘key core technologies,’ albeit still
within a market framework (Xinhua 2022). This was followed by the writing
of S&T into the Party’s constitution at the 20th Congress in October 2022,
cementing its place in the ‘mission statement’ justifying the Party’s rule
over China.

ICT Supply Chain Security

Huawei’s targeting over 2019–2020 by US export controls highlighted how
China’s prowess in digital technology remains fundamentally insecure, due to
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62 John Lee

foreign firms’ dominance in the key ‘chokepoints’ of the semiconductor value

chain (Figure 1). Cutting-edge fabrication is a duopoly of Taiwan’s TSMC’s
and South Korea’s Samsung. Most IC design globally is still based on
foreign-owned intellectual property, especially instruction set architectures
(ISAs) owned by US (Intel, AMD) or UK/Japanese (Arm) companies. The
chip design process uses specialised software (Electronic Design Automation,
EDA) tools for which three US-based companies dominate the market,
with Chinese EDA vendors accounting for barely 10 percent of China’s
EDA market in 2020 (Lee and Kleinhans 2021a, 25–29). US, Japanese, and
European firms dominate production of semiconductor manufacturing equip-
ment (SME).
These chokepoints were targeted by extensive US export controls issued in
October 2022, restricting business with China in categories of advanced ICs,
cutting-edge fabrication, and SME (Department of Commerce 2022). Such
business is now subject to US government–issued licences with a general pre-
sumption of denial, although some exception is made for operations in China
by firms headquartered in US-friendly countries. These new controls are
unprecedented in applying to China as a jurisdiction rather than to individual
firms, and in their extension to ‘US persons.’ This latter measure deters US
firms from continuing business with Chinese customers through offshoring
or shell companies and targets the important role in China’s semiconductor
industry of individuals with US citizenship or residency, who are effectively
being forced to choose countries.
While US policymakers are not yet aiming to force a complete ‘decou-
pling’ with China, their statements indicate that the new controls fit within a
strategy of unqualified technological containment. Quoting the US National
Security Adviser (White House 2022), the goal is now to maintain as a large
a US technological lead over China as possible, as a national security impera-
tive. This implies active measures to hinder China’s technological develop-
ment, without consideration for economic consequences (CNAS 2022).
Washington’s express expectation is that allied states will bring their policies
and laws in line with this goal, with discussions in progress as of November
2022 with European and East Asian governments whose firms occupy impor-
tant roles in the value chain.
The viability of a ‘fast follower’ approach based on unrestricted access to
inputs, investment, and partnerships from abroad is now in question, given
the proven effectiveness of US assertion of extraterritorial jurisdiction in
forcing foreign industry leaders like TSMC to stop business with Chinese
firms. But the continued limitations of Chinese industry leave the Party-State
with no choice but to continue promoting integration into global technologi-
cal innovation systems (China-cer.com.cn 2021), hoping to reconcile this by
‘pulling tight’ international supply chains into dependence on China (Xi
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China’s Industrial Policy for Semiconductors 63

Jinping 2020). Chinese firms are thus trying to maintain or expand foreign
business relations, even if some activities like acquisitions are increasingly
unfeasible, while progressively introducing domestic suppliers and investing
in promising start-ups for this purpose.
MiC-25 set a goal of 40 percent self-sufficiency in IC production by 2020,
but by one recent estimate, China will have reached only half this figure
by 2025 (IC Insights 2021). China’s import substitution rate as of 2020 for
SME has been estimated at under 30 percent for all but one among ten SME
categories, with the rate for five categories judged to be under 10 percent
(Great Wall Glory Securities 2022). For EDA tools, the import substitution
rate is generally estimated as remaining under 10 percent. By 2030, these
dependencies are likely to be reduced but far from eliminated (Lee and
Kleinhans 2021a).
One reason for this slow progress with import substitution is the expo-
nential rise in the Chinese economy’s demand for semiconductors. This has
encouraged much investment in China’s semiconductor sector to be directed
at meeting immediate requirements, rather than at long-term technological
progress. For example, from 2017 to 2022, SME worth US$93 billion was
shipped to China, more than to any other region over the same timeframe.
Most if not all this equipment was for use in trailing-edge fabrication, which
also reflects existing US export controls on cutting-edge SME and stockpiling
by Chinese firms to risk mitigate against future expansion of export controls.

SPECIFIC GOALS: TRACKING PRIORITIES FOR STATE

INTERVENTION IN THE SEMICONDUCTOR INDUSTRY

The general goals described above are subjective priorities of China’s

Party-State. Decisions by Chinese authorities about more specific develop-
ment priorities are likely to be shaped by objective national interests, which
are influenced by the characteristics of distinct steps in the semiconductor
value chain. Lee and Kleinhans (2021a, 7–11) identify eight such steps, which
can be mapped against objective national interests, as shown in Figure 3.1
(dividing the fabrication step into ‘cutting-edge’ and ‘trailing-edge,’ given
their differing characteristics). Redder colours represent a higher degree of
objective importance to the national interest. This in turn indicates the likeli-
hood of state intervention in the market, to promote desired outcomes from a
partisan national viewpoint.
Figure 3.1 must therefore be interpreted in the context of states’ differing
situations and interests. For example, the Assembly, Test, and Packaging step
(bottom row) has high importance in terms of espionage risk. The concentra-
tion of global ATP activity in China makes this of low concern to Chinese
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64 John Lee

authorities, but of high concern to other states wary of Chinese espionage.

By contrast, the chip design step (top row) has high importance in terms of
revenue capture and spill-over benefits. This is reflected in Chinese authori-
ties’ support for chip design activity, hoping to use this as a revenue engine
to drive growth of China’s wider semiconductor industry and to support
development of end-user industries. As a final example, chokepoints (sixth
column) represent concentrated market share that can be ‘weaponised’ by
governments of the states where the dominant firms are headquartered. EDA,
SME, and cutting-edge fabrication have been weaponised by the United
States against China through export controls, given US firms’ dominance in
the first two value chain steps and their importance to the third one (meaning
that foreign leaders in cutting-edge fabrication like TSMC and Samsung are
exposed to US jurisdiction under these controls).
Lee and Kleinhans (2021a) discuss how Figure 3.1’s map of national inter-
est relates to China’s position in the different value chain steps. For instance,
despite the high importance of cutting-edge fabrication, public Chinese
policy and investment strategy has recently placed less emphasis on this value
chain step. This reflects the difficulty of progress given high barriers to entry,
and the constraints imposed by US export controls and pressure on allied
countries to deny Chinese firms the necessary SME. However, the Party-State
has been promoting R&D for component technologies for the requisite SME,
as described below regarding photolithography.
Additionally, Figure 3.1 does not capture two significant variables. First,
it is a frictionless model that does not account for perverse incentives and
other factors that distort centralised policy implementation. For example,
links between the national leading small group for the semiconductor sector
and provincial equivalents are opaque. Official decisions on investments and
administrative approvals in this sector still tend to be driven by bureaucratic
incentives, rather than by industry advice and market realities (Fuller 2019;
Randall 2022). Despite the importance of EDA and SME as chokepoints, and
their promotion in official policy, these value chain steps have been neglected
by the state’s chief investment vehicle for the industry, the ‘Big Fund’ (dis-
cussed further below). Instead, the Big Fund has directed investments to
expansion of fabrication capacity and the memory chip sector, where large
capital investments can boost local economic growth figures and the invest-
ments are (by contrast with long term R&D efforts) more likely to generate
short term profits.
Another variable not reflected in Figure 3.1 is the impact of transformative
technological changes. The semiconductor value chain is relatively mature,
and consistent with asymmetrical globalisation, it holds great inertia against
actors changing their roles. However, the rising difficulty of further IC min-
iaturisation may herald the impending end of ‘Moore’s Law,’ the decades-old
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China’s Industrial Policy for Semiconductors 65

Figure 3.1. Semiconductor Value Chain Steps Mapped Against National Interest Criteria
Source: John Lee and Jan-Peter Kleinhans, “Mapping China’s Semiconductor Ecosystem in Global Context:
Strategic Dimensions and Conclusions,” 30 June, 2021 Mercator Institute for China Studies and Stiftung
Neue Verantwortung, p. 11.

observation that the number of transistors in a dense IC doubles around

every two years, with concomitant increases in computing power. Sustaining
such increases into the future will likely require new technical approaches.
Combined with the imperative to circumvent chokepoints in the extant value
chain structure represented in Figure 3.1, this has led Chinese industry and
policymakers to focus on technical progress along pathways with significant
technical development potential.
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66 John Lee

One example is ICs based on compound semiconductor materials, which

have different electrical properties, rather than on the standard silicon.
Compound semiconductors are now prioritised in numerous province and
municipal-level government policies, notably by the Shanghai government,
which hopes to create a ‘Silicon Carbide Valley’ (Yicai 2021). In turn this is
driving behaviour by Chinese firms, including foreign acquisition activities,
such as the recently blocked takeover of a UK facility by the Dutch subsidiary
of a Chinese company (Guardian 2022). The utility of compound semicon-
ductors for power management means that China’s concentration of electric
vehicle and other electronics manufacturing industries provides a strong
source of supporting demand.
Another area that has received much attention is ‘chiplets,’ pre-developed
subcomponents that support modular IC design, and potentially thereby
achievement of more computing power using older generation chips. The
CEO of Verisilicon, China’s leading third-party semiconductor IP provider,
has advocated building up a ‘strategic stock’ of chiplets to circumvent choke-
points in cutting-edge fabrication for advanced processors (South China
Morning Post 2022). In early 2022, Chinese authorities were soliciting com-
ments on a newly developed domestic standard for chiplet interfaces (CESA
2022). Chinese firms are members of the international industry consortium
for chiplet standardisation, UCIe (BusinessWire 2022), but the scope of
recent US export controls targeting China’s semiconductor industry may
force it onto its own pathway for chiplet technology.
Both the above examples must be qualified by recognising that these
technologies for the time being remain path dependent, rather than transfor-
mative. While they may enable China to promote certain industry goals or
mitigate the effects of chokepoint weaponisation, they remain constrained
by the features of the semiconductor value chain represented in Figure 3.1.
The prospects for a true paradigm shift in semiconductor technology remain
opaque at best over a foreseeable timeframe, before even considering the
question of whether China is the economy best placed to make or exploit such
a hypothetical technological transformation.

THE SEMICONDUCTOR ECOSYSTEM WITHIN CHINA

In 2014, China adopted its most recent dedicated industrial plan for the semi-
conductor industry (State Council 2014). This established a national leading
small group to guide policy for the IC industry, as well as the National IC
Industry Investment Fund (‘Big Fund’). The Big Fund is a representative
type of the so-called ‘government guidance fund,’ an institutional model for
market-oriented ‘grand steerage’ that Chinese authorities have increasingly
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China’s Industrial Policy for Semiconductors 67

turned to over the last decade (Naughton 2022, 108; CSET 2021). These two
institutions play key roles within the ecosystem of state, nonstate and mixed
actors shaping activity in China’s semiconductor industry (Figure 3.2).

‘Grand Steerage’
‘Leading small groups’ (LSGs) in China bring together senior officials from
different agencies with the aim of overcoming bureaucratic stove piping, iner-
tia, and turf wars. At its establishment, the National IC LSG’s deputy director
was the head of the Ministry of Industry and Information Technology (MIIT),
which leads development of China’s digital technology-based sectors. It was

Figure 3.2. China’s Semiconductor Ecosystem

Source: John Lee and Jan-Peter Kleinhans, Mapping China’s semiconductor ecosystem in global context:
Strategic dimensions and conclusions' 30 June, 2021 Mercator Institute for China Studies and Stiftung
Neue Verantwortung, p. 16.
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68 John Lee

also advised by an ‘A-Team’ of experts on the semiconductor sector drawn

from government, research institutions, industry, and investment funds
(Ernst 2016, 7). Media reporting in 2021 suggested that that another LSG
for ‘reform of the national S&T system and building an innovation system’
was also playing a key role in semiconductor policy. This would align with
reorientation from a ‘fast follower’ approach to one focused on technology
breakthroughs and leapfrogging (State Council 2021).
In addition to MIIT and the macroeconomic planning agency NDRC, other
national agencies such as the Ministry of Finance (MoF), State Taxation
Administration and General Customs Administration have been involved
in issuing a range of supporting policies for the semiconductor industry as
indicated in Figure 2. For instance, the latter three agencies in 2021 adopted a
policy of exempting certain semiconductor-related technologies from import
duties, in cases where domestic options are not available or cannot deliver the
required performance (Gov.cn 2021).
Another key agency is the Ministry of Science and Technology (MoST),
although criticism of bureaucratic influence over R&D funding have
provoked efforts to curb MoST’s role (Zhou, Lazonick, and Sun, 2016).
Alongside MoF, NDRC and line ministries, MoST has played a lead role
in coordinating the S&T development mega-projects specified in the 2006
NMLTP, including one for ‘IC Manufacturing Equipment and Complete
Technologies’ (the ‘02 Special Project’). Running to 2020 in parallel with the
NMLTP, this aimed to indigenise production of critical SME by assigning
R&D tasks to different institutions. This effort’s success is considered below
regarding photolithography.

The Role of Sub-National Governments

China’s industrial policy system is decentralised in implementation, with sub-
national governments accounting for a much higher level of state expenditure
than the global average (Kroeber 2016, 4). By mid-2021, many province and
city-level governments had developed their own IC industry development
plans or governmental LSGs (Figure 3.2). Some of these plans seem likely to
result in duplicated effort and wastage of resources pursuing unrealistic goals
(Lee and Kleinhans 2021a, 33). Others seem to have better prospects, notably
the Shanghai government’s IC development plan, based on co-locating suc-
cessful Chinese firms from different value chain steps and a bonded (import
duty-free) manufacturing zone (Lee and Kleinhans 2021a, 22–23, 42).
‘Supply chain mapping’ initiatives, sometimes involving compulsory coor-
dination forums with designated lead firms, seem to be an increasing feature
of local government involvement (e.g., Jiangmen Municipal Government
2021; Chongqing Municipal Government 2021). Such requirements, which
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China’s Industrial Policy for Semiconductors 69

imply disclosing proprietary information, could become a major disincentive

to foreign firms participating in China’s semiconductor sector. For compari-
son, a more limited exercise in supply chain information collection by the US
government in 2021 provoked pushback from South Korea and Taiwan, both
at industry and government level (Lee and Kleinhans 2021b, 20–21).

‘Government Guidance Funds’ and

Broad-Based Investment
Much reform in China since the 1980s has been aimed at developing sources
of innovation outside the state’s centralised administration, while maintain-
ing state capacity to ‘steer’ industrial development (Zhou, Lazonick, and Sun
2016). Like other ‘government guidance funds,’ the ‘Big Fund’ is overseen
by state agencies, specifically MIIT and MoF (Gov.cn 2014). Most of its
shareholders are state-owned enterprises and other ‘government guidance
funds,’ and the bulk of its initial registered capital came from MoF and the
state-owned China Development Bank (CDB). The Big Fund’s managing
entity, Sino-IC Capital, has been continuously run by ex-CDB executives
(Caixin 2020). By mid-2020, 14 province-level governments had set up their
own IC investment funds, accounting for some 300 billion RMB (US$45 bil-
lion) (Lee and Kleinhans 2021a, 14).
One objective for ‘government guidance funds’ may have been avoiding
World Trade Organisation restrictions on direct subsidies (US delegation to
WTO 2018). But their key role is to provide sources of capital for domestic
firms, a basic requirement for technological upgrading (Lin and Zhang 2019).
With firms from advanced economies capturing 90 percent of revenues in the
global semiconductor industry, Chinese firms were never going to become
competitive through self-financing. State-linked funds aim to capitalise
development of evolving strategic priorities, with the Big Fund’s Phase 1
investments directed at fabrication and manufacturing-related categories of
SME and materials, while Phase 2 pivoted to ‘downstream investments’—for
example, in compound semiconductor applications—in the hope of dragging
along development of upstream sectors. The existence and investment choices
of state-linked funds also incentivise private industry and venture capital
actors, by signalling which areas are being favoured by government policy.
Media reports sometimes refer to a trillion renminbi (RMB) of planned
Chinese investment into the semiconductor sector. This seems not to rep-
resent any officially published number, and likely derives from the stated
aspiration for the Big Fund’s Phase 2 (launched with registered capital of
204.5 billion RMB) to achieve a 1:5 multiplier effect in attracting further
investment, the same ratio that Phase 1 is claimed to have achieved (Lee and
Kleinhans 2021a, 14).
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70 John Lee

This approach of using state-linked funds to stimulate and lead commercial

investment activity takes advantage of China’s new public stock and private
equity finance markets. In 2020 there were around 413 private equity deals
in China’s semiconductor sector worth around 140 billion renminbi (US$21
billion) (South China Morning Post 2021). Faced with a growing risk of los-
ing access to imported technology, major actors like Huawei are investing
in fellow Chinese companies that show prospects of developing domestic
alternatives in key chokepoints. In EDA tools for instance, China’s leading
vendor (Empyrean) stated in its IPO prospectus a goal to develop a complete
EDA ecosystem by 2025 (South China Morning Post 2022).
In 2021–2022, a government audit of the Big Fund, associated funds, and
firms that received their investments was followed with investigations by the
Party-State’s’ top disciplinary body into multiple executives at the Big Fund,
Sino-IC Capital, and semiconductor firms (Financial Times 2022). While
‘violations of law and discipline’ have been cited, another likely reason for
this crackdown is the continued weakness in SME and EDA that exposes
wider Chinese industry to ‘choking’ by US export controls. Some of the Big
Fund’s investments appear to have been put to good use: memory chip maker
YMTC, for example, was making sufficient progress with advanced memory
that this technology was targeted by the October 2022 US export controls
(despite being a commodity rather than a strategic asset). But the basic fact
that despite such large investments, China remains so vulnerable to US lever-
age in this industry, shows the limitations of ‘grand steerage’ when faced
with the market realities and technical complexities of the semiconductor
value chain.

China’s Research-Industrial Complex

These complexities mean that Chinese technical progress has relied on R&D
at state-resourced research institutions, especially given that many Chinese
firms in this sector are relatively young and have small revenues. Much rele-
vant Chinese IP is held by these state research institutions, including in emerg-
ing fields like compound semiconductors (KnowMade 2022). Staff at these
institutions have significant influence over state policy and industry choices:
for example, Wei Shaojun, director of Tsinghua University’s Microelectronics
Institute, is vice president of the China Semiconductor Industry Association,
a Chinese delegate to the World Semiconductor Council (Triolo 2021) and a
member of the National IC LSG’s advisory ‘A-Team’ (Ernst 2016).
Private Chinese firms in the semiconductor sector typically spend a pro-
portion of revenue on R&D comparable to foreign counterparts, but given
their much lower revenues, this translates into much lower absolute spend-
ing (Randall 2021). With growing pressure on access to R&D partnerships
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China’s Industrial Policy for Semiconductors 71

abroad, including with foreign research institutions such as IMEC in Belgium

(Bloomberg 2021), private Chinese firms are likely to increasingly depend
on collaboration with state research institutions and on well-resourced
state-owned enterprises, which will benefit from significant planned increases
in the Chinese government’s basic and applied research funding.
‘Innovation’ in the narrow sense is, however, only one side to a nation’s
technological progress. The other is its capacity to ‘diffuse’ new technol-
ogy across society to actors who can use it effectively. With its command
economy legacy and limited institutional reform since the 1980s, China still
has a significant ‘diffusion deficit’ (Ding 2022; Zhou, Lazonick, and Sun
2016). The Chinese system has readily adopted some elements of its East
Asian neighbours’ formulae for technological upgrading, such as creation of
enabling infrastructure in the form of ‘industry park’ type sectoral clusters.
But China has been less successful in developing its own ‘institutional foun-
dations of the processes of technology leverage and diffusion management,’
including the political space for industry to self-organise and have a genuine
two-way interaction with government over strategic direction and priorities
(Matthews and Cho 2009, 316, 319; Zhou, Lazonick, and Sun 2016, 49–50).
There is for example no Chinese equivalent to Taiwan’s ITRI, a
cross-sectoral public research and intermediary body tasked with identify-
ing key technologies and diffusing them to the private sector, which directly
birthed cutting-edge fabrication leader TSMC. And by contrast with the
bottom-up formulation and implementation of S&T development in Taiwan,
China still works with a top-down and relatively siloed system inherited from
the Maoist era, albeit one that has undergone progressive rounds of reform to
raise its effectiveness (Chang and Shih 2004; Zhou, Lazonick, and Sun 2016,
35–9). This reflects the Party-State’s’ recognition that while its S&T system
has delivered success in natural state monopolies like a national space pro-
gram and high-speed rail network, it has proved less effective in internation-
ally competitive and market-driven sectors like semiconductors.

China’s Position in the Global Semiconductor

Value Chain
The main features of China’s aggregate position within the transnational
semiconductor industry are fairly clear and have been identified by various
researchers (Ernst 2016; Lee and Kleinhans 2021; Triolo 2021; Li 2021;
Grimes and Du 2022). They can be summarised as follows:

• Chinese firms are now present throughout the value chain and are grow-
ing their capabilities and market share. Even faced with the extensive
US export controls of October 2022, Chinese firms are probably already
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72 John Lee

capable of supplying fabrication plants (fabs) short of the cutting-edge

by plugging gaps in domestic production through open trade in noncon-
trolled items and black-market channels in controlled ones, and progres-
sively import substituting even these items over the coming years.
• The most critical chokepoints for Chinese industry are EDA, cutting-edge
fabrication, and key SME for equipping cutting-edge fabs, with the
salient example being photolithography, as discussed below. EDA tool
design is linked to fabrication, and so Chinese limitations in the latter
will impede progress in the former. This may be mitigated by availabil-
ity of pirated EDA software from the US industry leaders (Fuller 2021)
and Chinese EDA vendors are relatively well positioned to expand their
offerings, although the ‘US persons’ provisions of the October 2022
export controls have already led to some Chinese EDA startups losing
key personnel.
• Chinese industry has been most successful in chip design and ATP,
reflected in global market share in these value chain steps. But Chinese
industry in general, and Chinese chip design firms especially, still rely
on foreign-owned IP. Chinese firms are making progress with chip
design based on RISC-V open-source ISA, which may provide the basis
for a larger semiconductor IP ecosystem. But to date, RISC-V chips
are yet to be adopted at scale even by the firms that designed them: for
example, Alibaba still mainly uses US-designed chips for its cloud com-
puting business. And ISAs are only one element of extensive third-party
IP in the semiconductor industry.
• China also now accounts for a large and growing share of the world’s
trailing-edge fabrication capacity, thanks to state encouragement and
the demand created by end-user industry concentration in China. This
means that for less sophisticated chips used in a wide range of applica-
tions, China will be a major global supplier for the foreseeable future.
This was acknowledged by one senior US official explaining the
October 2022 export controls, which he described as not intended to
stop the manufacture in China of chips to be used (for example) in car
airbags (CNAS 2022).
• Despite critical self-assessments by Chinese industry of the nation’s
capacity to generate a sufficiently large semiconductor workforce, this
is probably a lesser problem than the labour pool’s practical industry
experience (Lee and Kleinhans 2021a, 18–19; Fuller 2019). For this
China has relied extensively on US, South Korean, and (especially)
Taiwanese individuals, who have been instrumental in running opera-
tions and training up the domestic workforce. Greater controls by these
foreign governments on their citizens’ involvement in Chinese industry
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China’s Industrial Policy for Semiconductors 73

may significantly slow the latter’s progress, particularly in cutting-edge

fabrication.

Perhaps the most critical constraint on China’s progress toward cutting-edge

fabrication, and thus domestically produced cutting-edge logic processors,
is the SME category of photolithography. As noted above, the Dutch firm
ASML monopolises the cutting-edge (EUV) of this technology, which it
is not permitted to export to China under Dutch law. EUV machines are
regarded as necessary for commercially viable production of ICs at 7nm
(nanometers) fabrication process nodes or smaller. While China’s leading
fabrication firm SMIC has manufactured one chip design at a 7nm process
node—news of which was reportedly a key trigger for the October 2022 US
export controls (ChinaFile 2022)—SMIC probably achieved this with previ-
ous generation photolithography machines, under conditions that are unlikely
to be commercially scaleable for a wide range of ICs.
Under the 02 Special Project, several Chinese institutions have been con-
ducting R&D into requisite component systems for advanced photolithogra-
phy. Media reporting in late 2022 indicated that these projects have reached
a point where China’s leading photolithography machine maker, SMEE, may
soon prototype a photolithography machine for a 28nm process, capable of
producing chips with adequate performance for a wide range of applications.
SMIC operates 28nm and 14nm production lines using foreign-provided
photolithography equipment, while one new Shenzhen-based fabrication
firm linked to Huawei (which since 2020 has lost access to cutting-edge
fabrication due to US export controls) reportedly aims to start 28nm produc-
tion by 2025.
To put this in perspective, the October 2022 US export controls target
Chinese fabrication capacity for logic chips at 14nm processes, two genera-
tions ahead of a 28nm process. The latter was brought into production in 2010
by fabrication leader TSMC, which in 2022 had a 5nm process in production
and was about to introduce a 3nm process. Once SMEE produces a 28nm pro-
totype, achieving commercial viability with this machine will present further
challenges. And the technical leap in photolithography from 14nm to 7nm
is immense, with R&D for some components still reportedly a significant
distance from providing the basis for even a prototype EUV machine. Even
with successful development of the most sophisticated components, replicat-
ing within China ASML’s vast network of suppliers—some five thousand,
according to recent annual reports—will remain a formidable task.
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74 John Lee

CONCLUSION: CHINA’S PROSPECTS IN

SEMICONDUCTORS AND STRUCTURAL
INTERNATIONAL POWER

As a foundational technology, semiconductors are critical to China’s develop-

ment beyond a ‘partial power’ (Shambaugh 2013) on the global stage. The
October 2022 US export controls are expressly motivated by fear of China’s
potential to deploy and employ semiconductor-based technologies like arti-
ficial intelligence more effectively than the United States. These measures
have sprung from a policy debate fixated on a technology ‘arms race,’ and the
need to pre-empt China reaching a ‘tipping point’ of technological capability
beyond which it will inevitably outcompete the United States.
This chapter has shown a large gap between such concerns and the realities
of China’s place in the global semiconductor value chain. In this industry,
China is dominant nowhere and has limited prospects to substitute key for-
eign dependencies in the short term, let alone to close the gap with foreign
industry leaders at the technological frontier. Not only is the industry’s struc-
ture highly unfavourable in many ways to Chinese firm growing their market
share or technical capabilities, but China’s own development ecosystem may
hamper more than help, especially in view of growing constraints on the
international access through which existing Chinese success has been built.
State influence remains strong enough to significantly distort market out-
comes in inefficient ways (Fuller 2019), with state-backed firms collecting
an estimated 60 percent of the semiconductor industry subsidies spent in
2020 (Nikkei Asia 2020). Xi’s centralisation of authority, and the reassertion
of ideological orthodoxy, is increasingly squeezing out the flexibility and
experimentation in bureaucratic decision-making that has been crucial to
China’s past successes with industrial policy.
Despite rhetorical commitment to ‘enterprises as the main locus of tech-
nological innovation’ (Xinhua 2022), it is hard to characterise the Chinese
system as emulating the other East Asian ‘technology Tigers’ in favouring
entrepreneurship, rather than constraining it (Matthews and Cho 2009, 317).
Chinese authorities still tend to favour SOEs or firms spun off from state
institutions over the independent private sector, despite the former’s medio-
cre performance and unimpressive track record for absorbing technology or
dynamism in employing it commercially (Fuller 2019).
China’s own public debate is cognisant of this technology ‘diffusion
deficit’ (Ding 2022). But it is unclear whether this cognisance has reached
the system’s apex. A recent policy statement for ‘key core technologies’
like semiconductors (Xinhua 2022) emphasises tighter control by the Party
centre through an ‘authoritative decision-making command system,’ and a
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China’s Industrial Policy for Semiconductors 75

‘combination of active government with an effective market.’ This does not

suggest a priority on rapid technological diffusion to industry actors given
decision-making autonomy. Even where state-led policy has been most suc-
cessful, in expansion of trailing-edge fabrication, it is unclear whether the
state has focused enough on obtaining the human capital to effectively run all
these new facilities (Fuller 2019).
The Chinese system is clearly capable of developing advanced technolo-
gies. Less clear is the system’s capacity to employ and scale up these tech-
nologies in commercially viable and globally competitive ways, as achieved
by semiconductor industry leaders like TSMC and ASML. The United States
tolerated the rise of such foreign industry leaders because the countries
involved were security allies, although in Japan’s case tensions were even-
tually addressed through a bilateral agreement designed to protect the US
semiconductor industry (Irwin 1994). China, by contrast, is trying to claw its
way up in a mature industry dominated by US allies, in the face of committed
US hostility.
Nonetheless, other features of the global semiconductor industry are more
favourable to Chinese prospects. Many of the constituent technologies are
progressing along the sort of clear developmental trajectories that provided
‘leverage’ for successful past cases of East Asian state-led industrial catch-up
(Matthew and Cho 2009). Despite the expected pending end of Moore’s
Law, key semiconductor-related technologies are still advancing according to
generally known developmental roadmaps that China can follow, with photo-
lithography providing a case in point.
Experience in other industries also suggests caution in judging the future
outcomes of Chinese state-led intervention by its past performance. In wire-
less telecoms for instance, despite limited adoption of China’s indigenous 3G
standard, the development experience helped Chinese firms improve their IP
position in global 4G and 5G standards and translate this into global commer-
cial success (Zhou, Lazonick, and Sun 2016; Malkin 2022). This contrasts,
for example, with the experience of Japan, where isolated industrial develop-
ment and state failure to create domestic markets resulted in technological
‘leading without followers’ (Kushida 2011; Lee 2020, 8).
The concentration in China of electronics manufacturing and emerging sec-
tors like electric vehicles still exerts great attraction on foreign industry lead-
ers (Lee 2021). Competition among foreign firms incentivises them to remain
in China (Grimes and Sun 2016) for access to its enormous fast-growing
markets, skilled labour pool, extensive infrastructure, and ecosystem of
supplier firms, despite the growing difficulties and political risks of doing
business there. This has been recently highlighted, for example, by leading
German firms’ announcement of major new investments and partnerships in
China, and their CEOs’ public intervention to advocate continued economic
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76 John Lee

integration (Edge 2022). The reluctance of the Netherlands, Japan, and South
Korea to replicate the October 2022 US export controls, despite pressure from
Washington, shows how China’s extant position in the semiconductor sector
and end-user industries affects international power relations.
The partial success of China’s semiconductor ecosystem, and its limited
prospects for closing the gap with the US-allied community in most of the
industry’s commanding heights, suggests that China’s further progress in this
field will append rather than supplant US dominance (Malkin 2022). China’s
growing presence in chip design, trailing-edge fabrication and ATP already
has clear implications for the resilience of the global supply of semiconduc-
tors and the dependencies of foreign industry actors (Lee and Kleinhans
2021b). Elsewhere, Chinese industry will suffer from US export controls,
especially in its international competitiveness. But while US controls may
achieve their stated goal of precluding Chinese technological leadership, they
are unlikely to stop China’s accumulation of structural power in the global
economy, as embedded in technological networks. This trend may not deliver
on the Party-State’s’ ambitions for semiconductors and other advanced tech-
nologies, but it is growing the resources and international leverage available
to Beijing.
The realities of the semiconductor value chain mean that every country
involved is a ‘partial power,’ including the United States itself. In such a key
technology, even limited success in breaking the mould of ‘asymmetrical
globalisation’ enhances China’s power in the international system and its
capture of gains from trade. This appears increasingly to be a model for other
large developing countries, notably India and Indonesia. Even the advanced
economies are now adopting ambitious industrial policy for semiconductors,
recognising their implications for the distribution of wealth and power. But
policymakers should be wary of making choices that harm their own econo-
mies, by clamping down on international trade and globalised innovation
simply because this also benefits countries that are perceived as strategic
rivals. Despite the concentrated character and strategic importance of the
semiconductor industry, it presents a case for managing economic interde-
pendence with China, rather than seeking China’s technological containment
in absolute terms.

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Chapter 4

Fintech in China
Trading off Growth and Risk,
Innovation, and Control

Martin Chorzempa

Finance is the lifeblood of any economy, and Chinese financial technology

or ‘fintech’ and its digital economy have boomed in a symbiotic relationship.
The government’s view of fintech has changed over time, but overall it is
seen as a beneficial tool for contributing to China’s economic and technologi-
cal development. Technology adoption can make the financial system more
efficient, lower costs, and serve more people, and China has had immense
success thanks to the growth of its fintech sector. China’s fintech sector,
the largest in the world by far, has also brought beneficial competition with
protected state monopolies that provided poor service and little innovation.
Fintech has also become a soft power asset for China, an area where it can
claim to have ‘leapfrogged’ advanced economies to become the world leader.
Fintech remade its backward cash-based financial system, forging instead a
system designed for use with mobile phones and digital commerce. Payments
in China with digital wallets are many times cheaper than those done with
credit cards in the United States, where people still carry around plastic cards
and sometimes even paper checks to make payments. Before the pandemic
shut off most travel to China, foreigners marveled at the advanced state of
Chinese mobile payments, which bankers describe as ‘close to the end state’
of what banking could look like in the future (Engen 2018). China’s top
fintech companies have invested billions in fintech firms around the world
and expanded acceptance of Chinese payments apps to dozens of countries,
leveraging their technology, capital, and expertise to make their mark outside
of China. Many believe the digital RMB project from China’s central bank

83
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84 Martin Chorzempa

could use technology to remake the way the RMB is used in international
payments, reducing the leverage and sanction power the United States cur-
rently wields thanks to the dominant role of the dollar in global commerce
and investment.
Yet, the rapid growth of innovative finance has not been an unalloyed
good. It has also brought the risk of financial instability, the creation of new
potentially unassailable monopolies in the form of ‘super apps,’ as well as
data protection concerns. Authorities are now hoping to reduce risk and dis-
ruption without cutting off needed credit or the room for still needed financial
innovation. They have largely been successful at reducing risk, but their hope
to remake the fintech sector will need years to implement complex and some-
times mutually contradictory policy goals.

FINTECH’S IMPORTANCE TO DIGITAL DEVELOPMENT

When China’s largest internet firms were getting started in the early 2000s,
China’s cash-based payment system was a major impediment to their busi-
ness. Unlike in the United States, digital advertising provided too few oppor-
tunities to raise revenue, so they needed to collect payment for digital goods
directly from consumers to become profitable. The problem, however, was
that payments through credit cards and other digital means taken for granted
in advanced economies were inconvenient or not available. Tencent, one of
China’s internet giants with a focus on social media and gaming, struggled
to collect small payments for in-game items or cheap subscriptions to digital
services. ‘Pony’ Ma Huateng, Tencent’s founder, recalled that ‘almost none
of China’s young consumers had a credit card. They had to run to the post
office to make a transfer, which few netizens were willing to do for a 10
RMB payment every month’ (quoted in Wu 2017). It issued its own virtual
currency, the Q coin, so that users could make one payment to Tencent with
the clunky legacy financial system and then use a digital one with Q coins to
make smaller purchases seamlessly and with no fees.
China’s State Council recognised the problem. It issued opinions in 2005
to signal clear support for online payments to help electronic commerce
‘change the way our economy grows and raise the quality and efficiency of
citizens’ economic activity’ (State Council 2005). Though state-backed China
Union Pay retained a monopoly on card payments, playing a role analogous
to Mastercard or Visa in the United States, the government encouraged the
development of private online payments options. China’s central bank, the
People’s Bank of China (PBOC), left online payments free of regulation
until 2010, seemingly a libertarian paradise in an authoritarian country, to
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Fintech in China 85

‘create a relatively loose environment for the innovation and development of

e-payment business’ (PBOC 2005).
E-commerce, meanwhile, struggled with payments but also trust. Most
transactions initially occurred between people in the same city, who inspected
the goods and paid cash when they were deemed satisfactory, limiting its
scope (Barnett and Lorentzen 2006). In the United States, this was less of
a problem because credit cards contain consumer protections that ensure
customers are not charged if the goods do not arrive. American e-commerce
companies thus did not need to build their own payment tools, but Alipay
helped solve this problem for Alibaba’s Taobao consumer to consumer mar-
ketplace. Alipay started as an escrow service, guaranteeing buyers they would
not be charged unless goods arrived in satisfactory condition while also guar-
anteeing merchants that they would be paid if they delivered.
The official government encouragement was crucial to providing political
and regulatory space for entrepreneurs like Jack Ma, Alibaba’s founder, to
engage in this problem solving, though he claims to have moved forward with
Alipay after assuring his staff that he would be the first if anyone had to go
to jail (Ma 2018). Online payments started for online purchases but expanded
to offline purchases, like taxis and in-person restaurant dining around 2014,
which further digitised payments. More digital commerce created demand
for more digital financial tools like mobile payments, generating data and the
capability to generate insights from those data.
Both Alipay and Tencent’s WeChat Pay, part of its new mobile chat app,
made collecting digital money fast and cheap, averaging a fee of about 0.6
percent per transaction, many times cheaper than credit cards in the United
States that can reach 2 to 3 percent. Since the systems were digital native,
they were cheap to process and carried no fixed fee per payment, which
makes it economical to send even payments of a few cents. Business models
that thrive in China like tipping and paying per article for media would not
be possible with credit cards. Digital payment then became infrastructure
crucial for the development of China’s broader digital economy, shaping the
possibilities of business that can thrive online and off.
Credit is also essential to a modern economy, spurring consumption, entre-
preneurship, and efficient functioning of business. Fundamentally, credit is an
information issue. Credit providers must find and screen potential borrowers,
for example with a credit score, and monitor them after the loan is given,
for example to ensure the funds are not put into the cryptocurrency market
instead of buying business supplies. Fintech’s use of data could help improve
lending by giving credit providers better information. Before fintech, house-
hold loans were mostly limited to purchases of housing and cars with large
down payments. Borrower characteristics are less important when a default-
ing borrower would just forfeit the collateral. Consumer credit is harder, and
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86 Martin Chorzempa

small business credit is a major challenge around the world, because small
firms do not tend to have assets that can be put up as collateral.
The traditional way to evaluate such borrowers outside China is to look at
their credit history, but China faced a chicken and egg problem because it his-
torically had so little formal consumer and small business credit. Few lenders
wanted to extend credit to the hundreds of millions of Chinese without credit
histories, but unless that changed there was no way they could get a credit his-
tory needed to borrow. Fintech overcame the chicken and egg problem with
big data sets generated by online payments and commerce to develop credit
screening tools that allowed lenders to estimate even a first-time borrower’s
financial resources and risk level, all without costly human involvement in
lending decisions. They could also generate credit histories quickly by lend-
ing small amounts to consumers very short term. Control of the payment
system helped monitor what the borrowed funds were spent on. Ant Group,
spun off from Alibaba, became one of China’s largest lenders with this model
built into Alipay.
For small business credit, e-commerce and running the payments system
provided Alibaba and other firms like JD with real time information on an
online business’s health that they could use to control credit risk. Because
the seller relies on the platform, they have a strong motivation to repay, lest
they be kicked down the rankings or risk losing access to their revenues
from Alipay.

MAJOR PLAYERS

The shape of fintech in China is the result of competition between fintech

firms, collaboration and competition with traditional financial institutions,
and a regulatory role for the government that shapes the incentives and activi-
ties each can undertake. Governmental policy initially was a double-edged
sword. Before fintech, the financial system implemented financial repression,
in which regulatory barriers reserved most of finance, especially payments
and banking, for state-owned companies. Chinese savers’ money would
then be channeled at low cost to state owned firms and the government to
implement state priorities like infrastructure investment (Chorzempa 2022).
Those barriers kept fintech from entering much of finance, and artificially
constrained supply of credit and other financial services left an immense
addressable market for innovators—if the government would permit them
to compete.
Around 2012, market reform-minded officials like PBOC Governor Zhou
Xiaochuan convinced the leadership that competition was needed to improve
the financial system and support economic growth. Then-Premier Wen Jiabao
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Fintech in China 87

said, ‘We’re dealing with the issue of getting private capital into the finance
sector, essentially, that means we have to break up [the state banks’] monop-
oly’ (Reuters 2012). Regulators then implemented the promised openings,
permitting fintech firms to enter the wealth management, consumer lending,
offline payments, banking, insurance, and other sensitive markets.
The most important fintech companies are Alibaba and Tencent. Alibaba’s
main strength is in e-commerce, while Tencent is primarily a gaming and
social media company. Both had strong political patronage, technical exper-
tise, and large bodies of users to which they could push financial services.
Though their main lines of business did not overlap that much until the arrival
of smartphones, mobile internet launched an era of platforms, in which each
turned their main apps into an ever-larger bundle of services. One of the first
competitive areas was so-called online to offline (O2O) services that could
use smartphones to order in-person goods and services like Didi and Kuaidi
(equivalent to Uber elsewhere). Alibaba and Tencent competed with a war of
subsidies to get consumers and businesses to adopt QR code payments for
such services, starting with taxis and, as figure 4.1 shows, becoming the main
way Chinese paid for items online and off starting in 2016.
Tech firms competing achieved what over a decade of state monopoly, as
China UnionPay cards issued by the state banks, could not: a wholesale shift
from cash to digital payments. Alibaba affiliate Alipay had a 55 percent mar-
ket share of the nonbank mobile payments market in 2020, and the latter 38
percent, together thus controlling 93 percent—an effective duopoly (Analysys
2020). Alipay had 711 million monthly active users in 2020, more than 60
percent of China’s adult population (Alipay 2020), and WeChat Pay counts
more than one billion users. UnionPay tried and failed to preserve its de facto

Figure 4.1. How Chinese Citizens Pay for Items Online and Off
Source: Author calculations based on People’s Bank of China data.
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88 Martin Chorzempa

monopoly on offline payments, but popular support and allies in government

protected fintech’s disruption—for the benefit of Chinese consumers.
Tech firms’ platform model led to China’s fintech unique strengths,
which come from fusing finance with nonfinancial services and goods in a
single application. Super apps have become more akin to operating systems
on which a host of other apps, including mini apps, can build. Alipay and
WeChat’s control of payments allows them to provide access to their users
and the ability to charge those users to third parties that can build their busi-
ness on the Alibaba or WeChat platform.
ICBC, China’s largest state-owned bank, partnered with Alipay around
2003 to process payments and hold customer funds safely, but once Alipay
expanded beyond payments a decade later the relationships with banks
became more tense. Banks hold strong political power since their execu-
tives have a place similar to vice ministers in the Party’s Nomenklatura and
have long been connected with implementing party policy (McGregor 2012).
Alipay’s disruption of financial repression through its launch of a money mar-
ket fund in mid 2013 drained funds out of the banks and marked a new era of
both economic competition and political competition, in which fintech firms
would probe the limits of disruption authorities would condone. Later rules
would force fintech firms into a more collaborative stance with the banks,
helping them upgrade their IT systems and leveraging their data to help banks
make loans instead of a focus on providing competing products.
Thus, regulators have played a crucial role, especially since the aborted
IPO of Ant Group in 2020, in shaping the sector. The People’s Bank of China
is the most important regulator in the space and formulator of policy, while
the China Securities Regulatory Commission and the China Banking and
Insurance Regulatory Commission play more operational supporting roles
supervising elements of the fintech ecosystem.
The PBOC has also increasingly moved from a position exclusively as a
regulator to more of a direct participant in the fintech ecosystem. This started
with the creation of NetsUnion in 2017, a payment system to take over the
movement of money between banks and payment companies and transactions
that cross over between Alipay and WeChat Pay. It is now poised to reshape
the landscape for digital payments and fintech through its development of a
central bank digital currency (CBDC) which it calls the eCNY. Launching
a central bank digital currency entails creating a payment system, which is
likely to have both a collaborative and competitive role with fintech. Alipay
and WeChat wallets can support eCNY transactions, but the eCNY is also
designed to provide a separate ‘backup’ (Mu Changchun) system. Some
design elements, like the central role of the largest banks, suggest a policy
goal to boost the role of the state banks in the payment system, with greater
use of their wallets instead of the private sector fintech firms.
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Fintech in China 89

CHINESE FINTECH COMPARED TO OTHERS

Fintech in China dwarfs other countries. It has the largest number of users and
transaction volume of mobile payments systems, the largest outstanding fin-
tech credit, and the most valuable fintech firms in the world. It also the high-
est overall penetration of fintech as a portion of its population, at 87 percent,
higher than the Netherlands’ 73 percent and far larger than the United States’
paltry 46 percent (EY 2019). The role of big tech firms was crucial, and here
China is an outlier, with big tech facilitated payments at more than 16 percent
of GDP, compared to the United States at only 0.6 percent (Figure 4.1).
In terms of central bank digital currency, almost all central banks are
exploring issuance of this new type of currency, and a few smaller countries
have already issued one. Among major economies, however, China is the
furthest along, having committed to launch one back in 2016, back when
top officials at the Federal Reserve in the United States had not even pub-
licly mentioned the prospect (Chorzempa 2021). Concretely, its leadership
in CBDC makes it a hub for knowledge on trade-offs in these systems and
makes it able to be an early mover for any future cross-border infrastructure
that transacts CBDC. China is involved in experimental proofs of concept
for this infrastructure, as are central banks like the Bank of England, Bank
of Canada, Bank of Japan, and the European Central Bank. Where it is dif-
ferent than those is on the retail side, where the others have not committed
to launching one or have had very limited domestic pilots. In China around a
quarter billion people have downloaded the eCNY wallets, giving the PBOC
a unique set of practical knowledge around these systems.
Central banks tend to focus on operating payment systems between finan-
cial institutions, leaving many thorny issues of retail payments to the private
sector. This makes it a steep but useful learning curve for the PBOC to be

Figure 4.2. Yearly Bigtech Payment Volume as a Share of GDP

Source: BIS (2019).
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90 Martin Chorzempa

on as it builds elements like developing its own app for the eCNY wallets,
‘you’re your customer’ systems to check identities, onboarding procedures
for millions of individual merchants that will accept its payment tools, algo-
rithms that identify and stop fraud, and the regulatory system to manage
cooperation and regulation with banks and mobile wallets that form part of
the system. It will also see what cyber threats arise with the limited scale
pilots, where glitches in code create issues, and the kind of payment volumes
it can handle with different architecture.

CHINESE GOALS AND PROGRESS TOWARD THEM

China’s goals have shifted as fintech grew from a fledgling upstart to the
way that most Chinese organise their financial lives. Initial encouragement
and a hands-off attitude largely paid off as a thriving fintech sector seemed
to replace a backward system, bringing it closer to achieving goals like
financial inclusion, larger digitisation of China’s economy, increased com-
petition for traditional finance that improved services, and a better image for
China abroad as an innovative country. Yet, in 2017 China Communist Party
General Secretary Xi Jinping convened a Politburo study session with a focus
on ‘financial security,’ which turned into a sustained campaign against finan-
cial risk that would sweep up fintech as well. Fintech’s large scale and much
of the low hanging fruit of digitisation already being picked led to much more
regulation (Chorzempa 2018).
The financial regulatory side advanced, held back to some extent by the
political power of fintech firms and their allies. Meanwhile a global move-
ment to better protect privacy and restrain monopolistic practices among big
tech firms changed policy goals. The Politburo’s commitment on December
11, 2020 (Xinhua 2020), to ‘prevent the disorderly expansion of capital’ was
precipitated by Alibaba founder Jack Ma’s comments at a major conference
that suggested that regulatory policy was excessively focused on reducing
risk to the detriment of innovation and growth—just before what was to be a
record breaking initial public offering of his fintech giant Ant Group. Pressure
had already been building to rein in big tech, and Ma’s comments appeared to
be a public rebuke of Xi. Xi had personally advocated for a focus on financial
security, and anyone willing to openly contradict this message could be con-
sidered a political threat. The political and economic issues were intertwined
as well—if Ma could use public influence to shape regulatory policy in his
interest, Ant Group could engage in riskier activities to increase profits. Much
of ultimate costs of those risks, considering Ant could be considered too big
to fail, would be borne by the public and the state.
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Fintech in China 91

Regulators then had to implement the Politburo’s policy direction in fin-

tech, identifying the areas in which order needed to be established and where
capital had expanded too much. They had to tread carefully to avoid creat-
ing more disorder through excessively harsh policies that could disrupt now
essential fintech services or excessively reduce economic growth. The fintech
policies would fall under the overarching focus on the ‘platform economy.’
A March 2021 meeting of the Central Financial and Economic Committee,
which Xi himself presided over, focused on the ‘healthy and sustainable
development of the platform economy’ (Xinhua 2021). The meeting assessed
that ‘the overall development situation is good, and the impact is positive,’
citing positive effects on efficiency and ‘informatisation.’ It signaled that
regulatory authorities would need to ensure their anti-monopoly, financial
risk reduction, and prevention of capital’s disorderly expansion did not jeop-
ardise the platform economy’s benefits.
The first vision of officials’ ideal fintech sector was in their plan for
‘rectification’ of Ant Group, still the most successful and prominent fintech
firm in China, after authorities cancelled its IPO. PBOC Vice Governor Pan
Gongsheng made clear that fintech was still encouraged to be more innova-
tive and more competitive, just within regulatory constraints (PBOC 2021).
Vice governor Pan’s main policy goals revolved around financial risk, ensur-
ing fintech remained competitive and inclusive, and improving both competi-
tion and data privacy.

FINANCIAL RISK AND INCLUSION

Managing and reducing financial risk is the first and probably the most
important of China’s goals for fintech, and it is one where policymakers
have achieved extraordinary success by reining in not only fintech, but also
other types of loosely regulated so-called shadow banking. In 2018, the
peer-to-peer lending sector, which at one point created around 5 percent of
credit in China, was full of Ponzi schemes waiting to implode, with thousands
of online platforms suffering from massive losses on poorly thought-out loans
on the one side and owing millions of investors over a trillion RMB on the
other. Authorities gradually diffused the risk and shut down the entire sector
with minimal fallout to the financial system and social stability, the latter
thanks to the quick mobilisation of the state security apparatus to discourage
protests among investors taking losses in failed platforms (Chorzempa 2022).
In the payments space, risk from the rise of loosely regulated online pay-
ments has been diffused, as the state has ensured that all on and off ramps
to online payment tools like Alipay and WeChat pay are regulated through a
state clearinghouse called NetsUnion. All funds in these digital wallets are in
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92 Martin Chorzempa

turn deposited in special accounts at the central bank to ensure that payments
companies cannot gamble with customer funds, and that if Alipay were to
fail, customers would be easily made whole by the central bank. Security
standards have tightened as well, ensuring that initially unsecure ‘static’ QR
codes have moved to ‘dynamic’ ones that are much harder for criminals to
use to drain people’s digital wallets by sneaking a picture of the codes they
present to pay.
Authorities have also successfully pressured Ant to slow down its con-
sumer loans business and restructure it. The previous version allowed regula-
tory arbitrage, in which Ant’s affiliated microloan company regulated at the
provincial level originated hundreds of billions of RMB in loans nationwide
that would then be sold to banks—meaning that Ant made money from the
payments and loan origination while its IPO prospectus revealed that banks
were on the hook for 98 percent of the credit risk (Ant 2020). Instead, it will
have to issue loans through better regulated joint ventures.
Most importantly, regulators have created a financial holding com-
pany (FHC) regime to ensure that firms like Ant with multiple financial
licenses along with non-financial business, are regulated at the group level.
Previously, regulators had an incomplete picture because different pieces of
Ant and other financial conglomerates were regulated by different authori-
ties, with no overarching framework that takes into account the risks posed
by interconnection of, say, payments with credit, investment, and banking.
While this has not been a major problem in fintech thus far, other major
financial instability has resulted when it turned out the banks like Baoshang
Bank affiliated with commercial companies made risky, underpriced loans to
their parent firms and related companies, leaving the government to foot the
bill and make depositors whole.
Ant has been required to put its entire business in the financial holding
company structure, but the process is not yet complete. The regime is a work
in progress, and it will have to balance between risk considerations and ensur-
ing it does not micromanage firms to the point of choking off useful product
innovation, for example, making firms wait months for approval to launch a
new product. However, its existence closes a major loophole in financial rules
that fintech benefitted from for years.
Draconian bans on cryptocurrencies and exchanges used to trade them
have been successful at stamping out a large share of this activity in China,
which policymakers see as focused on risky speculation without benefit for
the real economy. Though there may be a trade-off if cryptocurrency-based
‘Web3’ becomes a source of real innovation instead of mostly speculation
and overhyped Ponzi schemes, but for now China is effectively avoiding
the instability, losses, and gambling nature of cryptocurrencies, probably for
the better.
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Fintech in China 93

On ensuring financial services are inclusive, Chinese officials assess that

they have broadly achieved their goals, as ‘basic financial services are now
accessible in almost all urban and rural areas’ (Liu 2021). This assessment is
broadly corroborated, but work remains to be done. Fintech has made major
contributions to achieving China’s financial inclusion goals. Researchers
exploring the spread and depth of use of digital financial tools found that
these were predominately in use by residents of China’s most prosperous
regions in 2011, but by 2018 these were in widespread use across China,
reducing inequality of access (Guo et al. 2019).
World Bank data show that from 2017 to 2021, the gap between digital
payment use between the general population and the poorest 40 percent has
halved. Nearly 80 percent of China’s poorest citizens use digital payments
(Demirgüç-Kunt et al 2022). Yet, despite this progress, China still has 130
million unbanked people, many of which will be difficult to reach due to
illiteracy, lack of a mobile phone, or their remote location. There is still a long
way to go to universal financial inclusion (World Bank 2022), but China’s
achievements put it not far from advanced economies, in which around 90
percent of adult populations use digital payments.

RMB INTERNATIONALISATION

The international penetration of China’s private fintech wallets is impres-

sive, but still lags far beyond US financial giants in global reach. Alipay
and WeChat pay are both accepted in dozens of countries for payments, so
Chinese people can for example go to Thailand and buy things with Alipay.
However, both Alipay and Tencent have made little progress towards interna-
tionalising their user base, e.g., gaining users abroad for Alipay and WeChat
Pay that would make them more direct competition for multinational pay-
ments giants like Visa and Mastercard. Both Ant Group and Tencent have
invested billions in fintech startups around the world, but this has not yet
become a global network for them (Chorzempa 2022).
China’s lead in fintech has done little for China’s longstanding goal to
internationalise the Renminbi, which punches far below China’s economic
weight in terms of its use in trade, investment, international reserves, and
payments. The current dominance of the US dollar makes China vulnerable
to US financial sanctions and changes in US financial conditions. For many
years, the RMB has used for about 2 percent of transactions on the world’s
largest system for cross-border payments, making it the fifth most used pay-
ments currency after the US dollar, the pound, the euro, and the Japanese
yen (SWIFT 2022). In terms of global official reserves the RMB’s share has
grown significantly from just more than 1 percent in 2017 to 2.88 percent,
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94 Martin Chorzempa

but it still ranked fifth (International Monetary Fund 2022). Meanwhile the
US dollar made up nearly 60 percent. Overall, China has prioritised domestic
control and stability, with strict capital controls, over a greater international
role for its currency. Technological upgrades and China’s growing role in
trade and finance are not enough for greater Chinese leadership in this space.
China’s reliance on the Society for Worldwide Interbank Financial
Telecommunications (SWIFT), a communications system for payments, for
cross-border payments is another point of vulnerability that China’s fintech
progress has made limited progress to removing. Though SWIFT is based in
Belgium, the threat of ‘secondary’ sanctions (applying sanctions to entities
that deals with sanctioned entities) against SWIFT have led it to disconnect
Iranian and now many Russian banks under US sanctions from the system.
China’s own financial messaging system, Cross-Border Interbank Payment
System (CIPS) is not yet a substitute for SWIFT and in fact incorporates
SWIFT standards and messaging. It has only about one-tenth of the reach of
SWIFT (Jin 2022). In April 2022, CIPS handled 14,500 transactions per day
on average, 0.03 percent of SWIFT’s average of more than 46 million per
day in 2022.
Beijing hopes that the move to central bank digital currencies will provide
a reset for international payments, potentially obviating the need for the US
dollar or SWIFT. However, it has not yet made headway despite its leading
status among major economies in central bank digital currency development.
The PBOC’s head of digital currency, Mu Changchun, proposed in 2021
a new foreign exchange trading platform to enable exchange over ‘virtual
borders’ between digital wallets, synchronising elements of financial infra-
structure to facilitate cross-border payments (Mu 2021), but there has not
been a follow up to flesh out this idea. Cross-border CBDC pilots are hap-
pening among many central banks, including one at the Bank for International
Settlements that includes the PBOC and a few other central banks, but these
are in the very early proof of concept stage, Meanwhile the advanced trial
work the PBOC has done has focused on rolling out a domestic currency and
payment system that will compete and cooperate with the big private fintech
payment offerings.
Overall, despite the shock of Russia sanctions creating more urgency for
sanctions-proofing China’s financial system, China still has a long road to
go before tools like the eCNY, CIPS, or other financial infrastructures could
make a real dent in its dependence on the US dollar and infrastructures it can
influence.
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Fintech in China 95

COMPETITION AND PRIVACY

The PBOC recognised that the Alipay/Tencent duopoly in online payments

extended fintech giants’ power into other markets, reducing competition. For
example, with half a billion consumers using Alipay wallets to make pur-
chases, Ant Group could provide an advantage to its own credit offerings by
‘nesting’ credit within its payment system, allowing users to buy seamlessly
with credit at the point of sale (PBOC 2021b). The PBOC also had concerns
that the easy availability of payment on credit, sometimes to the extent of
making such systems the default means of payment, was encouraging exces-
sive consumption and indebtedness (Guo 2020).
Authorities worried that network effects in payments could lead to an
oligopolistic market structure in which ‘winners take most.’ It becomes a
chicken and egg problem: merchants have little incentive to invest precious
resources required to accept payment systems other than Alipay and WeChat
pay because too few consumers use other payment systems, and few con-
sumers have an incentive to use other payment systems because they are not
accepted at merchants. The current state of the market for payments fits the
PBOC’s definition of monopoly, in which the top two players control more
than two-thirds of the market (PBOC 2021a). The eCNY could raise competi-
tion once it is launched, but it could also become a stultifying force against
innovation, a state takeover of retail payments, considering that state-backed
retail payments projects like UnionPay have a poor track record for innova-
tion. Authorities have a vision for competition to improve involving data
portability and ownership rights of individuals, breaking up “data islands”
of big tech firms to allow their data to be used by other firms, and reduction
of the advantages the big platforms have through more separation between
the financial and nonfinancial operations (Yang and Potkin 2022). However,
these ideas will be technically difficult to achieve, and some may come at a
trade-off to other policy goals, for example, increased data sharing with pri-
vacy. They will take years to implement.
On privacy/data protection the rules already tightened substantially in the
late 2010s, for example when Ant group was forced to change its data sharing
practices within the group for credit scoring. Privacy is an area with strong
trade-offs, for example, limited data sharing to protect privacy means that
one’s credit history with one provider cannot be shared with another. This
limits competition because only one lender can effectively evaluate the bor-
rower’s creditworthiness, and it makes lending riskier because lenders can-
not know if a potential borrower has already failed to pay back loans from
another creditor. The current vision is to force Ant Group to share its data, not
just credit histories but other more sensitive data, with a joint venture together
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96 Martin Chorzempa

with state firms, which would then help lenders, including the state-owned
banks, leverage these data to provide credit. This is supposed to make that
firm’s outputs more objective and reduce conflicts of interest through inde-
pendence from Ant, which competes as a lender with the institutions it sup-
plies with data or credit scores.

CONCLUSION

Chinese authorities have achieved many of their long-term goals for the fin-
tech sector, but balancing competing and shifting objectives will be a major
future challenge. Financial technology innovation has which has helped
Chinese internet firms grow, becoming a crucial enabler for the develop-
ment of China’s digital economy. Hundreds of millions of Chinese now have
abundant choice for payments, investments, and loans, and together with
other services in super apps they have transformed daily life in China. Still,
the challenge remains that China’s financial system remains dominated, even
if not as much as before, by state-owned banks with often non-commercial
incentives, outdated IT systems, and mindsets around credit that struggle to
effectively adopt new technology that can make things more efficient. A con-
tinued larger role for state companies, which are easier to control, does not
bode well for the future of fintech innovation, which has almost exclusively
been driven by private firms.
Authorities’ goal is to marry the fintech innovators and their data with the
capital advantages and political reliability of the state banks, but this has not
yet been achieved. Instead, they have restrained some of the consumer credit
especially of the big fintech firms, which has contributed (though swamped
by the zero covid disruptions) to the slowdown in consumption. Now,
authorities have to balance these traditional financial trade-offs with those in
a complex new set of issues.
One challenge is balancing privacy and competition. Ideas for opening up
the data troves of the big tech companies to other firms will make it more
difficult to ensure these data are protected. For example, hackers could use
fake user requests to download “their” data or exploit the systems under con-
sideration to allow big tech firm data to flow to startups. Another is sustaining
innovation in fintech, which may struggle under a much higher regulatory
burden. More approvals will be needed, which will slow down the process,
and authorities have become more risk averse. Efforts to internationalize the
RMB and have globally competitive fintech firms are more likely to face bar-
riers abroad if they are perceived internationally as operating as tools of the
state. It is harder to justify allowing them to collect sensitive data abroad due
to the state’s assertion of increased control domestically, some cases forcing
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Fintech in China 97

fintech firms into joint ventures with state firms, and integration into the sur-
veillance apparatus, like their hosting of Covid apps with tracking functions.

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PART III

International Engagement
and Confrontation

101
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Chapter 5

China
A Technical Standardisation Power?

Tim Rühlig

When the Central Committee of the Chinese Communist Party (CCPCC) and
the State Council of the People’s Republic of China (PRC) jointly published
China’s new “Standardisation Outline” (in the following simple the “Outline”)
in October 2021, the crucial importance of technical standard-setting con-
trasted with a remarkably modest description of China’s aspirations. As the
quote above illustrates, the Chinese leaders describe technical standards hav-
ing a “fundamental and leading role” for national governance and acknowl-
edge an “urgent need” to strengthen technical standardisation to “build a
modern socialist country.” These are high expectations for voluntary and
highly technical documents that are mostly developed by engineers from
companies and research institutions.
While the Outline formulates a comprehensive reform plan that would
strengthen China’s technical standardisation capabilities, it falls far short
of a “grand strategy” to global domination in this field as some might have
expected. Referring to “China Standards 2035,” an often-misunderstood
attempt of some actors within the Chinese party-state to push for further
reform, technical standardisation is more and more perceived through the
lenses of geopolitical competition. However, “China Standards 2035” was
a research project concluded launched by reform-oriented elites from within
the party-state. The results of the project never became public. While the
Outline contains some of its results it also deviates from “China Standards
2035.” This is illustrative of the fact that China’s standardisation approach
remains contested within the party-state.
Considering the emerging competition over high technology between
the United States and the PRC, observers on both sides of the Pacific have
103
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104 Tim Rühlig

identified technical standardisation as an arena of this growing rivalry. For

example, US Secretary of State Antony Blinken advocates closer cooperation
with allies and partners on international technological standard-setting as a
means to preserve and expand US strategic influence (Reuters 2020). China’s
ambitions are not only formulated in the Outline. For instance, domestic and
international standard-setting targets are referenced in a wide range of sec-
tions and chapters of the 14th Five-Year Plan (Xinhua 2021). Politicians may
need to constrain themselves. But academics, journalists, and think tanks in
the PRC, the United States, and the European Union (EU) describe technical
standardisation as an arena of the power competition over high technology
(Pop, Hua and Michaels 2021; Atlantic Council 2021; Yan 2020; Seaman
2020, 21–2). Their line of argument is based on three assumptions that might
be reasonable but are hardly ever examined, although they are anything
but a given.
First, US, Chinese, and European observers seem to assume that the ability
to shape technical standards comes with power advantages to the respective
states and broader influence in international affairs. To those familiar with
technical standard-setting this might not sound entirely unfamiliar, but it is
also counterintuitive. For this, one needs to properly understand what tech-
nical standards are: Technical standards are omnipresent shaping our lives,
but they are voluntary product specifications that generate basic safety and
interoperability. They are either the result of market dominance (de facto
standards) or developed by standard developing organisations (SDOs) that
overwhelmingly consist of representatives of industry. While public actors do
play a (minor) role, technical standardisation is largely an example of private
self-regulation. In contrast patents, a good standard is broadly available and
accepted globally (Deron 2020). If a technical standard is released but not
used by the market it is ineffective. Hence, technical standards require market
acceptance and need to be available to all market participants. Where techni-
cal standards consist of patented technologies, we speak of standard-essential
patents (SEPs), patent holders are obliged to license their patents under fair,
reasonable, and non-discriminatory terms (FRAND). Courts around the globe
are enforcing FRAND terms on patent holders.1 Hence, technical standards
apply a very different logic than, for example, export controls or punitive
tariffs that aim to exclude competitors from supply or hinder market access.
While these means are exclusive, technical standards gain their effectiveness
from their inclusivity and availability. In the emerging technological compe-
tition, the United States and China primarily use such measures. This raises
the question why technical standards should be available to the exclusionary
logic that underlies the emerging technology competition.
Similarly, the political impact is also not obvious from the technical nature
of these standards. USB is a standard for cables, connectors, and protocols
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China 105

that enable charging and the exchange of data on a wide range of devices.
Similarly, Wi-Fi is a family of radio technologies built on technical standards
that allow for wireless local area networking (WLAN) of a wide range of
technological equipment. Technical standards allow products of all kinds to
be applicable in a multitude of contexts across countries and manufacturers.
Hence, technical standards are highly specific technological product specifi-
cations, developed by private industry and accessible to everyone. It is not
obvious how the host state of a company that has suggested a given technical
solution to become a standard politically profit from the proposal’s success.
Second, the debate on technical standards as part of the emerging com-
petition over high technology mostly takes for granted that China possesses
increasing impact on standard-setting. In the political debate more specifi-
cally, many observers assume that China is about to “dominate” international
technical standard-setting (Gargeyas 2021). This bears the question how to
precisely measure technical standardisation power and whether China’s foot-
print2 is factually dominant or reaching a state of domination.
Third, in the West, China’s growing “standardisation power” is mostly
discussed in an alarming tone (SFRC Democratic Staff 2020). Not least
historical analogies are introduced to argue that standard-setting can have
devastating impact if great powers ignore growing engagement by rising
powers (Brookings Institution 2021). While such line of argument might not
be unreasonable it mostly lacks a clear concept of “standardisation power.”
This absence hinders observers to be precise about the inherent risks.
This chapter addresses three questions to better understand the importance,
the ambitions, the achievements, and the risks of China’s technical standardi-
sation approach. First, this chapter asks why technical standardisation power
is important for China. Second, the chapter explores to what extent China has
already turned into a technical standardisation power. Third and finally, the
chapter assesses how different China’s policy is from that of the rest of the
world and what the potential inherent risks of China’s growing presence in
technical standardisation are.

WHY IS STANDARDISATION POWER

IMPORTANT FOR CHINA?

The ability to shape technical standards bears enormous influence that is

crucial for the PRC—both domestically and internationally. This section sub-
stantiates this claim developing a four-dimensional heuristic of standardisa-
tion power. It differentiates between economic, legal, political, and ideational
dimensions.
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106 Tim Rühlig

Economic dimension: Technical standards have distributary effects. These are

the results of a high share of technical standards consisting of patented tech-
nology. In the field of Information and Communication Technology (ICT)
standards, an estimated 55 percent is patented.3 As briefly mentioned at the
beginning of this chapter, patents and technical standards have contrary pur-
poses. Technical standards follow an inclusive logic because they help spread
technological solutions across manufactures to establish interoperability and
guarantee basic safety. In contrast, patents protect inventions and exclude
competitors from using them. When technical standards consist of patented
technology, this contradiction is resolved through licensing. When patent
holders declare SEPs, they commit to licensing on FRAND terms. FRAND
might sound like there is no competition involved, but this impression is
false. SEPs are available to all in return for potentially enormous royalty
fees that manufacturers must pay to SEPs holders. The Swedish technology
company, Ericsson, for example, earned €5.2 billion by licensing technol-
ogy in 2017, accounting for more than 20 percent of the company’s revenue
(Strumpf 2019). Chinese technology firms such as Huawei do not provide
precise information on the share of royalties to their revenue. However, field
research confirms that licensing plays a crucial role to several Chinese tech-
nology giants and generates alternative revenue streams over manufacturing.
In fact, in a situation when Chinese companies are excluded from the deploy-
ment of technology in any given third country as has been the case with the
exclusion of Huawei from some Western markets, companies still profit by
means of royalties. This can be a lifeline for companies that find themselves
under pressure from sanctions regimes.
The distributary effects of technical standards are not limited to the pay-
ment of royalties for SEPs. Often, companies that fail to establish their tech-
nological solutions as technical standards need to redesign their products to
comply with standards and thereby generate interoperability. Hence, those
successfully setting international technical standards cannot only expect
royalties but also avoid adaption costs. Given the considerable size of these
distributary effects technical standards affect competitiveness.
Successfully setting technical standards of key-enabling technologies
shapes national economic competitiveness. A competitive industry in stra-
tegic sectors can only be beneficial to the host state. In China, more spe-
cifically, party-state influence over strategic sectors makes it even easier to
leverage industry strength for political purposes (Wu 2016; Williams 2018).
Legal dimension: De jure, international technical standards are voluntary
technical specifications. Nonetheless, standards can unfold enormous legal
force. The Agreement on Technical Barriers to Trade (TBT), the Agreement
on Government Procurement (GPA), the review of the Agreement on Sanitary
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China 107

and Phytosanitary Measures (SPS) and the General Agreement on Trade

in Services (GATS) under the framework of the World Trade Organisation
(WTO) all treat international standards as benchmarks for the facilitation
of international trade. Standards serve as important qualifications of what
accounts as a legitimate exception, for example, under the pretext of basic
safety requirements (Graz 2019, 89). Article VI: 5b GATS, for instance, stipu-
lates that international standards of relevant international organisations serve
as yardsticks to ensure that trade in services is not more burdensome than
necessary (WTO 2012, 185–6). If domestic technical standards deviate from
international ones, in principle, the judiciary of the WTO could find a state
to be noncompliant with international trade law unless the respondent can
provide a reasonable explanation for such deviation. This could be specific
national circumstances necessary to protect human health and safety or the
environment. Crucially, roughly 80 percent of international trade is affected
by technical standards and associated technical regulations (OECD 1999).
Hence, they hold a rather broad force.
Furthermore, domestic technical standards can have extraterritorial effects.
States reference technical standards in legally binding documents, mostly
in regulations. When regulations prescribe thresholds, technical standards
can serve as a suggested method for upholding the limits set in a regulation.
In other words, if a referenced standard is applied the respective product is
assumed to be in conformity with the regulation. Companies seeking market
access do not need to comply with the technical standard. Often, however,
it is the easiest and cheapest option to implement the technical standard.
When standards are referenced in the regulations of major markets such as
the European Single Market, the United States, or the PRC, they can unfold
extraterritorial effects because multinational companies often choose to
comply with the strictest technical standard. This generates conformity with
regulations and thereby market access to all relevant markets.
Political dimension: Global technical standards facilitate borderless glo-
balisation. If contradictory technical standards exist in different geographi-
cal locations, however, they generate distinct technological spaces. Hence,
depending on the scope of their validity, technical standards can either facili-
tate global trade or create geographically bifurcated technological corridors.
The result of the latter can be lock-in effects with political costs beyond the
field of technical standardisation itself.
For example, to date, technical standards in the railway sector remain
largely national or regional. If country A adopted the national railway stan-
dards of country B—ranging from track gauges to traction technical parame-
ters and voltage—the maintenance and further buildout of the railway cannot
be carried out by suppliers other than those based in country B. Other suppli-
ers produce noncompatible technology based on deviant technical standards.
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108 Tim Rühlig

Country A is locked into country B’s technology and fully reliant on supply
from country B. Economists have long referred to these lock-in effects as
“network effects” or “network externalities” (Bonardi and Durand 2002).
These studies have convincingly demonstrated that high switching costs lead
to the preservation of dominant technical standards (Arthur 1989; Farrell and
Saloner 1985); standards developed in an early stage often prevail, even if
they are technologically inferior (Schilling 2002).
Politically, this remains unproblematic as long as the respective product is
not of strategic importance to the well-being of a society. Railways, however,
are a critical infrastructure enabling the flow of goods and people, thereby
generating welfare and mobility. A lock-in effect in such a critical sector has
political implications. If all suppliers that are compliant with the respective
technical standards are based in country B, it could ask country A for political
concessions in return for the maintenance and buildout of the critical infra-
structure. Even if country B does not explicitly ask for such concessions,
country A would think twice before adopting a confrontational stance on
issues of core interest to country B in fear of the consequences for the func-
tioning of its critical infrastructure.
Apart from such lock-in effects, some experts suggest that technical stan-
dards have the potential to impinge on what is often regarded as the crown
jewel of state power: security. Regarding cybersecurity, those who develop
a standard could have a deeper knowledge of the technology including its
vulnerabilities. If adopted as an international standard, the technology spreads
globally. Consequently, the developer of the technology in question possesses
prime knowledge of its flaws that can be used to undermine an adversary’s
cybersecurity (Eisenstark 2018; Medin and Louie 2019). Other observers
counter that standardisation is a process of maximum transparency in which
it is hardly possible to hide security-relevant flaws from the eyes of the
engineers of potential adversaries. From this perspective, a high degree of
standardisation even increases the cybersecurity by means of transparency.
Whichever perspective is more accurate, technical standardisation influences
the degree of cybersecurity (Rühlig 2019).4
Ideational dimension: How technology is designed is highly political as
it inscribes ethical values to it. Technology does not exist in a vacuum.
Technical standards shape the physical world and contribute to the constitu-
tion of our social lives (Busch 2011). Hence, technical standards determine
what is perceived as “normal” technology. Several critical scholars have
described technical standards as social institutions in their own right (Krislov
1997; Hallström 2004; Timmermans and Epstein 2010). For instance, Wi-Fi
is seldom questioned as the dominant WLAN standard. However, a few
years after Wi-Fi had been established as the international standard, China
proposed the WAPI technology as a new standard. WAPI promised better
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China 109

performance but provided worse privacy (Lee and Oh 2006). Finally, the
Chinese proposal failed mostly due to procedural issues (Suttmeier, Yao, and
Tan 2009). Whether intended or not, by rejecting WAPI international SDOs
prioritised privacy over performance, shaping what consumers expect from
WLAN technology.
This is not an isolated example. Emerging technologies are increasingly
penetrating all spheres of public and private life. Whoever sets technical
standards on algorithmic bias, data privacy and similar issues shapes ethical,
political, and security angles of key enabling technologies (Seaman 2020).
Moreover, the ideational power of technical standardisation is not limited to
underlying ethical values. If a country shapes international technical stan-
dardisation, it is likely to gain a reputation as a technology leader, which is a
sigh of societal progress beyond economic and military prowess.

HAS CHINA ALREADY BECOME A

STANDARDISATION POWER?

Measuring whether China is a standardisation power is more complex than

one might think not least because technical standardisation spans a wide
range of products and technologies and is in itself a highly technical process
of negotiations among specialised engineers in which one proposal seldom
fully prevails. Moreover, technical standards are developed in a multitude of
international institutions. For example, more than two hundred international
SDOs exist in ICT (Schneiderman 2015). To grasp China’s influence, a total
of six parameters need to be taken into account.
The first proxy is leadership positions in international SDOs. Almost all
SDOs have an institutional leadership with varying degrees of influence.
Since the nature, processes and composition of a great number and diver-
sity of SDOs is varying it might not be easy to identify the most relevant
SDOs. For a study that aims to grasp China’s general influence on technical
standardisation, the broadest and most famous international SDOs should
be considered. This includes the International Standardization Organisation
(ISO), in which China has become a permanent member of the institution’s
main governing bodies, the ISO Council (in 2008) and the ISO Technical
Management Board (in 2013). From 2015 to 2018, Zhao Xiaogang was the
first Chinese citizen serving as rotating ISO President. Similar in importance
to ISO is the International Electrotechnical Commission (IEC) which is led
by Zhu Yinbiao after having served as the IEC’s Vice President. The third
main international SDO, the International Telecommunication Union (ITU)
is currently led by a Chinese official, Zhao Houlin. Before his election, he
served as ITU’s deputy Secretary-General.
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110 Tim Rühlig

These institutional leadership positions help shaping the agenda and are the
result of preexisting power, but they come with relatively little impact on the
actual standard-setting. For this process, technical leadership positions, often
called “secretariats,” are more crucial. Secretariats are supposed to be neutral
(ISO 2018), but technical standardisation experts agree in that secretariats
have an enormous influence by structuring, organising, and coordinating the
process.5 In ISO, China currently holds sixty-eight secretariats; five coun-
tries lead more technical committees. In IEC, China ranks seventh with a
total of twelve secretariats. This illustrates that China is far from dominating
international SDOs in terms of technical leadership positions. However, the
proportion of China’s influence is growing. In the period 2011–2018, China’s
share in ISO Technical Committee and Subcommittee secretariats grew from
5 percent to 8.21 percent, that of ISO Working Group secretariats even from
2 percent to 6.58 percent.6
In the ITU, China has achieved an even greater influence. Together with
Japan, it holds the most ITU-T study group chair positions and is the sole
leader in ITU-T study group vice-chair positions. The PRC is also the strongest
of all nations in terms of ITU-T work program chair and vice-chair positions;
the same holds for ITU-T rapporteur posts. In ITU-T Focus groups, China
ranks second behind the United States in chairs, but it outnumbers all with
regard to vice-chairs. In the Third Generation Partnership Project (3GPP),
another important SDO in the telecommunications sector, China holds the
most Working Group chairs and vice-chairs (DiploFoundation 2021).
Technical leadership positions are important but not a necessary
requirement to impact standardisation. A second proxy, participation in
standard-developing committees, captures which actors can submit proposals
and comments to the standardisation process. China’s influence has grown
enormously since 2007 having surpassed that of the United States, France,
and Japan. However, China still falls slightly short of the United Kingdom
and Germany.
Another measure for participation is the number of participations. Data
from 3GPP shows that, in 2018, China accounted for the highest share of
participants (23.7 percent). Representatives from firms based in the EU and
the United States fell slightly short with 22.5 percent each.7 This corresponds
with the fact that no other country has more individual members in 3GPP.
ITU member statistics similarly indicate that among all countries, China falls
only short of the United States.8
In many SDOs (including ISO and IEC), membership in standard-developing
committee requires regular contributions. Otherwise, national SDOs lose
the status as active participant. However, membership does not reveal the
number of contributions and whether they are adopted. Hence, such data is
considered to be the third proxy. Statistics on standard contributions are rare
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China 111

and necessarily incomplete, because technical standardisation encompasses a

wide variety of different products and technologies. This chapter exemplarily
draws on technical standardisation contributions to the development of one
key-enabling technology that has received a lot of attention recently: 5G.
Statistics demonstrate that China’s share in 5G contributions ranks first with
31.5 percent and has increased from the previous generation of mobile tech-
nology, 4G/LTE, when Chinese companies accounted for around 22.4 percent
of the contributions (data quoted in Pop, Hua, and Michaels 2021). When 5G
standardisation contributions are compared to their adoption, however, data
reveals that China does slightly worse than firms based in Europe (Pohlmann,
Blind, and Heß 2020).
The data from 5G standardisation is in line with findings on China’s
strength in standardisation in mobile network technology more broadly.
According to both measures, Europe is slightly ahead of the PRC.9 In the
Internet Engineering Task Force (IETF), document contributions from the
United States dominate with a share of more than 44 percent. China ranks
second with 12.9 percent (DiploFoundation 2021).
In the public discussion of standardisation, another proxy widely used to
capture the influence of an actor on standard-setting is SEPs declarations.
This is the case because standards of many key-enabling technologies such
as 5G consist to a great extent of patented technologies. Very often, however,
the way SEPs are discussed is misleading. Existing data only captures dec-
larations of standard-essentiality, which should not be confused with actual
standard-essentiality. Measuring SEPs is difficult because the actual standard
essentiality of many patents remains unclear. When a standardisation process
starts, participating actors declare patents as standard-essential thereby indi-
cating that they believe the respective patent could become essential for the
standard and that they are willing to license the patent under FRAND terms.
When a standard is established, no comprehensive analysis takes place that
could establish whether the standard-essentiality declaration turned out to be
correct. In some cases, firms file complaints against deviating assessments
of standard essentiality by their competitors when demanding licensing
fees. In most cases, however, technology companies negotiate package deals
exchanging licensing fees for groups of patents without assessing the stan-
dard essentiality of each individual standard. While observers assume that all
companies declare more of their patents as standard-essential than turns out to
be correct, this holds true for all actors involved. In terms of 5G SEPs declara-
tions, China is ahead of other countries with a share of 33 percent followed by
South Korea with 27 percent (Pohlmann, Blind, and Heß 2020).
However, not every patent is technologically equal in importance to a
given technology. Technological relevance is often calculated by means of
the average size of a patent family and the average number of citations of the
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112 Tim Rühlig

respective patent in other declared SEPs. While the size of the patent family
is supposed to measure how extensive the patents are, the number of citations
serves to indicate how relevant a certain patent is for other components of 5G
technology by being referenced in other 5G-relevant patents. Based on the
IPlytics database, Chinese patents turn out to be the least important compared
with the those filed by companies from other major technological leaders
in 5G based in Europe, the United States, South Korea, Japan, Taiwan, and
Canada (ibid.).
While all these quantitative proxies consistently point to a growth in
Chinese impact on international technical standard-setting, hardly any figure
can capture the entire development. Therefore, a fifth proxy deals with the
qualitative description of influence in the standardisation. Interviews with par-
ticipants in international SDOs helps. For this chapter, more than seventy-five
interviews with European and US representatives in international SDOs have
been conducted. The results confirm the quantitative findings.10

China understands the value of standardisation. Our Chinese colleagues have

become very active participating in large groups in meetings. At first, they had
to learn the rules of the game. Over the last decade, they developed into an
integral and influential part of standardisation community.11

While international participants in SDOs continue to see quality issues pre-

venting a stronger Chinese influence, they also consistently acknowledge that
China improves.

A decade ago, our Chinese colleagues could contribute good proposals in only
very few fields. To this day, many Chinese proposals are rejected because their
technological quality is inferior to the contributions of other experts. Regardless
of these continuous challenges, you cannot ignore the improvements. The time
when some of my colleagues would not take Chinese contributions seriously
are gone.12

This development has sparked fears among standardisation experts from

the United States and Europe that China could outstrip Western countries in
international technical standardisation. One expert involved in ICT standardi-
sation exemplarily warned:

if China’s influence in ICT standardisation will continue to grow at the same

pace, we will soon be on the receiving end. We are at a critical junction and are
only slowly waking up. [. . .] We need to get better and live up to the challenge.13
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China 113

Chinese standardisation experts confirm in more than thirty interviews that

their work has turned into a priority within China and that they believe they
have made significant progress.14

Five or ten years ago, we could not make a lot of real contributions to interna-
tional technical standardisation. Our own innovation was not good enough, but
we also did not quite understand the importance of standard-setting. [. . .] We
are proud to say we have made much progress. But we still need to learn a great
deal from Europe and the US.15

Finally, technical standards are not only developed in SDOs, but can also
be established as de facto standards. The most prominent examples are the
operating systems of Microsoft and Apple that have never been adopted by
an SDO. However, the fact that any software needs to be compatible with
Windows or iOS if it does not want to end up in a niche makes both operat-
ing systems de facto standards. Quantitative accounts of de facto standards
are hardly feasible, which requires qualitative investigations including inter-
views. If one aims to generally grasp impact in de facto standard-setting,
a focus on specific vehicles can be helpful. As an example, this chapter
explores the role of the BRI as a sixth proxy for China’s influence in interna-
tional standardisation.
To begin with, China’s BRI includes an explicit standardisation dimension.
In 2015, China’s main macroeconomic agency, the National Development
and Reform Commission (NDRC), issued its first “Action Plan for the
Harmonisation of Standards along the Belt and Road” (PCR 2015). In
late-2017, the NDRC published another action plan setting further bench-
marks.16 As part of the plan, China began to translate its domestic technical
standards into foreign languages to facilitate their adoption in third countries.
By September 2019, China had signed ninety bilateral agreements on tech-
nical standardisation cooperation with fifty-two countries and regions.17
Chinese experts acknowledge, however, that the agreements are vague
and often meaningless. A major state-sponsored research project, “China
Standards 2035,” suggests transforming these agreements into a regional
technical standardisation organisation, the BRI Standards Forum, that could
develop BRI Regional Standards.18 Whether such a Forum could fulfill the
ambitious goal of developing regional standards that are acknowledged along
the BRI remains to be seen. The Forum, if established, could also simply
serve to coordinate activities in ISO and IEC with the potential to further
strengthen Chinese influence in these institutions.
More importantly, many concrete BRI projects incorporate Chinese tech-
nical standards. It is through these projects that the PRC disseminates its
domestic technical standards to third countries without submitting them to
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114 Tim Rühlig

international SDOs, as in the case of railway standards mentioned above.

In sum, all proxies indicate a growing footprint though to different degrees.
In other SDOs such as the Internet Engineering Task Force (IETF) or the
Internet Corporation for Assigned Names and Numbers (ICANN), China’s
influence remains scarce. Hence, China does not dominate international tech-
nical standardisation, but its ability to shape standards grows steadily.

HOW UNIQUE IS CHINA’S

STANDARDISATION APPROACH?

As I have shown elsewhere in detail, China’s approach to technical standardi-

sation is state-centric and deviates significantly from wester systems (Rühlig
2020). Until 2018, China’s domestic standardisation was formally entirely
public. All three types of technical standards—national, local, and sectoral—
were developed under the auspices of ministries or local governments. With
the growing importance of private companies, private firms were increasingly
involved in standard setting, but always within the institutional framework
of state ministries and local governments. A significant share of what China
referred to as standards was mandatory.
The new Standardisation Law that came into force on 1 January 2018
institutionalised the increasing role of the private sector in Chinese standardi-
sation (SAC 2017). Technical standards are now developed in two tiers, one
state-driven and one market-driven. National, local, and sectoral standards
continue to exist, representing the state tier. All local and almost all sectoral
standards are voluntary, and the number of mandatory national standards
was massively reduced. While this reform was clearly inspired by European
and US standardisation practices, it remains a unique, state-centric approach
(Rühlig and ten Brink 2021).
Even in the market-tier many SDOs have very close ties to the party-state.
One way for the authorities to continuously influence market-driven standard
setting is through informal guidance. Party-state turns out to be essential for
SDOs to become influential in China. Since 2018, more than 2,700 industry
federations have registered almost 10,000 association standards, many of
them conflicting with one another. Interviews with Chinese firms and inter-
national firms operating in China indicate that different forms of party-state
support are decisive for whether a given SDO is more relevant than its com-
petitors in China.
As I have demonstrated elsewhere in detail, China externalises its
state-centric standardisation in both formal and de facto standard setting to
the international arena. Consider the case of 5G standardisation. Strikingly,
China’s formal 5G standardisation practices are not markedly different from
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China 115

those of the West. However, the PRC has adapted these practices to its state-
centric approach thereby externalising its domestic standardisation. For
example, party-state investment and guidance has been crucial to increase
Chinese companies’ technical expertise. Similarly, state funding has been
made available for active participation in international standardisation bodies.
In order to exploit first-mover advantage, a central feature of the
party-state’s industrial policy is to establish regulatory and financial condi-
tions to facilitate early commercialisation of key enabling technologies. In
5G, the PRC has not only sponsored the world’s largest 5G trial area in the
Yangtse River Delta, but the state-controlled mobile operators have been
instructed to roll out the most innovative version of 5G, known as standalone
5G (Shi-Kupfer and Ohlberg 2019). Western countries, in contrast, have
tended to opt for the less innovative update of 4G/LTE networks to non-
standalone 5G because private industry has identified that this path requires
less investment and is therefore more economical in the short and medium
term (Eisenstark 2018; Rühlig and Björk 2020).
Another example of party-state involvement is the coordination in order to
speak with one voice. Practitioners from all countries confirm that conflicts
of interest among industry representatives from one country are the rule
rather than the exception. At the same time, coordination to ensure partici-
pants speak with one voice helps to establish support around a given standard
proposal. In the West, such coordination is left to industry or to committees
within private SDOs. While China’s unity is often overestimated, in fields
of national priority such as 5G, the Party-state indeed actively facilitates
coordination. For the purpose of coordination, in 2013, the PRC founded the
IMT 2020 (5G) Promotion Group, which comprises Chinese public agen-
cies (Ministry for Industry and Information Technology, Ministry of Science
and Technology and the National Development and Reform Commission),
research institutes (Beijing University of Posts and Telecommunications) as
well as all sorts of Chinese tech companies (Chen and Kang 2018).
When it comes to de facto standardisation outside of existing SDOs, China
has exploited similar mechanisms that we are familiar with in the West. Large
companies, package deals in which technical standards are adopted along-
side favourable financial conditions and the creation of long-term liabilities
are practices that the PRC has not invented. However, in contrast to most
Western cases, the party-state has been actively engaged in the creation of
large firms (Lardy 2019), state-owned banks have provided the funding
for BRI infrastructure projects that spread Chinese technical standards and
long-term liabilities in these projects often make recipient countries depen-
dent from Chinese state-owned firms, not private companies. In short, while
China’s technical standardisation approach shows some similarities with
Western practices and the externalisation of domestic structures resembles
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116 Tim Rühlig

some Western tactics too, the PRC has adopted a much more state-directed
approach. This contributes to two current trends: the politicisation and the
fragmentation of technical standard-setting.
Politicisation of technical standards. Although historically a subject of
power politics of states, the potential source of state power stemming from
technical standards has largely been ignored by practitioners for the last few
decades. The Chinese party-state’s strategic approach to international techni-
cal standard-setting coupled with the emerging power competition over high
technology is leading to a politicisation of the subject. Not least China’s
growing footprint could lead other, primarily developing countries to consider
adopting a state-steered approach as it is practiced in the PRC (Rühlig and ten
Brink 2021). Such politicisation alters the character of standardisation.
In economic terms, the politicisation incorporates a focus on the conditions
upon which actors from different political entities get involved in interna-
tional technical standard-setting. In strategic sectors such as key-enabling
technologies, Chinese firms profit from party-state support. Hence, technical
standardisation could be included in the West’s drive to create a level playing
field including sanction regimes.
Technical standards have further unfolded significant transformative force
because once the world had agreed on a standard it was costly to change it.
Complementary products and technologies would have needed to go through
a process of adaptation generating switching costs. This relatively unques-
tioned character made international technical standards into an accepted part
of international trade law. If technical standardisation will increasingly be
seen through a political lens the “impartiality” attributed to standards could
be undermined.
The politicisation of technical standards also directs the attention to
cybersecurity implications of standard-setting. One example for the political
dimension is that the US Department of Defence has issued concerns that
China’s strong presence in 5G standardisation could shift 5G technologi-
cal development to focus on low-frequencies while US manufacturers have
prioritised high-frequencies (mmWave). Some US experts argue that high
frequencies provide a greater degree of security for wireless communications.
Another concern is that US troops might need to rely on Chinese technology
for their communications in overseas operations given Chinese strength in
low frequency 5G technology (DIB 2019).
Finally, the technological character of standard-setting negotiations has
long covered the ideational dimension of standardisation. Surely, technical
standards have never been nonpolitical in substance. However, the recent
politicisation could substantially change the process of standard-setting. The
actors involved could pay more attention to ethnical, societal, and political
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China 117

underpinnings of different technological solutions. Hence, technical stan-

dardisation could turn into an arena of competition over values.
Fragmentation of international standardisation. As a result of the politicisa-
tion of technical standards standardisation could suffer from a divide into
two camps. China could aim to develop a rivaling system of international
standard-setting with the BRI serving as its steppingstone to outcompete
established standardisation powers such as EU member states and the
United States.
The potential divide into two distinct spheres of technical standards carries
direct economic risks. One of the main benefits of technical standards is that
they provide interoperability thereby facilitating international trade and har-
monising technical necessities for market access. The potential to sell prod-
ucts on global markets is a driver for technological innovation. If companies
have to design products in a distinct manner for different geographical areas,
they suffer from a loss of efficiency. The increase in costs would hamper
innovation.
Similarly, if there was no common understanding of what accounts as an
international standard in the future, courts and other economic dispute settle-
ment bodies could treat competing international standards as benchmarks
for their considerations. If China establishes more dispute settlement mecha-
nisms—as it has started to do under the BRI framework—a fragmentation
of international law could be the result of competing international standards.
A bifurcated international standardisation would also facilitate politically
relevant lock-in effects as described above. If standards are not global in
scope, states depend on the supply of a potential adversary. In this context,
several BRI railway projects financed by China’s state-controlled financial
institutions have raised concerns, such as the Jakarta-Bandung high-speed
railway, the Abuja-Kaduna railway, the Ethiopia-Djibouti railway, and the
China-Laos railway. All these projects are based on domestic Chinese techni-
cal railway standards, which means that the respective countries must rely
exclusively on Chinese suppliers to maintain and further build out their rail-
way networks.
Another widespread concern is that technical standardisation could turn
into an arena of a new Cold War with two distinct blocks competing over
values inscribed in technology. For example, China’s expressed intention to
invest in facial recognition standards (Xue Yujie 2019) and its proposal for a
reformed standard internet protocol, referred to as New IP (Gross and Murgia
2020), have alarmed experts in Europe and the United States. The fear is that
political and ethical preferences shaped by the political and societal frame-
work of the party-state are incorporated in international standards.
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118 Tim Rühlig

CONCLUSION

Technical standardisation is widely regarded as one of the main battle-

grounds over technological leadership between the United States and China.
This chapter explained why technical standardisation power is beneficial to
the Chinese party-state in economic, legal, political, and ideational terms.
Hence, China has shown significant efforts to increase its influence. These
efforts have led to remarkable results though to varying degrees in different
international SDOs. China has become an international technical standardi-
sation power, but it is far from dominating standard-setting. Finally, China
is—just like many other standardisation powers—externalising its domestic
standardisation approach. The PRC has learned and adapted well-established
practices but twisted them in order to fit the characteristics of China’s politi-
cal economy. This runs the risk of a further politicisation and fragmentation
of technical standard-setting.

NOTES

1. For a good overview including examples, see Väisänen, T. A. (2011). Enforce-

ment of FRAND Commitments under Article 102 TFEU: The Nature of FRAND
Defence in Patent Litigation (1st ed.). Baden-Baden: Nomos Verlagsgesellschaft
mbH.
2. Footprint is defined as the ability to shape international technical standards.
3. Pohlmann, T. 2020. Back To Basics Summer Webinar Part 2: SSOs, Patent Pools
and Licensing (Berlin: IPlytics, 2020), 11.
4. Author interviews with European engineers involved in the development of 5G.
February–November 2019, several cities.
5. Author interviews with international standardisation representatives. October
2018–April 2020, several cities. For details, see appendix.
6. Information privately by the author from the German SDO, Deutsches Institut
für Normung (DIN).
7. Calculations of the author based on data obtained privately from a government
agency in an EU member states being involved in mobile network standardisation in
3GPP.
8. DiploFoundation. 2021. The geopolitics of digital standards: China’s role
in standard-setting organisations, issued December. Available from https:​ //​
www​
.diplomacy​.edu​/resource​/report​-the​-geopolitics​-of​-digital​-standards​-chinas​-role​-in​
-standard​-setting​-organisations​/ [18 November 2022].
9. Calculations of the author based on data obtained privately from a government
agency in an EU member states being involved in mobile network standardisation in
3GPP.
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China 119

10. Author interviews with non-Chinese standardisation representatives. October

2018–April 2020, several cities. For details, see appendix.
11. Author interview with a senior representative of a European standardisation
organisation, November 2018, Brussels.
12. Author interview with a senior representative of a European standardisation
organisation, April 2019, Stockholm.
13. Author interview with junior representative of a European standardisation
organisation, December 2018, Brussels.
14. Author interviews with Chinese standardisation representatives. March 2019–
March 2020, several cities. For details, see appendix.
15. Author interview with a senior national ministry official, October 2019,
Qingdao.
16. “标准联通共建‘一带一路’行动计划(2018–2020年),” SAC, 2018, accessed
2018-10-26, http:​//​www​.sac​.gov​.cn​/zt​/ydyl​/bzhyw​/201801​/t20180119​_341413​.htm.
17. Based on information obtained by the author from the Standards Administration
of China (SAMR/SAC).
18. Based on privately obtained documents as well as author interviews with Chi-
nese standardization officials. September–October 2019, several cities.

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Chapter 6

China and Global Data Transfers

Implications for Future Rulemaking

Hunter Dorwart

Global data transfers form a cornerstone of the digital economy. Without

them, digital services and trade would cease to function, and individuals
would lose the ability to communicate across borders through the Internet
(Casalini and Gonzalez 2019). Measuring the value of global data flows
remains challenging, but recent research demonstrates that they could con-
tribute up to $11 trillion to global GDP by 2025, reduce export costs and
transaction times by over 60 and 30 percent respectively, and accelerate new
opportunities for businesses across the globe (UNCTAD 2021; Casalini and
Gonzalez 2019; Alphabeta 2019).
Due to their importance, data flows have become a contentious issue
between governments and frustrated efforts to create international consensus
around the rules of digital trade and cyberspace (Kuner 2011). The Court of
Justice of the European Union (CJEU) has held twice (in its 2015 and 2020
Schrems rulings) that data transfers from the EU to the United States violate
the European Union General Data Protection Regulation (GDPR) because US
law does not afford an essentially equivalent level of protection to individuals
in the European Union (EU) as does the GDPR. In the United States, con-
cerns over the Chinese Communist Party’s (CCP) access to data has led the
US government to ban some Chinese companies (e.g., Huawei, Hikvision)
from the market and convince other states to do the same.
Because of this, disagreements over data transfers underscore larger
debates about the future of the Internet and the prerogative of nation states
to assert different values over the digital realm (Mueller 2017; Hummel
2021). Restricting data transfers is one mechanism states use to exert juris-
diction over cyberspace, which makes such restrictions intertwined with data
123

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124 Hunter Dorwart

sovereignty, a concept increasingly promoted by states to justify their author-

ity over technology and data (Chander and Sun 2021; Gao 2022).
China’s rise as a cyber power and its growing global influence over digi-
tal technologies has fueled these debates. By 2025, estimates indicate that
China’s internet population will reach 1.14 billion, the largest in the world,
while e-commerce now accounts for 35 percent of total retail sales in the
country (and 40 percent globally) with a market size expected to reach $5.6
trillion in the upcoming years (Zhang and Chen 2019; Jiang 2020). Some of
the largest Internet companies from China, including Alibaba, Tencent, and
Jingdong (JD), and the country now hosts nine of the top twenty global inter-
net firms by market value (Liu 2021). These firms have increasingly gone
global: TikTok has become the world’s most downloaded mobile app while
Huawei continues to dominate the telecommunications equipment market
(McAuliffe 2022; Pongratz 2020).
At the same time, the People’s Republic of China (PRC) has for years
promoted its own approach to data governance—what it calls ‘cyber sover-
eignty’ (wangluo zhuquan)—that resonates with the concept of data sover-
eignty (Creemers 2020). Relatedly, many scholars and policymakers have
attributed the emergence of an array of governance tools and values to China
including online censorship, state surveillance, and even digital authoritari-
anism. While each of these trends predates the rise of China as a cyber and
technology power, widespread perceptions continue to associate the country
with legitimising and enabling state control over cyberspace and information
(Segal 2020).
With respect to data flows, a core part of Chinese practice involves data
localisation, or the practice of forcing organisations to use, store, and process
data within a country’s sovereign territory (Chander and Le 2015). China
has in recent years solidified a far-reaching data localisation framework
that requires entities to process certain data locally and receive government
approval for overseas transfers. This framework raises numerous questions
about the future rules of global data transfers. What are China’s goals beyond
its own domestic priorities and how may they affect international discourse
and practice? Does China want to rewrite the rules of data transfers to bet-
ter favour Chinese interests abroad and if so how and to what extent will it
do this? Has China already influenced international rulemaking or displaced
other mechanisms?
This chapter attempts to address these questions by (1) analysing China’s
strategic goals with respect to global data transfers and (2) exploring the
extent to which the PRC has realised its objectives. It argues that Chinese
policymakers want to enshrine two goals—what this chapter calls the twin
aims—into the foundation of global data transfers. These aims involve

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China and Global Data Transfers 125

facilitating data flows across borders but in a way that ensures security and
regime stability.
While China’s overarching objective is clear, its strategy to translate the
twin aims into international rules and principles remains inchoate. Not only
are there information gaps in China’s preferred outcome, but current evi-
dence also suggests that the roadmap for practical implementation remains
fragmented. The country’s leaders have stressed the need for China to help
formulate international rules with partners, and have even launched global
initiatives to start this, but have produced few results that would meaning-
fully structure international data transfers outside of China or influence other
countries to adopt China’s preferred approach.
Nonetheless, through its data ordering (a combination of regulatory rule-
making and technology practice), the PRC has produced three spill-over
effects that have formed a multi-dimensional foundation through which China
may influence global data transfer rules in the future. Data ordering is related
to data governance, which refers to the regulatory and technical tools that
governments employ to govern information and technology but is different
as it emphasises the practice of Chinese administrative institutions to instil
order through means that dodge conventional legal concepts and vocabulary
(Clarke 2020).
Each spill-over effect contains key shortcomings that complicate measur-
ing China’s current impact on data transfers rulemaking. Part of the difficulty
lies in determining whether China wants to construct international rules and
exert regulatory leadership or whether officials wish to assert influence only
to favour a limited, domestic interest. In other words, translating China’s
domestic aims into international goals with respect to data transfers involves
taking a conceptual leap in an environment where existing evidence does not
always point to an easy solution. As of writing, the answer remains relatively
unclear. Yet the shape of China’s data ordering has come into form through
the following spill-over effects:

1. The solidification of China’s data governance regime, and in particular

its approach to data localisation, has shaped corporate expectations and
compliance practice around cross-border data flows. Yet despite the
far-reaching implications of this system, its influence may be limited to
China’s domestic market.
2. Beyond this, China has begun to legitimise its norms and principles
regarding control over data with other governments and plurilateral
institutions. It has done so through a combination of soft law and par-
ticipatory diplomacy, but the impact of this on data transfers remains
hard to measure in the absence of any concrete agreement or rules.

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126 Hunter Dorwart

3. Chinese technology exports, and in particular data centres, shape cor-

porate governance and exert a bottom-up force on data transfer rules.
Government plans to create data ‘customs’ hubs to facilitate data flows
securely across borders may serve as a model that could scale in foreign
jurisdictions. However, this impact may be limited to data flows in and
out of China, rather than between countries.

This chapter traces the development of China’s strategy and the three
spill-over effects by analysing government policy documents, administrative
regulations, and corporate public data in China. It also relies on interviews
and conversations with Chinese lawyers, compliance teams, and data secu-
rity researchers to explain how companies have responded to China’s data
transfers framework and its impact on global data flows. While it focuses
primarily on corporate transfers, many of this chapter’s arguments apply
to the important issue of government access to data, although relatively
underexplored.
In highlighting these vectors, this chapter attempts to lay the foundation
for future research and draw attention to methodological challenges that face
grasping the extent of China’s rise as a cyber power. Any analysis of China’s
technology strategy and capabilities must confront gaps in information and
recognise that in the absence of additional data, researchers must not let their
assumptions finish the explanation. This chapter attempts to highlight these
gaps while drawing attention to known trends.

CONCEPTUALISING CHINA’S STRATEGIC

GOALS FOR GLOBAL DATA TRANSFERS

Over the past few years, China’s strategic goals for global data transfers have
come into view, but their concrete path for implementation remains unclear.
At the heart of this uncertainty lies the twin aims of balancing the free flow of
data across borders for commercial interests with a restrictive approach that
prioritises security. Put simply, China wants to realise both goals—it wants
a world where data governance principles facilitate digital development at
home and abroad, but also one where it can develop comprehensive policy
tools like data localisation to uphold security. How and through what tools
China will shape this world remains unanswered.
This section attempts to provide an account of the intention behind China’s
strategic goals with respect to global data transfers by first situating the twin
aims within the broader context of China’s cyber governance values. It argues
that the orderly flow of data has emerged as a unique concept that reflects

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China and Global Data Transfers 127

the need to prioritise national security over other interests. Next, this section
highlights emerging ambiguities in China’s strategy to translate its domestic
goals into international rules. While China has promoted cooperation to cre-
ate international rules, its efforts so far have left many questions unanswered.

The Orderly Flow of Data and the Twin Aims of

Global Transfers
Chinese authorities have long viewed data as necessary to develop the digital
economy and make China more self-sufficient in technological innovation
and growth (Arsene 2018; Gu & Lundvall 2006). Chinese leaders launched
a national data strategy in 2014, followed by a series of government work
reports dedicated to exploring the potential use cases of big data (CAICT
2019). In 2015, the State Council issued an action plan to promote data
development, one of the earliest top-down strategic planning documents for
data flows, which called for the construction of integrated data systems and
the informatisation of a whole range of strategic industries and government
functions (State Council 2015). Implementing the big data strategy became a
key goal in the 13th Five-Year Plan (FYP 2016–2020) and received support
directly from Xi Jinping in 2018 when he stressed the need to ‘promote the
deep integration of the Internet, big data, and artificial intelligence with the
real economy’ (State Council 2016; Qiushi 2021). In April 2020, a guideline
on improving market-based allocation of production factors listed data as the
fifth basic factor of production along with land, labour, capital, and technol-
ogy (Central Committee and State Council 2020). At the core of this perspec-
tive is treating data like a resource that can be leveraged for economic growth
through market mechanisms (Liu 2021).
However, Chinese leaders also early on recognised the unprecedented
risks the digital economy brings for China’s national security, political rule,
economic independence, and social stability (Lu 2014). Part of this concern
emanated from China’s turbulent historical relationship with foreign pow-
ers and its sensitivity to social stability and political control—an outlook
shaped by its experience as a postcolonial state forged in the context of war
(Mühlhahn 2019). Another part originated from it being a relative latecomer
to the information communication technology (ICT) revolution and its
lack of self-sufficiency due to its early reliance on American technologies
(Yang 2014).
To bolster security online and respond to criticisms of its early censorship
and state control over the Internet, Chinese scholars and officials formulated
the concept of cyber-sovereignty, a set of overarching governance principles
which seeks to justify state control of the Internet in the name of social order
and stability (Arsene 2016). At least since 2010, the Chinese government

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128 Hunter Dorwart

has referred to the concept to describe China’s normative position on cyber

governance. It has done so both in internal strategy documents and through
its participation in multilateral institutions (SCIO 2012; MFA 2012; MFA
2015; MFA 2017). When it comes to the governance of data, policymakers
have applied a similar rationale and created administrative and technical tools
to censor the flow of information online and across borders (Zheng 2020).
Taken together, the need to ensure data flow for economic development
while restricting access to preserve security forms the twin aims of the
Chinese government to data flows. The twin aims raise important implications
for cross-border data transfers and China’s strategic goals for international
data governance. On the one hand, policymakers connected to commercial
institutions recognise that the free flow of data across borders is paramount
for Chinese businesses, especially as they expand into foreign markets. To
this end, they have initiated a series of pilot programs designed to maximise
digital trade through ‘data free trade zones’ and explored cross-border gover-
nance on the local level through data exchanges (MOFCOM 2020; Lu 2020).
On the other hand, security-focused policymakers view the unregulated
flow of data across borders as a threat to China’s sovereignty and public
order. In recent years, these policymakers have developed comprehensive
data localisation rules designed to minimise security risks and maximise
state control over data. Authorities have increased their enforcement of
these rules, with Didi Chuxing, Zoom, and the China National Knowledge
Infrastructure (CNKI) being notable examples of companies that have had
their operations halted or severely restricted due to alleged violations (CAC
2022; CAC 2022a).
To address both aims, Chinese policymakers describe the ideal for
cross-border transfers as the orderly flow of data (shuju youxu liudong).
Increasingly, numerous policy documents have used the term, including
the Central Cybersecurity and Informatisation Commission (CCIC) 14th
Five-Year Plan for Informatisation and pilot programs under the Ministry of
Commerce (CCIC 2021; MOFCOM 2020). The Cybersecurity Law (CSL),
the Data Security Law (DSL), and numerous regulations issued by the
Cyberspace Administration of China (CAC) also refer to the orderly flow
of data in the context of transferring data overseas (NPC 2021; NPC 2021a;
CAC 2022b).
But what does it mean for data to flow in an orderly manner? The CAC
predominantly uses the term in relation to what it describes as the ‘lawful’ and
‘free’ flow of data, but always in the context of regulations that add compli-
ance requirements for organisations to transfer data abroad. Because of this,
the orderly flow of data at a minimum implies that the transmission of data
will not harm China’s national security, public order, or political interest. It

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China and Global Data Transfers 129

likewise implies that data shall not flow unless certain conditions are met,
including compliance with Chinese law.
Chinese policymakers are still working out the balance between commer-
cial and security interests when it comes to data flows, which makes arriving
at a systematic definition of the concept somewhat of a moving target. The
twin aims have often produced tension within China’s political and admin-
istrative institutions, and in ways that have not always been easy to resolve
(Boullenois 2021). Such tension has involved battles over regulatory turf,
power-sharing between new and old bodies such as the CAC and the Ministry
of Public Security (MPS), and concerns about the position of tech companies
within China’s larger digital economy (Creemers 2021; Zhang 2016). The
Chinese government has yet to resolve many details of the twin aims, which
has created even more ambiguity in the context of international rulemaking.

Ambiguities in China’s Strategy for Shaping

International Transfer Rules
How Chinese leaders will attempt to influence international data transfer
rules in a way that reflects the twin aims remains unclear. At least since 2015,
policymakers and strategists have promoted the need for China to build a
‘community of common destiny for cyberspace’ by calling on other countries
to enshrine four principles into the international Internet governance system:
respect for sovereignty, peace and security, openness and cooperation, and
order (Lu 2016). Leaders reiterated these principles in the 2017 International
Strategy of Cooperation on Cyberspace, which emphasised the priority of
developing a rules-based global governance system to ‘promote orderly infor-
mation flows’ (MFA 2017).
Through these principles, China has made legitimising its security-oriented
approach to the Internet a key strategy on the international stage (Wu 2021).
However, except for a few limited instances, the country’s leaders have pro-
vided less guidance on what rules should govern data flows beyond respect-
ing sovereignty and how or through what fora China should go about creating
those rules. In other words, there are conceptual problems when translating
China’s domestic goals on data flows into international aims (Zheng 2022;
Bergsten 2022).
Despite this, there are signals where China may be heading. Some Chinese
scholars within ministry think tanks argue that China is following a tiered
approach that starts first with solidifying China’s data regulations and
improving cross-border data flow pilots before engaging in international
negotiations or digital trade deals to craft lasting rules (Zheng 2022). As dis-
cussed below, under this framework China has completed the first stage and

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130 Hunter Dorwart

is in the process of operationalising the second while initiating the third and
fourth (Weng and Song 2022).
Chinese ministries, administrative bodies, and other lawmakers have also
indicated their preference for rulemaking, albeit in a general manner (Hong
2020; Zheng 2020; Huang 2020). For instance, both the DSL and the PIPL
speak of the need for China to ‘actively participate in the formulation of inter-
national rules’ with respect to international data transfers, but do not specify
what rules should be created (Wu 2021).
More concretely, the Chinese government has made data flows a key prior-
ity in two types of international settings: 1) negotiations in trade agreements
that contain digital services chapters; and 2) plurilateral institutions and
initiatives that involve data regulation. While China has increased its partici-
pation in both settings, efforts to create binding rules have so far produced
mixed results. This has generated scepticism as to China’s true strategic aim
with both settings. Such ambiguity raises questions about what China’s lead-
ers wish to accomplish with data transfers.

Data Flows and Digital Trade Agreements—Rationales

and Limitations
China’s track record on creating data transfers rules through free trade agree-
ments (FTA) remains limited (Gao and Schaffer 2020). The FTAs it has
signed or applied to join lack comprehensive rules in a manner that would
solve the most pressing global issues on data flows (Mishra 2021; Voss 2020;
Yakoleva & Iron 2020). Of the country’s recent bilateral FTAs, only its agree-
ments with Korea and Australia contain standalone chapters on e-commerce
and both carry limited obligations for data protection (Gao 2018).
On a regional level, China conditioned its entry into the Regional and
Comprehensive Economic Partnership (RCEP) agreement on the grounds
that it could exempt its data localisation rules from the agreement’s general
prohibition against transfers restrictions. However, this exemption doesn’t
create any positive rules that would bring legal certainty for other countries
(Gao 2018). A similar pattern exists in China’s participation in the World
Trade Organisation (WTO). Through its commitment to the E-Commerce
Joint Statement Initiative (JSI), which is an effort to create new plurilat-
eral rules on e-commerce including data transfers, China has committed to
advancing negotiations, but has routinely asserted that security should serve
as a precondition for data flows across borders, a position it has adopted in
other multilateral fora (Erie and Streinz 2021).
One notable exception concerns China’s interest in joining the
Comprehensive and Progressive Agreement for Trans-Pacific Partnership
(CPTPP), the resuscitated version of the Trans-Pacific Partnership (TPP)

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that the Obama administration spearheaded to set the rules for digital trade
in Asia. While the United States later withdrew from the initiative, its other
signatories have revived it, making the agreement one of the largest ongoing
trade deals in negotiation (Williams and Sutherland 2021). The CPTPP con-
tains language to prohibit countries from adopting a data localisation model
like the PRC’s. It goes further than RCEP by requiring members to demon-
strate that restrictions on data flows meet a legitimate public policy objective,
are not discriminatory or arbitrary, and are proportionate and necessary (Kong
and Tong 2021). Chinese experts assert that the country’s data governance
laws are compatible with CPTPP’s conditions, despite widespread scepticism
(Hong 2020). However, as of writing, the status of China’s ascension to the
agreement is still ongoing.

The Global Data Security Initiative (GDSI)

China has also advanced rulemaking around data transfers in other plurilat-
eral institutions. It has increased its participation in well-known internet gov-
ernance bodies like the International Telecommunication Union (ITU) and
even launched its own international institutions such as the World Internet
Conference (WIC) to promote cooperation on cyberspace governance (see
Section III[B][2]). As discussed below in more detail, grasping China’s inten-
tions with respect to data transfers through its engagement in these bodies
remains difficult, as data flows are only one issue among many others.
The initiative that Chinese leaders have backed that explicitly touches upon
data transfer rules is the Global Data Security Initiative (GDSI, quanqiu shuju
anquan changyi). Announced in September 2020, the GDSI attempts to pro-
vide a framework for countries to cooperate on issues related to cross-border
data flows, including law enforcement access to data and information security
(Park 2022). It proposes three principles (multilateralism, safety, and fairness)
and eight action items to structure how governments should approach solving
issues related to data flows (MFA 2020). These action items involve broad
positive commitments such as protecting personal information, complying
with domestic laws, and addressing law enforcement access to data through
judicial assistance, as well as negative prohibitions including promises not to
directly access data located in other countries, set up backdoors in products
or services, or even force countries to localise data.
The high-level principles and relative openness of the GDSI suggest that
Chinese policymakers view cross-border transfer rules as an avenue to build
a larger framework for the global digital economy. Since 2020, the GDSI
has been promoted at various levels in the Chinese government. Xi Jinping
mentioned the initiative in three separate multilateral summits in 2020: the
Shanghai Cooperation Organisation (SCO) Summit, the BRICS Summit, and

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132 Hunter Dorwart

the G20 (Park 2022). Chinese ministries have made the GDSI a key part of
its bilateral and regional engagement on cyber issues including in fora like
the China-Arab Data Security Cooperation and the China-ASEAN Digital
Governance Cooperation.
The GDSI has received support, albeit in a general and limited manner,
from numerous countries around the world especially in the Global South.
However, little information beyond terse readouts and press releases of this
engagement exists. Indeed, the GDSI’s role in larger plurilateral fora remains
unclear—the initiative proposes principles that other countries may agree to
but leaves the work of filling in the details to other cooperative efforts (Park
2022). China may prefer to do this on a bilateral basis, as its recent cyberse-
curity agreements with Thailand and Indonesia suggest, or it may increase its
efforts in other institutional settings (CAC 2022c; CAC 2022d).

THE SPILLOVER EFFECTS OF CHINESE DATA

ORDENING—PRESENT AND FUTURE INFLUENCE

While the pathway for China to accomplish its twin aims remains fragmented,
the PRC has nonetheless already influenced the global debate around data
flows, internet governance, and cross-border transfers. This influence is not
limited to formal rulemaking but extends to other practices such as gover-
nance norms and design choices in contracts. These different vectors—hard
law, soft law, corporate governance—overlap with each other but exist on
different conceptual planes.
As a result, measuring the effects of each requires different methodological
tools. For instance, focusing exclusively on whether Chinese data protection
law will become a global de facto standard like the GDPR risks ignoring how
the country’s technology exports may shape corporate governance practices
in recipient jurisdictions (Erie and Streinz 2021). Likewise, an emphasis
on soft law and other non-binding mechanisms like standards may ignore
the concrete impact and cost China’s localisation rules have already had on
global technology firms.
The lack of a consistent framework that addresses each of these dimensions
has challenged evaluating China’s influence on global data transfers. This
section attempts to address this gap by identifying three spill-over effects of
Chinese data ordering that have and will continue to impact debates around
data flows. Data ordering involves a combination of law and technology
to create certainty and norms over the management of data. It includes the
participation of regulatory authorities that implement data regulations and
technology companies that design and export commercial products. Notably,

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China and Global Data Transfers 133

data ordering reflects that some of China’s administrative practices differ

considerably from other legal systems (Clarke 2020).
First, the solidification of China’s data governance regime has shaped
international expectations with respect to data localisation, influencing both
how private and public sector actors understand global transfers. This solidifi-
cation involves not only the adoption of regulations that mandate localisation,
but also the promulgation of alternative transfer mechanisms such as standard
contractual clauses (SCCs) and cross-border certification systems. Notably,
while China’s influence on global data transfers has increased, the impact of
its law on formal rulemaking or international compliance standards likely
faces limitations, as China’s data protection framework is mostly relevant for
companies engaging in the Chinese market.
Second, Chinese data ordering may influence other countries by shaping
norms and expectations around data sovereignty, particular in their data gov-
ernance choices. One area where this is most visible is China’s participation
in international governance institutions and the direct dialogue with foreign
governments and their officials in such fora. However, measuring the effect
of this influence on a case-by-case basis remains challenging, while China’s
participation in international institutions has so far produced mixed results.
Third, Chinese companies have shaped global data flows discourse by
exporting governance through technology. In particular, technical tools and
programs designed to manage big data are beginning to affect recipients’
approaches to data flows and their contractual relationships with Chinese
vendors. One notable example concerns the proliferation of data centres
and their ability to facilitate data transfers through compliance services—
a phenomenon already witnessed in Hong Kong’s planned data ‘customs’
hub. Policymakers may attempt to scale this and other data exchanges into
other jurisdictions, but the impact faces a similar limitation to the first effect
in that it may only influence transfers to and from China, and not between
third-party countries outside of China.

China’s Data Transfers Framework—Existing

Capabilities and Influence
The Solidification of China’s Data Localisation Architecture
As stated above, Chinese policymakers have stressed the need for China to
develop a coherent framework for data transfers before actively participat-
ing in international rulemaking (Wu 2021;Zheng 2020). Over the past few
years, lawmakers have made progress in formulating an institutional design
for cross-border data flows that contains baseline localisation requirements
in some scenarios. While still incomplete, this framework requires certain

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134 Hunter Dorwart

Table 6.1. Three Spillover Effects of Data Ordering

Description of Effect Vector Application Limitations
Solidification of Hard law Influences corpo- Primarily impacts enti-
data localization rate compliance ties engaging with
framework expectations, the Chinese mar-
operationalizes data ket. Impact on the
localization, exerts rest of the world is
sovereignty. limited.
Transnational princi- Soft law Legitimises norms and Difficult to measure
ples and participa- principles for other legislative influence
tory diplomacy countries to follow. on other countries.
Sets agenda for plu- Rulemaking in plu-
rilateral institutions rilateral institutions
and other govern- is limited, more
ment fora. principle-based than
outcome-based.
Technology exports Corporate Influences organiza- Influence may be lim-
and data hubs governance tional choices of ited to data flows
foreign firms. Data to and from China
hubs may scale to and not between
facilitate security entities outside of
compliance and China. Connection
lower corporate between com-
costs. mercial technology
exports and data
centres is hard to
measure.

businesses to process their data locally within the territory of the PRC and
receive mandatory security assessment (i.e., government approval) for over-
seas transfers.
In other circumstances, organisations must choose an enumerated transfer
mechanism before sending data overseas, such as using a SCC or receiving
certification for the transfer. The current system reflects a need to ensure
the orderly flow of data, but also indicates the strong position of national
security within that need, given that the threshold triggering localisation
seems very low.
The development of this framework has not been straightforward and easy
and has often reflected the changing attitudes of lawmakers to localisation
and data security (Hong 2017). With the promulgation of the Cybersecurity
Law, policymakers took a step towards localisation, but struggled to imple-
ment the rules on the ministerial level (CAC 2017; CAC 2019). The compila-
tion of the Chinese Civil Code in 2020 and the adoption of the PIPL and the
DSL in 2021 marked a new stage in the evolution of China’s data transfers

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China and Global Data Transfers 135

framework, which reflected compromises between competing interests and

ministries (Creemers 2021).
Both laws concretise China’s approach to data transfers, which revolves
around two conceptual pillars: (1) the type of entity processing the data and
(2) the type of data being processed. Article 40 of the PIPL reaffirms the
need for critical information infrastructure operators (CIIOs) to process data
locally—an obligation under the CSL—but also extends this requirement to
data controllers that process a certain ‘volume’ of personal information. In
2022, the CAC adopted a regulation that defined this volume threshold at 1
million individuals, set forth a restriction on transferring ‘important data’ out
of China for all organisations, and clarified the process for obtaining a secu-
rity assessment (CAC 2022b). The regulation also stipulates that controllers
who cumulatively transfer personal information of 100,000 individuals or
sensitive information of 10,000 individuals must also localise their data and
receive a security assessment.
Through this approach, officials within the CAC have indicated a strong
preference for restricting certain data flows on the basis of protecting national
interests such as security, public order, and safety (Huang 2020). But they
have also tried to design the framework to leave open the possibility of
enabling data flows for business purposes (MOFCOM 2020). The PIPL rec-
ognises the possibility of China entering a bilateral or plurilateral agreement
on data transfers, which indicates a willingness of Chinese leaders to negoti-
ate and shape international rules. As of writing, China has not formulated
such an agreement, but has committed to working with other countries in
principle (Hong 2020). During the Data Governance Forum in 2022, a mutual
recognition treaty between China and Singapore was proposed, but details so
far remain scant (MLex 2022).

Measuring the Impact of China’s Data Transfers

Framework Abroad
The solidification of China’s data transfers regime has already had a sig-
nificant impact on how businesses, policymakers, and academics view global
data transfers. This impact can be measured in three aspects. First, China’s
data protection architecture represents a unique model that cannot be reduced
to falling somewhere between the United States and the EU approach to data
transfers (Zheng 2020). The emergence of this model has spurred scholarship
both within and outside of China to explain the law’s key features on its own
terms, which in turn has shaped how many in the profession view global data
protection trends.
Second, legal teams in some of the largest foreign tech firms are begin-
ning to modify their global compliance programs in light of China’s model.

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Compliance officers now consider China a unique regulatory market that

demands a fresh conceptual approach (Huang 2020). As a result, many in
the field associate China with enabling localisation and refer to the country
when discussing global data protection trends or highlighting vicissitudes in
cross-border transfers.
Third, China’s model contains its own version of transfer instruments com-
monly used in other jurisdictions. For example, in 2022 regulators released
a draft cross-border certification standard and draft SCCs, both of which are
specified under Article 38 of the PIPL (TC260 2022; CAC 2022e). These
mechanisms theoretically offer organisations an alternative path for transfers
that does not rely on a security assessment (i.e., government-led) but instead
utilises contractual law and third-party auditing (i.e., market-oriented). The
promulgation of Chinese SCCs in particular is notable because of their wide-
spread use by companies in other jurisdictions, particularly in the United
States and the EU, and their connection with the ongoing transatlantic trans-
fers debate (Zanfir-Fortuna 2021). Additionally, both instruments may help
scale China’s regulatory influence beyond its domestic market, especially if
Chinese tech companies begin to use them for their subsidiaries located in
countries outside of China.

Limitations of Translating Domestic Law into

International Rules
While Chinese data protection law is beginning to shape international opin-
ions on data transfers, it remains unclear to what extent it will continue to do
so or whether that influence will amount to meaningful global rulemaking. To
be sure, China’s current model has already impacted private companies and
in part bolstered global trends towards data sovereignty (Erie and Streinz,
2021). Although not the only or the first country to do so, China’s balance of
asserting jurisdictional control over data while promoting commercial inter-
est has resonated both positively and negatively with other policymakers,
academics, and businesses (Nanni 2020).
However, translating this influence into global rulemaking remains limited
and challenging. On the one hand, China’s regulatory capacity for data gov-
ernance is nascent and although its transfer model aspires to sophistication,
many aspects of the framework are still ambiguous and undefined (Creemers
2021). In recent years China has spent considerable resources to reterritori-
alise data and apply its domestic law beyond the country’s borders, yet the
application of its framework abroad has been variegated and fragmented. In
other words, Chinese law is nowhere near setting a de facto global standard
like the GDPR (Bradford 2020).

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China and Global Data Transfers 137

Indeed, many companies do not favour adopting the Chinese approach

to data governance as its framework does not readily scale beyond China’s
domestic market (Erie and Streinz 2021). Instead, global technology compa-
nies (including those based in China) will likely fragment their service offer-
ings to account for local variation rather than adopt a company-wide standard
centred on Chinese data protection (Sacks and Li 2018). Many multinational
corporations have already separated their business in China from their global
operations due to local factors and legal obligations such as the requirement
to form a joint partnership with a Chinese company to obtain operating
licences (Douglas and Feldshuh 2022).
This effect is particularly relevant for large Chinese tech firms, which
have also segmented their compliance strategies between the Chinese mar-
ket and abroad. For instance, Tencent and Bytedance claim in their privacy
policies that they process user data differently depending on where the user
registers to avoid data protection compliance risks (Tencent 2021; TikTok
2021). Personal data generated outside of China by Wechat or TikTok users
is stored and processed in other jurisdictions, while data generated by Weixin
or Douyin users (China’s own analogues to Wechat and TikTok) remains
in China. The result is that Chinese companies going abroad will not make
Chinese law the de facto standard for their foreign operations.

Transnational Effects of Chinese Law—Norms

and Values
Beyond crafting a global de facto standard or binding international rules,
there are other mechanisms China may use to influence global rules on data
transfers. These mechanisms extend beyond hard-law instruments (such as
international agreements) to soft-law mechanisms that shape international
data governance norms and values (Cai 2018). Indeed, Chinese statecraft
tends to prefer these avenues in certain circumstances, which makes analys-
ing the country’s influence on international law difficult for those who look
primarily to formal multilateral negotiations or other forms of institutional
engagement (Erie 2020).
Examples of soft-law instruments include not only technical guidelines or
corporate best practices, but also a whole range of diplomatic activities that
export Chinese expertise and thinking abroad (Negro 2022; Suter 2015). Such
activities involve, for instance, building networks and sharing information
with officials and experts from other countries, participating in international
data governance forums, training programs, and peer-to-peer meetings, and
working within existing governance institutions to promote Chinese interests
(Benabdullah, 2020).

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138 Hunter Dorwart

With respect to data transfers, there are two widely discussed sources
where Chinese data ordering can shape norms and principles beyond binding
international rules. First, China’s localisation regime may directly or indi-
rectly incentivise other governments to adopt similar rules or values. Second,
China’s participation in international fora could further entrench its norms
into data governance institutions.

The Impact of China’s Localisation Regime on Other Country’s

Laws and Regulations
China’s approach to data localisation may become attractive to other govern-
ments (Nanni 2020). By demonstrating the technical and regulatory possibil-
ity of exercising jurisdictional control over data, the Chinese government
has begun to successfully position itself as having an effective governance
model for data (Hong 2020; Mishra 2021). Indeed, if other countries began
to consciously model their own laws off the PRC’s system, it would signify
China’s exertion of transnational influence beyond corporate compliance
(Erie and Streinz 2021).
Some evidence suggests that other countries have begun to model their
regulatory thinking from China, but substantiating this remains a challenging
task (Segal 2020). In 2022, the National Trade Estimate Report on Foreign
Trade Barriers (NTE Report) found that thirty-two countries around the world
have adopted some form of localisation requirements through data protection,
cybersecurity, and other ICT laws (USTR 2022). Some of these laws contain
structural mechanics that strongly resemble China’s data governance regime.
For example, Tanzania, India, Sri Lanka, Vietnam, Indonesia, Pakistan,
Bangladesh, and Cambodia have all adopted or proposed rules that could
limit the flow of data through Internet gateways or require organisations to
receive approval from government authorities to transfer certain data abroad
(USTR 2022).
However, it is difficult to determine the scope of China’s influence in the
formation of these regulations. On the one hand, many of these rules predate
China’s data localisation laws by many years (USTR 2022). For those that
do not, there is little evidence that policymakers in these countries actively
modelled their regulations on Chinese law, especially where legislative his-
tory of these regulations remains poorly documented (Erie and Streinz 2021).
On the other hand, the connection between localisation and national secu-
rity is not unique to the PRC, which complicates pinpointing the country’s
role in shaping global governance trends. Indeed, Indonesia was one of the
first countries to propose localisation in a general data protection law, while
Russia’s Federal Law No. 242-FZ from 2014 contained national security
and public order justifications (Basu 2020; Bowman 2015). In each of these

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China and Global Data Transfers 139

examples, it is difficult to disambiguate China’s normative influence from

other motivations. For instance, it is more likely that the regulatory trend
towards data sovereignty and localisation emerged simultaneously in many
countries from the same set of events, such as the Snowden Revelations in
2014 (Chander and Le 2015).
Despite this, China’s effort to build regulatory capacity with other countries
has and will likely increase in the future (Segal 2020). Chinese stakeholders
routinely train and share knowledge with foreign officials in programs like
the Baise Executive Leadership Academy, the China-ASEAN Information
Port Forum, the China-Singapore Internet Forum, and the China-Africa
Internet Development Cooperation Forum (Erie 2020). Such cooperation
could serve as one bottom-up channel through which Chinese data sover-
eignty norms become more widely accepted by policymakers in key emerg-
ing jurisdictions (Cai 2018).

Chinese Participation in International Data

Governance Institutions
Another source of influence concerns Chinese participation in Internet
governance institutions. Chinese officials and companies have actively
promoted the country’s data governance norms in numerous fora, including
multi-stakeholder bodies like the Internet Corporation for Assigned Names
and Numbers (ICANN), the World Wide Web Consortium (W3C), and the
Internet Engineering Task Force (IETF) as well as multilateral organisations
such as the International Telecommunication Union and the World Trade
Organisation’s (WTO) Joint Statement Initiative on E-Commerce (JSI). The
PRC has actively emphasised its concept of cyber-sovereignty in the UN
Group of Government Experts (GGE) and even helped form the Open-Ended
Working Group (OEWG) with like-minded partners in 2018 after encounter-
ing US resistance to its efforts in the GGE.
China has also begun to promote data sovereignty in the institutions it cre-
ated including the Shanghai Cooperation Organisation (SCO) and the Asian
Infrastructure Investment Bank (AIIB In 2014, officials in Zhejiang and the
CAC launched the World Internet Conference, which hosts over numerous
attendees from industry, academia, and government, with participants com-
ing from both developed and developing countries (WIC 2020). Every year,
the Wuzhen Summit brings togethers data governance experts to discuss key
issues and global strategic thinking around data and technology. In the past,
policymakers in China promoted key cyber norms through the Summit, but
in recent years the fanfare has died down. However, in 2022 Chinese officials
announced that the Wuzhen Summit would become an international institu-
tion, yet details of the significance of this remain scant (Li 2022).

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140 Hunter Dorwart

The PRC’s position in each of these institutions varies and has changed
over time. While officials have expressed scepticism for multi-stakeholder
bodies, Chinese companies continue to send large delegations to many of
them with government support (Negro 2020). China has articulated differ-
ent goals in the ITU and the GGE than in the WTO JSI, which has largely
focused on facilitating e-commerce for companies like Alibaba and JD (Gao
2022). This notwithstanding, the PRC has routinely reiterated its commitment
to data sovereignty and state control of the Internet in many institutions (Erie
and Streinz 2021). Indeed, the country’s efforts in these bodies have strength-
ened perceptions that global consensus on Internet governance is fragment-
ing and that the trend towards stricter state control over data is irreversible
(Nanni 2018).
However, many of these institutions have not placed global data transfer
rules at the top of their agendas, and those that have addressed them have
produced mixed results (Gao and Shaffer 2020). Despite the link between
data sovereignty and localisation, China’s efforts with respect to data trans-
fers in these institutions have been inconsistent and indirect. It has committed
both to promoting data flows between countries (evening signing on to the
‘Data Free Flow with Trust’ initiative at the G20), but also the need to uphold
the sovereign rights of countries to control such data at any cost. Attempts
to translate these commitments into binding agreements have advanced at a
relatively slow pace, while data transfers are but one of many issues on the
table (see Section II[B][1]).
One notable exception is China’s Global Data Security Initiative (GDSI),
which the country created on its own effort, and which directly touches upon
data flows. The principles it sets forth around government access to data
could help China create cross-border transfer agreements with other coun-
tries in a bilateral or plurilateral manner (Hong 2020). Yet little information
beyond short readouts of these initiatives exists. Indeed, these initiatives may
be driven more by a diplomatic effort to counter US and EU assertions of the
lack of credibility of China’s ICT products rather than a genuine attempt to
craft international rules around data flows (Kak and Sacks 2021). Regardless,
the initiative may help China promote its own preferred style of negotiating,
especially if more countries continue to formally acknowledge it.

Spill-Overs from Chinese Technology: Data Centres as

a Pilot for Governance
The third spill-over of Chinese law and technology concerns how the export
of Chinese ICT products shapes other governments’ strategies with respect to
data flows. In recent years, a growing body of literature has drawn connec-
tions between China’s role in building infrastructure along the ‘Digital Silk

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China and Global Data Transfers 141

Road’ (DSR)—the technology component of the Belt and Road Initiative

(BRI)—and its larger data governance objectives (Erie and Streinz 2021;
Segal 2020). While the DSR remains more of a catchword than a comprehen-
sive and institutionalised policy, China’s technology exports continue to rise
across the world, making this area an important dimension of China’s grow-
ing cyber power (Creemers 2021a).
By investing, developing, and supplying the physical components and digi-
tal services that fuel the Internet, Chinese companies could exert a growing
influence on global data governance. This in turn may help Beijing transmit
its own values and cyber norms to other governments, particularly through
the exportation of sophisticated surveillance tools, facial recognition systems,
backbone ICT infrastructure, and other big data filtering devices (McKune &
Ahmed 2018).
Relevant to data transfers, a notable example of these exports is the com-
mercial spread of self-built and self-managed data centres. In recent years,
Chinese policymakers and companies have made developing such centres
inside and outside of the country a key priority—particularly to support
cross-border data flows for Chinese companies (NDRC 2021; MIIT 2021).
According to IDC’s global cloud computing tracking data, Alibaba Cloud
(and its unique operating system Feitian), ranks third in the global market
with a share of 7.4 percent, having grown by more than 10 times in the last
three years alone (Fast Technology 2022; Pandaily 2021). The company
now operates in over 82 countries in 26 regions, and has long been the larg-
est cloud provider in Asia (ICCSZ 2022). Alibaba, like other Chinese cloud
providers, largely contracts with local data centres in foreign countries to
expand operations (ICCSZ 2022). However, the company is beginning to
commission its own data centres in foreign markets. In 2022, it launched data
centres in South Korea, the Philippines, and Indonesia to accelerate its pres-
ence in APAC, with plans to expand similar centres in other key jurisdictions
(ICCSZ 2022).
Additionally, state-owned enterprises (SOEs) such as China Mobile
International (CMI) and China Telecom have also invested significantly
in data centres abroad, particularly in the Guangdong-Hong Kong-Macao
Greater Bay Area (GBA). In late 2021, CMI announced the finalisation of
the Fotan Data Centre (huotan shuju zhongxin), which according to Hong
Kong officials will form the core data centre system in the GBA (China
Mobile 2021). The Fotan Data Centre forms part of CMI’s global network
of self-built and self-operated data centres in Singapore, London, and
Frankfurt—each designed to accelerate cross-border transmission resources
(China Mobile 2021). Likewise, China Telecom has also actively expanded
its partnerships with data centres in numerous countries and now jointly oper-
ates more than 180 data centres across the globe (China Telecom 2020).

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142 Hunter Dorwart

An emerging governance component of these data centres is managing

compliance for cross-border transfers, particularly when the transmission
of data implicates security assessments or data localisation requirements.
This component takes on two dimensions. On the one hand, overseas data
centres help Chinese companies segment their products and services between
markets, particularly in circumstances where the company wishes to separate
their processing activities to mitigate legal risk. Learning from this experi-
ence, Chinese data centres in third-party countries that adopt restrictions on
data transfers may offer similar services for other companies.
On the other hand, data centres can become stronger vehicles for data
flow security management, especially in emerging data ‘free trade zones’ or
other digital trade programs. In China, the Ministry of Commerce’s Trade in
Services Plan explicitly recognises this function and directs twenty-eight test
pilot zones to create dedicated data channels and supervisory models for data
flows (MOFCOM 2020). Notably, the CAC and MIIT will help implement
this plan through their data classification efforts by categorising and grading
different types of data depending on their security risk to help organisations
to map their data flows (TC260 2019). Part of this supervision model includes
establishing management mechanisms that consist of data protection certifi-
cations and cross-border data flow risk assessments (MOFCOM 2020).
The goal of these measures is to facilitate the orderly flow of data by
streamlining compliance with China’s internal localisation requirements
while promoting the use of data exchanges and other market-based mecha-
nisms to facilitate digital trade (NDRC 2022). Policymakers in the GBA have
proposed a test pilot of this cross-border management system. Numerous
plans indicate the desire for Hong Kong to become a data ‘customs’ hub
to supervise cross-border data flows, facilitate data trading in neighbour-
ing technology centres like Shenzhen and Guangdong, and eventually serve
as a bridge that connects China’s data ecosystem with the rest of the world
(Shenzhen 2021; Guangdong 2021). Under Chinese law, transfers of data
from China to Hong Kong count as cross-border, making Hong Kong a useful
test case for implementing this trial given the region’s connection to the larger
GBA integration process.
Under this plan, regulators envision creating a ‘whitelist’ mechanism
to permit certain categories of data to enter Hong Kong from China and a
‘negative list’ to prohibit data flows that would trigger localisation under
Chinese law (RCCL 2022). Such lists would green light data recipients
through a CAC-led security assessment or certification that, once obtained,
would last for a period of time and create legal certainty between contract-
ing parties. Some pilots of this nature have already come online in specific
sectors. For instance, the Hong Kong Monetary Authority (HKMA) and the
PBOC launched a Fintech Pilot Trial Facility in 2022 to spur the cross-border

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China and Global Data Transfers 143

transfer of financial information between major banks, third-party providers,

and fintech operators (Hong Kong Monetary Authority 2022).
While details of the plan’s implementation remain scant, Chinese regula-
tors and companies may attempt to scale such ‘customs’ hubs beyond the
GBA in partnership with other governments. Lessons learned from data free
trade zones in China could also be applied in an international setting, particu-
larly in countries that import many Chinese technology products and services
(Hong 2020). Companies that operate data centres will play an important role
in supervising security compliance for cross-border data transfers, both in the
technical expertise they provide to regulators and their position within global
data transfers.

CONCLUSION

China’s rise as a cyber power has raised implications for the future rules of
cross-border data transfers. Government policy documents and other legal
instruments indicate the recent coalescence of a strategy to realise two aims
with respect to data transfers: (1) ensuring that data flows freely to power
innovation and digital development while (2) restricting data sharing where
necessary to preserve national security, regime stability, and public order.
This trade-off, increasingly articulated through the concept of the orderly
flow of data, has become a central goal of Chinese policymakers, albeit one
that is scattered across ministerial departments with no unified definition.
On the global front, Chinese policymakers seek to legitimise China’s cyber
sovereignty while fostering data transfer rules favourable to the expansion
of Chinese tech companies and China’s national interests. There are notable
information gaps in how this policy will be articulated and the actual pathway
for realisation. While Chinese officials and companies have increased their
collaboration in bilateral and multilateral fora on a range of digital gover-
nance issues, the ultimate goals of such engagement are unclear and vary
depending on the forum. At a minimum, Chinese leaders have expressed
their desire for non-interference in their own regulatory choices. There are
examples where Chinese officials have indicated a desire to create binding
international rules but also instances of collaboration that are oriented only
around broad principles.
Despite the ambiguity in China’s strategy, the country’s current regulatory
and market practices (what this chapter calls data ordering) have produced
three spill-over effects that will likely shape the future of global data trans-
fers in key ways. Each of these faces notable limitations that makes arriving
at a conclusive answer analytically challenging. First, the solidification of
China’s data governance regime has shaped international expectations on

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144 Hunter Dorwart

data localisation and influenced how the private and public sectors under-
stand global transfers. Yet, while China’s influence on global data transfers
has increased, the country’s laws may have little impact beyond its domes-
tic market.
Second, moving beyond formal rulemaking, Chinese data ordering may
influence other countries by shaping expectations and norms around digital
sovereignty. While there is some evidence to suggest that other countries
have taken inspiration from China’s approach to data governance, it is hard
to isolate the degree of this influence, given that many countries have devel-
oped similar approaches simultaneously with China. Despite this, China’s
growing participation in international data governance institutions and its
ability to attract and train foreign officials will likely strengthen its influence
on future norms.
Third, Chinese companies have shaped discourse on global data flows by
exporting governance through technology. Particularly, the construction of
data centres in international jurisdictions contains an important governance
component—cross-border security compliance as a service. Regulators have
already begun experimenting with this, often partnering with SOEs and other
tech companies that run data centres. Officials plan to develop a data ‘cus-
toms’ hub in the GBA to facilitate transfers between Hong Kong and China
through streamlined compliance services. It remains unclear to what extent
these hubs will be successful, but they could indicate a future trend.

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Chapter 7

China and Global

Internet Governance
ITU, ICANN, and the World
Internet Conference

Gianluigi Negro

In line with the rationale of the book, this chapter explores the engagement
of the Chinese government into the Internet governance discussion. Previous
studies have already highlighted that, during the last two decades, China has
been shifting its role into the internet governance discussion from norm taker
to a norm maker one (Galloway, 2015; Negro, forthcoming). This contribu-
tion shows how China has been increasing its presence into two of the most
relevant international organisations in the field of the internet governance:
the International Telecommunication Union and the Internet Corporation for
Assigned Numbers (ICANN). This chapter also focuses on the role of the
World Internet Conference (also known as the Wuzhen Summit), a Chinese
initiative launched by the Chinese government to promote an alternative
vision of global Internet governance.
The analysis of these three cases studies is based on official documents and
specialised Chinese academic journals and magazines and it supports three
main arguments. First, the Chinese idea of Internet governance cannot be
limited to the role of the government, whereas it involves a variety of stake-
holders that, at least form a historic perspective, have not been always fully
matching the state’s interests (Shen, 2016). Views of policymakers, scholars
and businesspersons are not always convergent with official statements. This
trend shows a degree of inconsistency in the Chinese narrative.

153
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154 Gianluigi Negro

The second argument raised from this contribution challenges the idea
according to which China’s contribution to the Internet governance discus-
sion is limited to a dichotomy between a multi-stakeholder model, closer to
US values and the status quo of the Internet governance, and a multilateral-
ism, a vision often promoted by the Chinese official narrative but that does
not fully reflect the complex vision of Chinese Internet governance, which
de facto match a series of multi stakeholder principles. In general terms, the
second argument challenges the idea according to which China is contribut-
ing to the fragmentation of the Internet (Guan, 2019; Lindsay, Cheung, and
Reveron, 2015) or paradigms as the Internet Yalta (Klimburg, 2013) and the
Digital Cold War (O’Connor, 2014).
The third argument of this this contribution highlights the China’s ambi-
tion to play a more pivotal role into the Internet governance discussion, as it
is demonstrated by the creation of the World Internet Conference, an original
space to foster and coordinate an alternative vision of the global Internet
governance.

CHINA AND ITU

There are at least two reasons to support the relevance of ITU for the Chinese
vision on the global Internet. First, in the field of telecommunications, it is an
international organisation that is not structured along multistakeholder lines
(Raymond and DeNardis 2013). Indeed, although it includes international
organisations, NGOs, firms and academic institutions in its decision mak-
ing processes, the main decision making powers on the regulation of inter-
national telecommunication are reserved to the ITU’s member states. The
preponderance of the member state’s contributions and their sovereign rights
to determinate Internet policies and regulation form the core of the “mul-
tilateral” model of Internet governance (Bauer and Dutton 2015). In other
words, the ITU approach is in line with the China’s idea of “Internet sover-
eignty” (hulianwang zhuquan) defined on December 2016 by the National
Cyberspace Security Strategy as states’ right to “prevent curb and publish the
online dissemination of harmful information endangering national security
and interests, and to safeguard order in cyberspace” (CAC 2016).
The second strategic reason behind China’s interest and growing presence
at the ITU is justified by the role played by a particular section called ITU-T
and aimed at coordinating standards for telecommunications and ICTs such
as cybersecurity, machine learning and video compression. Participating
in standards-setting at the global level provides several political and eco-
nomic advantages as Tim Rühlig’s chapter in this volume discusses in depth.
Previous studies argue that standards can seizure the definition of a particular
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China and Global Internet Governance 155

technology trajectory, the direction and, to some extent, the rate at which
future technology progress develops (Suttemeier and Yao 2008).
ITU and China relations are important also from a historical and symbolic
perspective. ITU is the first international organisation in the field of telecom-
munications. In 1994, it sent a delegation to China to support the country
in creating its first Internet telecommunication infrastructure, it also sup-
ported China to develop a know how among Chinese engineers in the field of
Information Communication Technologies through a series of ITU sponsor
seminars and workshops. At the time of writing, Zhao Houlin was serving
his second term as ITU Secretary General. Furthermore, during the last two
decades, China has increased its presence also in specific technical commit-
tees and secretariats. The presence of China in ITU is not limited to Chinese
officials but includes also important private sector actors such as Huawei.
The Shenzhen based company, played a crucial role in the proposal of a the
“New-IP” project, a choice that can be read as strategic because it sees a
direct engagement of a Chinese company to support a state-centric approach
in the standard setting process. At this concern, it should be also noted that
at the December 2020 plenary session of ITU-T Study Group 11 and 15 it
was decided to not accept “New IP” repeated questions as new work items
and to stop discussing “New IP” at least until the World Telecommunication
Standardisation Assembly that took in March 2022. However, since that deci-
sion documents that support “New IP” proposal continued to appear in forms
of new proposals in different study groups at ITU-T (Drolet 2022). Huawei
experience apart, the growing presence at Geneva headquarters of Chinese
delegates and sector actors in the last years suggests more confidence to
influence the decision making process at ITU compared to other standards
developing organisations such as IEFT and ICANN.
Beside private sector actors, important Chinese contributions to ITU
also come from the academic sector, including Tsinghua University, Wuhan
University and the Beijing University of Posts and Telecommunications. The
rising role of the Chinese academic sector at ITU is further illustrated by a
memorandum of understanding co-signed by ITU and Tsinghua University in
January 2019 aimed at launching the academic journal ICT Discoveries. This
is intended to promote academic debate on the latest ITCs technical develop-
ments and their policy, regulatory, economic, social, and legal dimensions.
In more general terms, at the time of writing the number of Chinese del-
egates in the telecommunications section of ITU (ITU-T) is second only to
the United States, and ahead of Japan (ITU, List of Sector Members 2022).
However, the presence of delegates in the ITU-T does not necessarily mean
a concrete influence. Indeed, within the working groups of ITU-T the role
played by chairs and vice chairs has more influence than delegates. At the
present stage, China has a chair position only in the SG16, a study group
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156 Gianluigi Negro

that focuses its activities on multimedia coding, system, and application

(Negro, forthcoming). Another important position is represented by the
vice-presidency in SG15, this working group actions are on networks and
infrastructure for transport, access, and home. The Chinese presence in
these working groups does not imply the adoption of technical standards.
Nevertheless, the contribution provided by Chinese companies, research bod-
ies and government delegates can impact the parameters and the negotiations
for the standardisation process.
China’s relationship with the ITU has deep historical roots. Having joined
officially in 1920, China sent its first delegation to the 1932 Plenipotentiary
Conference in Madrid. The Nationalist Chinese government also signed the
ITU Convention. In 1947, at the ITU Plenipotentiary in Atlantic City, China
was elected for the first time to the ITU Executive Council. Furthermore, in
the same year, Chinese was adopted as an official ITU language. After the
establishment of the People’s Republic of China, in line with the rest of the
UN system, the ITU continued to recognise the Nationalist Chinese govern-
ment in Taipei, until the changeover to Beijing in 1972. From that moment
Taiwan and the territories controlled by the Republic of China (ROC), has a
country code and are listed as “Taiwan, China.”
In terms of Internet governance, ITU played a very important role both
in terms of know-how and infrastructure sending a delegation to China in
1994, the year China was officially connected to the World Wide Web (Negro
2020). The results of this cooperation are summed up on the report of “China-
ITU Seminar for Strategy for Telecommunication Development” held in
Beijing between the 27th and the 30th of June 1994. From that year on ITU
supported China providing scientific funding and consulting in the develop-
ment of the Chinese Internet and telecommunications infrastructure. The
cooperation between China and ITU intensified in 2005 when the ITU-United
Nations supported initiative World Summit of Information Society (WSIS)
officially issued a definition of “Internet governance,” presented as “the
development and applications by governments, the private sector and civil
society, in their respective roles, of shared principles, norms, rules and deci-
sion making, procedures, and programs that shape the evolution and use of
the Internet.” The World Summit of Information Society was an ITU action
divided into two phases (2003 in Geneva and 2005 in Tunis), one of the most
important goals was to modify ICANN structure. Indeed, The Tunis Agenda
for the Information Society, the official document produced during the second
phase required to “enable governments, on an equal footing, to carry out their
roles and responsibilities, in international public policy issues pertaining to
the Internet, but not in the day-to-day technical and operational matters, that
do not impact on international public policy issues (WSIS, 2005, art. 69). The
WSIS initiative did not reach the expected results, its output was limited to
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China and Global Internet Governance 157

the creation of the Internet Governance Forum (IGF), an annual event based
on the idea of the multistakeholder approach, but with an only deliberative
power. Furthermore, after two years from the WSIS failure, in 2007, Zhao
Houlin, at that time president of the ITU Telecommunication Standardisation
Bureau, published a research article on the academic journal Information
Polity suggesting the break away from ICANN centralised administration of
Internet domain names to move towards the decentralised administration that
characterises other telecommunications naming and addressing resources (in
particular, telephone numbers) (Zhao 2007, see also Negro, 2022).
The two WSIS phases were seen strategic for China because they rep-
resented a chance to shift the management of the Internet resources from
ICANN to ITU, an international organisation with a closer vision to its idea
of internet sovereignty but it was also important for the ITU to gain support
from China and other developing countries to take over ICANN’s role in its
management of Internet resources.
This process represented a shift from earlier definitions of Internet gov-
ernance, focusing on the global technical management of the Internet’s core
resources: domain names, IP addresses, Internet protocols and the root server
system (Kleinwächter 2004). All these issues were already regulated by
ICANN, which it was established in 1998 thanks to the support of the US
Clinton-Gore administration, with the aim to support neoliberalist values
as well as a network of interests among the technical community, the US
government, intellectual property rights holders and other agents form the
private sector (Mathison 2009). There are at least two reasons that could
contextualise the neoliberalist approach. The first one is the publication of
the White Paper on Internet Governance issued by the Clinton administra-
tion, a document that influenced the creation of ICANN and focused on the
importance of individual freedom and on the protection of private property
and a commitment to economic laissez-faire (Harvey 2005). Furthermore, as
Chenou aptly notes, the Clinton administration issued another document a
few months before the publication of the White paper on which the authors
suggest an active role in the creation of new self-reliant markets (Chenou
2014). In other words, the main goal to create a neoliberal legal framework
of the Internet was the creation of a market for domain names where the
institutions and rules are designed to ensure the straightforward function-
ing of the market. The role of the institutions is to ensure the stability of the
network infrastructure and to safeguard private intellectual property (ICANN
& DoC, art II). According to this neoliberal approach the Internet needs to
be regulated by an individualised and market-based competition, which is
considered the most appropriate expression of governance compared to other
forms of organisation.
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158 Gianluigi Negro

The second reason that justifies the neoliberalist approach is the structure
of ICANN itself, which de facto does not support intergovernmental forms
of governance. Even its Governmental Advisory Committee appoints a non-
voting liaison to the ICANN Board. Whereas the ICANN board runs the
market-enabling institutional role supporting a private, transnational, and not
for profit cooperation.
The institution of ICANN reflected the phenomenon of “Internet excep-
tionalism” (Chenou 2014), justifying the decision to bypass the ITU. Indeed,
since its foundation, ICANN has overseen allocating top-level domains
(ccTLD). Finally, ICANN’s nature as a private company created a new mar-
ket for Internet domain names based on the self-organisation of the Internet
community, without the interference of government (Bygrave & Bing 2009).
To achieve its goal, China played an active role in the activities of the
Working Group on Internet Governance (WGIG), a platform created to col-
lect ideas and proposal, which eventually published a series of reports on
Internet governance during the two phases of the WSIS (Shen 2016). The
Chinese presence into WGIG did not only include Chinese official but also
private corporations like ZTE and Huawei.
During the two WSIS phases, Chinese delegations officially lamented how
“Internet governance was monopolised by one state, one corporation or a
handful of private corporations” (Sha 2003). Chinese authorities considered
the ITU and UN, as well as the events they sponsored, as the appropriate
venues to support voices from the Global South. The Chinese Ministry of
Information Industry stated at the first WSIS meeting that “developing coun-
tries, through their own efforts, explore development modes of information
society that suit their own national conditions, and China will work unremit-
tingly towards this end” (2003). It is interesting to note that already during
WGIG activities and the first WSIS phase, China adopted a pivotal role for
the Global South discussion in the field of the Internet governance.
If, sometimes, the Chinese approach to Internet governance seems incon-
sistent and sometimes even contradictory, its engagement with ITU and
WGIG in particular, can be considered rational. Indeed, the Chinese partici-
pation to WGIG activities reflects both an occasion to the Chinese govern-
ment to express its own view on Internet governance but also a moment to
obtain credibility within ITU. It also foreshadowed several key points that
would gain greater priority in the decades later. At a 2004 WGIG meeting,
Hu Qiheng, then advisor for the Science and Technology Commission of the
Ministry of Information Industry and vice president of the Chinese Academy
of Social Sciences, stated that “Internet governance and the administration of
the domestic Internet falls within the sovereignty of each country,” claiming
the interests of a state and its people are best represented by governments,
and that private sector and civil society actors cannot do so (2004; see Negro,
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China and Global Internet Governance 159

2020). All in all, during this stage, China clearly expressed its criticism
towards the status quo of the Internet governance. China kept on investing its
efforts on United Nations and ITU initiatives also after the two WSIS phases.
That said, ICANN is still one of the main international organisations in the
field of the Internet governance. This not necessarily means that the China
strategy has been unsuccessful. China’s contribution to the ITU has been ben-
eficial to the international organisation at least to challenge the role of ICANN
and to start an international discussion on Internet governance. Furthermore,
ITU is now one of the most important international organisations where
China can propose its own vision of Internet governance outside its borders
establishing forms of cooperation with other countries. The Chinese presence
into ITU technical sectors study groups is important because, although they
could not directly impact the operations of the Internet, they are relevant for
setting international standards in the global infrastructure of ICTs (ITU-T),
for managing radio systems (including satellite ownership and spectrum
allocation) (ITU-R) and for closing the digital divide providing technical and
capacity service for developing countries.

CHINA AND ICANN

The relationship between China and ICANN has not been particularly linear
and has evolved in four distinct stages. First, between the late 1990s and the
beginning of the new millennium. the China–ICANN relation was mainly
formal and inconsistent. Subsequently, during the 2000s, a series of conflicts
and contrasts led to a clear divergence of visions on global Internet gover-
nance. Third, from 2009 onwards, Chinese official delegations reintegrated
with ICANN. Finally, from 2016 on, after the IANA transition, which severed
ICANN’s formal links with the US Department of Commerce, China’s reac-
tion was largely positive and led to an ongoing discussion on how China can
enhance its position in the current ICANN arrangements.
The first official encounter between ICANN and a (nongovernmental)
Chinese delegation took place in 1999, five years after China officially
gained accessed to the Internet, Tsinghua Professor Wu Jianping was elected
a member of ICANN’s Address Supporting Organisation. The same year,
the deputy bureau director of the Ministry of Information Industry (MII)1
Chen Yin, represented China at the meeting of the ICANN Governmental
Advisory Committee (GAC), a body with a limited power in the Internet
domain politics.
Divergences emerged very soon, for two reasons. A first problem was the
formal acknowledgment of Taiwan as an independent country in the GAC
(Mackinnon, 2009), an agreement was reached in 2000 after ICANN also
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160 Gianluigi Negro

agreed to refer to the island as “Chinese Taipei” (ibid.). The second reason
involved a case where a Virginia court ordered the Chinese company Maya
to relinquish ownership of the CNNnews.com after a domain name squat-
ting complaint from CNN, even though Maya had legally acquired it from
a China-based domain name registrar. In response, China suspended official
delegations to GAC meetings from 2001 to 2009. However, this decision
did not compromise other engagements of Chinese individuals and Internet
operators (Shen 2016). Qian Hualin, deputy director of the China Internet
Network Information Center (CNNIC), China’s domain registry, served as
ICANN Board of Director from 2003 to 2006. Moreover, an ICANN meeting
took place in in Shanghai in 2002 with full support of the Internet Society of
China and CNNIC. It is interesting to note that although China government
officials did not take part to GAC activities, China played an active role
through the engagement to ICANN activities through the Internet Society
of China, one of its most representative nongovernmental organisations
with more of four hundred members in the field of industry and academia.
Even more interesting, this support took place at the same moment ICANN
formalised the creation of a Support Organisation to represent country code
interests in ICANN replacing the Domain Name Supporting Organisation
(DNSO)2 (ICANN, 2002). Due to these circumstances, it is possible to argue
that the Chinese engagement with ICANN remained ambiguous.
In 2009, China resumed participation in the GAC, while ICANN imple-
mented two important measures. The first measure was to reform the domain
space by allowing any established entity located everywhere in the world to
operate a new TLD registry (Zhu, 2012). This operation opened de facto the
domain name market with a global bid for the creation and management of
new general top-level domains (gTLDs) (Arsene, 2015) leading to an expan-
sion for the market and a reshuffle of the registrar and registry industry.
Chinese institutions such as MIIT and CNNIC supported Chinese companies
to occupy the new domain landscape limiting the entrance of foreign registries
such as Verisign and Neustar and transnational registrars such as GoDaddy
and Tucows. The Chinese rush to occupy a reformed domain market can be
justified not only by a protectionist move by the Chinese institutions but
also by the spending power of Chinese registrars and registries. Obviously,
this phenomenon was beneficial to ICANN. This historical change reveals a
contradiction in the Chinese Internet governance strategy. On the one hand,
Chinese officials during the two WSIS phases, lamented the unilateral US
management (ICANN in particular) in the field of Internet resources; on
the other hand, with huge and fast investments into the new domain names
market China privileged the private interests of its registrars and registries
supporting the ICANN market driven approach. The economic impact of this
first measure was clear in 2016, that year China covered 54 percent of global
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China and Global Internet Governance 161

domain names with new gTLD extensions, with an increase of 400 percent
between 2013 and 2015 (CNBC, 2016).
The second measure was that ICANN created “internationalised” TLDs in
non-Roman letter scripts. This new scenario opened a new market for Internet
addresses, amongst others in Chinese characters, with significant economic
potential.
It also should be noted that, even before the IANA transition, China
strengthened its cooperation with ICANN. In 2013, the 46th ICANN meet-
ing took place in Beijing, then the most-attended event in terms in ICANN’s
history. At that occasion, the GAC issued the Beijing Communiqué, a docu-
ment outlining a series of “safeguards” on top-level domains and suggesting
“a public requirement” for the approval of new “exclusive registry access”
gTLDs (ICANN, GAC, 2013). Also, in the same occasion, ICANN opened its
first Engagement Centre in Beijing in order to strengthen collaboration with
Chinese authorities (ICANN, 2013). Interestingly, the announcement was
made by Hu Qiheng, the Chinese scholar who during a WGIG event in 2004
had criticised ICANN for its lack of transparency and attention to the Global
South. Subsequently, the MIIT’s China Academy of Telecommunications
Research concluded a Memorandum of Understanding in 2014, on expanding
communication between ICANN and Chinese institutions (ICANN, 2014).
Even so, it remains difficult to quantify China’s presence in ICANN. At
the present stage, Chinese actors not only participate in ICANN initiatives
but also rhetorically support its role. For instance, Nanni notes how despite
a low profile during the stewardship IANA transition, China expressed pub-
lic support to ICANN and multistakeholder model. An interesting case is
provided at ICANN50 by Lu Wei, at that time Ministry for cyberspace. That
event took place in London in 2014 and can be considered one of the start-
ing points of the IANA stewardship transition (Nanni, 2021). After the IANA
stewardship transition, the discussion became more articulated at least at the
academic level. It is possible to find both scholars who suggest an alterna-
tive path of global Internet governance in which China create new areas and
platform to develop its global internet governance vision (Li & Zeng, 2019)
and other academics who suggest a more direct engagement of China into
ICANN activities (Lin & Ren, 2017). From an institutional perspective, it is
worth noting that, right after the transition, Guo Feng, China’s governmental
representative, was appointed vice chair of ICANN’s GAC.
Reviewing China’s participation at ICANN’s activities, Lin and Ren two
Tsinghua scholars who publish their commentaries also on CCP news portal
diagnose a lack of consistent strategy, poor organisation and fragmented
participation. Their study suggests that first, ICANN governance is based on
bottom-up process, so its decision making process differs from UN organisa-
tions like ITU. China has not accepted this difference. Second, both before
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162 Gianluigi Negro

and after the break in ICANN GAC relations, China has always participated
passively, and Chinese technical contribution has always been very limited.
Third, the above mentioned withdrawal from GAC from 2001 to 2009 had a
very negative effect in the global discussion on Internet governance (Lin &
Ren, 2017).
The IANA transition presented an important step to develop a new Chinese
approach on Internet governance. Indeed, the two Chinese scholars suggest
moving away from a vision juxtaposing the multistakeholder versus multilat-
eral model, as these two models are not necessarily in conflict. This requires
the Chinese government to play a role in the background, leaving more space
to technicians, engineers, scholars and think thanks. Furthermore, the transi-
tion opens space to replicate the same pattern of Chinese participation in
the ITU that is increasing the engagement in terms proposals addressed by
delegates and technicians. To enhance China’s role in ICANN, they advo-
cate a more active Chinese presence at ICANN activities as well as a more
defined and leading role in the ICANN governance through the organisation
of ICANN sponsored meetings. This process requires the creation of a com-
petitive national network of technicians and engineers serving to increase
Chinese influence on the global internet discussion through to the develop-
ment of new theories, initiatives, and actions. They maintain an optimistic
view on the overall role ICANN, which will become an increasingly inclusive
and open organisation (jiang chengwei yige yue lai yue kaifang baorong de
guoji zuzhi). Despite the two scholars’ optimism, there are no concrete evi-
dences and suggestions on how Chinese new theories, initiatives, and actions
will be implemented.

CHINA AND THE WORLD INTERNET CONFERENCE

China’s approach to global Internet governance has not remained limited

to joining existing processes and institutions, it is also increasingly taking
initiatives to develop an original Chinese vision through the creation of its
own platform and a direct engagement of foreign companies and high-level
representatives of international organisations. A watershed moment hap-
pened in 2014 with the establishment of the Cyberspace Administration of
China and the first edition of the World Internet Conference in Wuzhen. This
annual event supports the Chinese vison to create an alternative framework
on global Internet governance through the elaboration of new values such as
“cyber sovereignty,” through an inclusive approach addressed especially to
the developing countries form the Global South, enriched by the dedicated
project as the “Digital Silk Road,” and through the engagement of interna-
tional corporations and former ICANN delegates. Illustratively, the “Wuzhen
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China and Global Internet Governance 163

Declaration” presented at the first edition effectively was a draft joint state-
ment supporting the idea that every nation has its own right to develop, use
and govern the Internet as it sees fit. The document was criticised in circles
such as the Internet Governance Forum Members Advisory Group (Aizu
2014) not only because of its content but also because it was slid under the
doors of attendees’ hotel doors the last night before the closing ceremony.
At the second World Internet Conference, Xi Jinping presented once again,
his vision of “cyber sovereignty” according to which the global Internet
governance should “respect the right of individual countries to independently
choose their own path of cyber development, model of cyber regulation, and
internet public policies, and participate in international cyberspace gover-
nance on equal footing.”
Furthermore, the World Internet conference was an important occasion to
present to an international audience a new Chinese international governance
theory based on Five Propositions (wu dian zhuzhang) (respect for cyber
sovereignty, maintenance of peace and security, promotion of opens and
cooperation, cultivation of good order) to create a cyberspace of shared des-
tiny through the advancement of Four Principles (si xiang yuanze) (speed up
the building of global Internet infrastructure and promote inter-connectivity;
build an online platform for cultural exchange and mutual learning, promote
innovative development of cyber economy for common prosperity, maintain
cyber security and promote orderly development).
The role of the World Internet Conference was to challenge the status
quo of the global Internet governance, and to propose a Chinese-led alter-
native to many countries. The organisers claimed that in 2015, “the World
Internet Conference became truly global” through the engagement over of
two thousand delegates form 120 countries and 20 international organisa-
tions (Thussu, 2018). Furthermore, compared to the “Wuzhen declaration,”
the “Wuzhen Initiative 2015,” the official document published at this second
World Internet Conference, supported a more inclusive and cosmopolitan
approach to justify the Chinese vision on cyber sovereignty. Indeed, accord-
ing to Shi, the second edition of the World Internet Conference expresses a
vision that softens the nationalistic approach of China’s advocacy on cyber
sovereignty, whereas it highlights new keywords and expression such as the
call to build “a community of common destiny, a concept that intertwines
the classical Chinese philosophy of Tianxia (all under Heaven) with the
Euro-American concept of cosmopolitanism” (Shi, 2017). If the “Wuzhen
declaration” mainly reflects the need to defend cyber security and intellec-
tual property, the “Wuzhen Initiative” at least from a narrative point of view,
invests on the idea of co-governance, which can be considered a basic feature
of the community of common destiny. In 2015 the Chinese government also
issued a white paper introducing the idea of the “Information Silk Road,” a
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164 Gianluigi Negro

strategy framed within the Belt and Road Initiative (BRI), aimed at creating
synergies with BRI countries on emerging technologies for development
and trade (Shen 2018; Bora 2020). The “Information Silk Road” was further
elaborated into the concept of “Digital Silk Road” during the fourth World
Internet Conference in 2017. A document published at this conference was
co-signed by BRI partners like Laos, Egypt, Turkey, Thailand, Saudi Arabia,
and Serbia outlining specific components focused on the improvement of
broadband access, the promotion of digital technologies, the development
of e-commerce capabilities and the promotion of international standards.
Although some studies argue that the formalisation of these initiatives was
below Beijing exceptions (Triolo et al. 2020), the World Internet Conference
had a leading role in promoting Chinese global ambitions aimed at mitigating
industrial overcapacity, facilitating corporate China’s global expansion, con-
structing a China-cantered transnational network infrastructure, and promot-
ing an Internet-enabled “inclusive globalisation” (Shen 2018). These goals
have not been achieved yet also because of COVD-19, US-China trade war.
The WIC has also sought to attract high-profile participants. Previous
ICANN CEO Fadi Chehadé became co-chair of the event’s oversight com-
mittee in 2016. In 2017, Apple made its first appearance at the conference
as its CEO Tim Cook gave a keynote speech. A Qualcomm senior officer
hold a speech on the future of 5G standards and Artificial Intelligence. Even
Bob Kahn, who is considered one of the fathers of the Transmission Control
Protocol (TCP) and Internet Protocol (IP), delivered a speech at the event.
The appointment of Mr. Chehadé, as well as the engagement with US pri-
vate corporations, can be interpreted as an effort to improve the reputation
of the event at the international level but also as an attempt to facilitate the
discussion with Western agents in the field of global Internet governance.
This effort is further illustrated by more recent appearance of ITU delegates
at the World Internet Conference. In 2017 ICANN delegate Sally Costerton
considered an opportunity “to interact with different stakeholder groups to
raise awareness of ICANN and multistakeholder model” (Costerton 2017).
In 2019, Malcolm Johnson, ITU Deputy Secretary, delivered a speech in
which he clarified that ITU counted on China as a major partner, reiterating
its gratitude to the Chinese government for its strong support to ITU (ITU
2019). At the present stage, there is not empirical evidence about concrete
changes in the global Internet governance caused by the past editions of
the World Internet Conferences. However, it still important to note how the
international engagement has been growing at least until the fifth edition of
the event. Indeed, in 2018 the conference registered the direct engagement
of five international organisations such as the United Nations Department
of Economic and Social Affairs, the ITU and the World Intellectual Property
Organisation. Beside the political dimension, it also should be noted that that
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China and Global Internet Governance 165

from the fifth edition, the World Internet Conference host collateral events
addressed to the private sector. This is the case of “The light of the Internet
Expo” an international event hosted in Wuzhen during the World Internet
Conference, joined by more than eighty enterprises and aimed at facilitating
the exchange between Internet companies. Also in this case, although these
initiatives do not concretely impact the development of Internet governance
neither in the narrow or broader sense, they are still useful to see how China
has increased its confidence at the international level also in the field of the
Internet and its willingness to actively influence its future trends.
It remains to be seen whether the World Internet Conference will maintain
its global ambition and attractiveness at the international level. Even before
the US-China trade and the COVID-19 pandemic, the conference experi-
enced a decrease in terms of attendees, especially from America’s biggest
tech companies (Lahiri 2018). That said, the World Internet Conference can
still be seen as a Chinese attempt to propose an alternative platform aimed
at presenting its vision of Internet governance raising its discursive power
in this specific domain (xianshi chu zhongguo zai hulianwang lingyu huayu
quan de tigao) (Li and Zeng 2019).

CONCLUSION

This chapter presented three different arenas in which China engages with
global Internet governance discussions: ITU, ICANN, and the World Internet
Conference. ITU is still the international organisation that most reflects
China’s preferred views, based on the concept of cyber-sovereignty and the
role of the state. It this sense, it should not be surprising the fact that, at the
time of writing, China’s presence at ITU is relevant. Indeed, beside the presi-
dency of Mr. Zhao as secretary general, two study group of the ITU-T are
chaired by Chinese delegates.
However, ICANN is still one of the most important international organisa-
tions with a higher impact of the global Internet governance. This chapter
shows how China changed its relations moving from a lack of official of com-
munications, refuting to send its delegation to join GAC meetings to develop
new forms of cooperation like the establishment of the first Engagement
Centre in Beijing aimed at facilitating the collaboration Chinese authorities
in 2013 but also expressions of public support to ICANN and the multistake-
holder model like it happened during ICANN50 in London. This shift is
important because it is now possible to argue that China has largely accepted
the role of ICANN, suggesting its vision on global Internet governance is
more complex than the simple notion of interstate multilateralism.
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166 Gianluigi Negro

Finally, this chapter argues that to further promote its own vision, China
created the World Internet Conference as a new platform for discussion that,
in eight years, shifted its approach from the promotion of a defined vision
on cyber sovereignty to the support of a more inclusive and less normative
approach. Indeed, after the case of the “Wuzhen declaration,” most of the
topics discussed in the last editions of the annual World Internet Conference
emphasise keywords such as “mutual trust” and “collective governance,”
more in line with the current multi stakeholder model and, at least apparently,
in contrast with the “cyber sovereign” (Shi 2017). That said, we still need
time and empirical evidence to understand to what extent this attitude will be
concrete and sincere.
These three arenas and their relations with China remain uncertain espe-
cially after the US–China trade war and the COVID-19 pandemic. Coming
to the ICANN case, this article shows how the debate on the China’s role is
polarised: if, on the one hand, two influential Chinese scholars on ICANN
and close to the CCP’s line suggest a more active role, others support the idea
of an alternative platform as the World Internet Conference, which, however,
witnessed a decrease of engagement from US companies in the last few years
because of COVID-19 and US–China trade war. All in all, although China
raised its voice, presence, and activities in the global discussion, it still has
not changed the status quo of the global Internet governance. In the coming
years it will be crucial to see further developments of the Chinese presence
within ITU, its contributions in the field of new standards recommendations
as well as its role in influencing different working and study groups. This
new stage will not see the engagement of Mr. Zhao Houlin who ended its
second mandated in September 2022. At the same time, it will be interesting
to note how ICANN–China relationships will develop both in China and at
the international level and whether China will maintain its positive attitude
on multistakeholder model. Finally, the new editions of the World Internet
Conferences will tell us whether its role will remain focused on a discursive
domain or whether (and eventually how) it will gain a real and concrete
power in the global Internet governance process.

NOTES

1. In 2008 it became Ministry of Industry and Information Technology (MIIT).

2. One of the three supporting organisations called for in the ICANN Bylaws.
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China and Global Internet Governance 167

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Chapter 8

Becoming a Cyber Superpower

China Builds Offensive Capability
with Military, Government,
and Private Sector Forces

Mei Danowski

Over the past thirty years, China’s information and communications technol-
ogy (ICT) sector has seen explosive growth. China has become the world’s
largest ICT exporter since 2004 (Ning Lutao 2009). The ICT sector is also
the largest manufacturing sector within the Chinese economy, representing
55 percent China’s GDP in 2021­(China—Technology and ICT 2022). As
China’s ICT sector grows, so has China’s investment and focus on cyber-
security. The three-year (2021–2023) cybersecurity industry development
plan, published in July 2021 by China’s Ministry of Industry and Information
Technology (MIIT), aimed to grow the industry to $39 billion by 2023, over
15 percent compound annual growth rate (Xiong Xinyi Zhang Hongpei
2021). China’s pursuit of offensive cyber capability parallels the development
of the country’s ICT. Both developments are part of China’s goal of becom-
ing a “cyber superpower (wangluo qiangguo),” which China defines as being
on a par with the United States in cyberspace (Kania, Sacks, Webster, and
Triolo 2017).
There are many definitions of offensive cyber capabilities. This paper
defines a nation state’s offensive cyber as the capability of breaching an
adversary’s computer systems to carry out disruptive, destructive, or psycho-
logical effects in cyberspace to achieve strategic goals (Moor, 2022; Austin,
Tay, and Sharma 2022; Smeets and Lin 2018; JP3-12 2018; Zetter 2022). This
definition can include surveillance carried out to facilitate military action but,
for the purpose of this paper, does not include purely cyber espionage that
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benefits China’s economy more broadly, except those intelligence preparation

for offensive activity. A nation state building its offensive cyber capabilities
seeks to acquire “resources, skills, knowledge, operational concepts and pro-
cedures” that enable it to have an effect in cyberspace, as stated in a study
from the Australia Strategic Policy Institute (Uren, Hogeveen, and Hanson
2018). China has been developing information warfare doctrines since the
1980s (Defense Refence 2016). However, it was the self-described “cyber-
war” in 2001, waged by Chinese patriotic hackers against countries perceived
to be doing harm to China (Smith C. 2001), that likely alerted Chinese leaders
they needed to develop offensive capabilities they could control in line with
their strategic priorities and superpower goals.
The Chinese military has been at the epicentre of China’s offensive
capability development, with the highest concentration of offensive cyber
capabilities reside and important doctrinal development since the 1990s and
concrete reforms since 2011. However, equally important are the efforts of
other government agencies and of private individuals and companies who
cooperate with the military. The patriotic hackers of 2001 eventually became
private entrepreneurs and powered China’s most innovative ICT develop-
ments (CCTV 2017). They have become valuable resources for building
Chinese offensive capabilities as well, for example, through the cyber militia
force building effort that began in the mid-2000s. These private companies
develop valuable tools for military use through the nation’s civil-military
fusion strategy. Private cyber security companies do their part by discovering
vulnerabilities and developing exploits, flaunting their capabilities at compe-
titions such as the Tianfu Cup. Over time, China built up its offensive cyber
capabilities by utilising a variety of human resources, from military and gov-
ernment personnel to civilian technology companies and other entrepreneurs.
Chinese military strategists have acknowledged the country’s diverse
cyber warfare forces, as evidenced by the 2013 version of the Science of
Military Strategy, which outlined the basic structure of Chinese offensive
cyber capabilities (Science of Military Strategy 2013). The book states that
the popularity of the internet and the characteristics of military and civilian
use determine the diversity of cyber offensive and defensive forces. China has
three types of cyber warfare forces, according to the book (Military Strategy
Institute, Military Battle in Cyber Domain 2013):

• Military combat forces specialising in cyber offensive and defensive

operations. The book describes as professional military cyber warfare
forces (jundui zhuangye wangluozhan liliang).
• Forces that specialised in cyber warfare and are formed within rel-
evant government departments, such as the Ministry of Public Security
(MPS) and the Ministry of State Security (MSS), and some other
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Becoming a Cyber Superpower 173

PLA-authorised local forces. The book calls these “PLA-authorised

forces (shouquan liliang).”1
• Individuals and entities, including private sector companies, carry out
network attacks and defence when they are needed. The book refers
to these civilian forces (minjian liliang) as “spontaneously” engaging
in network attack and defence but can be organised and mobilised to
conduct network operations. As we describe below, the private sector
companies contribute to Chinese offensive capability either under con-
tract with military and government or by developing capabilities that are
brought to the military’s attention and subsequent use.

The three types of cyber warfare forces display a clear picture of the dif-
ferent roles that military, government, industry, and hacker communities play
in China’s cyber warfare capabilities.

BUILDING CYBER FORCES ONE STEP AT A TIME

Cyber warfare is a subset information warfare, according to Chinese military

doctrine (Qian Fengshui 2004; ISCCC n.d.). Information warfare, including
cyber, electronic, intelligence, and psychological warfare, has been a con-
cern for the Chinese military since at least the late 1980s, before the internet
was publicly available (Defence Refence 2016; Intelligence Warfare 2022).
Chinese military strategists presented the concept of information warfare (IW)
as a direct result of the dawning information era (Pan Ting 2005). However, it

Figure 8.1. In the Chinese context, China building its offensive capability is part of its
cyber warfare capability under the umbrella of information warfare.
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was purely theoretical. Chinese Army Major Shen Weiguang published “The
Rise of Information Warfare” in the People’s Liberation Army (PLA) Daily
on April 17, 1987, and published the book Information Warfare (xinxi zhan)
in 1990. The book claimed the dawn of the information era would inevitably
lead to information warfare. Unlike conventional conflicts, such a war would
be waged on the battlefields of information network systems, using informa-
tion weapons that can both destroy enemy information systems and influence
the psychology of the adversary’s population. The book calls for utilising
information technology to complement military weaponry and equipment and
for “occupying the high ground” in the battlefield of the information war (Li
Qingshan 2002; Krekel, Adams, and Bakos 2012).
Events around the turn of the millennium convinced Chinese leadership
of the need to develop information warfare capabilities they could control.
In 1996, internet access became officially available to the public in China
(Evolution of Internet in China 2001). Shortly after that, from 1999 to the
early 2000s, during times of geopolitical tension, Chinese patriotic hackers
waged what they termed a “cyberwar” against official websites in the United
States, Japan, and Taiwan with disruptive denial-of-service (DoS) attacks or
rudimentary website defacements (Aljazeera 2022). These state-encouraged
patriotic hackers carried out their own form of offensive cyber operations
to defend China against a perceived “attack.” For example, in April 2001, a
Chinese PLA Navy fighter jet pilot died in a mid-air collision with a US spy
plane (CNN 2001). The infamous Honker Union hacker group led disruptive
cyberattacks targeting hundreds of US websites, including those of the White
House and California Department of Justice (Harris 2001). Interestingly, the
Chinese government sometimes distanced itself from these hacktivists, claim-
ing to disapprove of their operations. The People’s Daily, China’s Communist
Party (CCP) newspaper, called these activities “web terrorism” and “unfor-
givable” (Smith, C. S. 2001). This is likely because the government wanted
to have more state-controlled offensive capabilities. Since this was the first
time the government denounced patriotic hackers openly, it likely wanted to
portray the patriotic hackers as having gone out of control and to deny any
government encouragement. The government remained silent on activities
conducted by patriotic hackers previously, such as when they tried to “take
down North Atlantic Treaty Organisation (NATO) networks” after NATO
bombed the Chinese Embassy in Belgrade in 1999 (Wired 1999). The leader
of the Honker Union claimed they had “achieved” their goal and called for an
end (Smith, C. S. 2001). Hacktivism activities in China gradually died down
after 2002. Though it reined in the patriotic hackers, the Chinese govern-
ment seemed to realise the importance of offensive cyber capability, judging
from subsequent government policy statements and actions. From then on,
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Becoming a Cyber Superpower 175

the Chinese government undertook a concerted effort to develop personnel

structures and resources for offensive use.

CYBER MILITIAS: A CYBER WARFARE RESERVE

FORCE FOUNDED ON TECHNOLOGY COMPANIES

China started to experiment with using civilian resources, particularly the

capabilities of technology companies, to build cyber militia forces as early as
2005. Some of these companies were founded by the same patriotic hackers
who were involved in the self-claimed “cyberwar” only a few years earlier
(Beech 2013). Building cyber militia forces was one of the efforts.
In 2005, the PLA organised a cyber militia unit at Chinese technology
company Nanhao Group, located outside Beijing. This remained secret at
first, only reaching the public in a 2011 Financial Times (FT) article (Hillie
2011). The cyber militia unit consisted of two groups tasked with offensive
and defensive cyber operations. By participating in cyber militia forces,
technology companies could “become part of the information warfare com-
plex,” in Hillie’s words (2011). Some Chinese internet experts commenting
on the 2011 FT report, speculated that companies like Nanhao Group did
not conduct cyber operations with advanced techniques and likely carried
out only “entry-level” network attacks such as HTTP flooding distributed

Figure 8.2. The timeline of China building offensive cyber capability suggests doctrine
and strategy development and force capability development have been parallel over past
three decades while China putting its capability into practice happened more recently
over last six years.
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denial-of-service (DDoS) attacks (Wu Yu 2011), the cyber militia unit at

Nanhao group indicates the beginning of the cyber militia experiment.
The doctrinal justification for cyber militias appeared in public only after
this secret experiment. In 2006, three officers from the Jiangsu Provincial
PLA command’s mobilisation department published a paper in National
Defence, the magazine of the Academy of Military Science (AMS), suggest-
ing the establishment of cyber militia units within ICT companies and sci-
entific research institutions. The paper detailed the proposed cyber militias’
missions, construction, and operations. Tasks included “stealing, changing,
and erasing data” on enemy networks and intruding into those networks with
the goal of “deception, jamming, disruption, throttling, and paralysis” (Li
Guoqiang 2006).
As China’s cyber security industry continued expanding, Chinese gov-
ernment statements again focused public attention on cyber militias. In
November 2017, for example, PLA Daily reported that Harbin Garrison
Commands, an armed police force, established a cyber militia unit at Antiy
Technology company (Antiy), a leading cyber security company located in
Harbin (Qin An 2019). The armed police forces are parts of the PLA, which
are established in major cities in charge of military mobilisation and security
(Armed Police Force 2021). In Antiy’s case, its co-location of a cyber militia
unit within a technology company was a clear example of military-civilian
cooperation to build cyber capabilities.
In January 2019, Qin An, the director of the China Institute for Cyberspace
Strategy (Zhongguo wangluo kongjian zhanlue yanjiu suo) discussed how
China should learn from the US experience to build a cyber militia force (Qin
An 2019). Qin referred to the US Navy’s Navy Cyber Warfare Development
Group (NCWDG) reserve unit, inaugurated 4 January 2019, whose stated mis-
sion is to draw on reservists’ skills to help the NCWDG research and develop
cyber, cryptologic, and electronic warfare capabilities (Naval Technology
2019). Qin pointed out that the NCWDG reservists were not formally part of
the military but bolstered US cyber warfare capabilities. In addition, Qin cited
US classified documents that former intelligence operative Edward Snowden
had leaked, saying that most of the major US technology companies repre-
sented a military reserve force for the United States. Qin stressed that China’s
cyber militia efforts had lagged by comparison. China’s cyber warfare reserve
force should play a critical role in times of political, economic, and military
“complexity,” Qin wrote, referring both to confronting foreign adversaries
and maintaining domestic order (Qin An 2019).
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Becoming a Cyber Superpower 177

INFORMATION WARFARE PLAN INTO ACTION

The world became aware of China’s development of offensive cyber forces

only in 2011 (Martin 2011), although as discussed previously, the country had
begun developing private sector “cyber militias” since the early 2000s. The
Chinese People’s Liberation Army (PLA) publicly announced an “experi-
ment” with building cyber forces in 2011.
In June 2011, the PLA built a “cyber blue team” that it said would help
“safeguard internet security.” It issued a statement saying, “internet safety
has become an international issue” and noting that China suffers internet
attacks from abroad (Martin 2011). As Western media questioned whether
the cyber blue team could be an offensive force, People’s Daily quoted the
military experts’ comments with the intent to clarify the official line. Major
General Luo Yuan, deputy secretary-general of the Chinese AMS, said that
the cyber blue team was just a code name for military training focused on
cyber defence. Li Li, a military expert at China’s Defence University, said
that compared with the cyber forces of western countries, China’s cyber blue
team was in its infancy. It was not so much an organised and large-scale
cyber warfare force but a military training model for “online confrontation”
(wang shang duikang) (Guo, Gu, and Wu 2011). Traditionally, the cyber
security industry defines a blue team as a team that plays a defensive role to
defend against attacks while a red team plays an offensive role as attackers by
finding vulnerabilities and breaking through cyber defence (Red Team/Blue
Team Approach n.d.). Li’s description about the online confrontation training
model suggests a red team or an offensive team likely existed but the govern-
ment did not publicly disclose its existence.
In the meantime, Chinese military strategists studied operational concepts
and outlined procedures for cyber warfare including offensive cyber opera-
tions. In 2013, the AMS published a new version of the Science of Military
Strategy (zhanlue xue) (Military Strategy Institute, The Science of Military
Strategy 2013). It was the first time that a Chinese military publication
addressed cyberwarfare holistically (Lyu 2019). The book recognised cyber
offensive and defensive operations as the most important form of military
battle in the cyber field. It stated that the main purpose of offensive and
defensive network operations is to destroy the enemy’s network systems and
network information, while protecting one’s own network system and net-
work information. Whether conducting defensive or offensive cyber opera-
tions, the book posited, practitioners need deep familiarity with the working
principles of the network they are either defending or attacking. They need
to be able to access a specific network system, discover the defects and vul-
nerabilities in the system, and either exploit the vulnerabilities quickly, in
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an offensive setting, or patch them, in a defensive setting (Military Strategy

Institute, The Science of Military Strategy 2013).
A high point in the development of information warfare came in September
2014, when Chinese President Xi Jinping, who also headed the Central
Military Commission, officially called on the military to develop “a new
military doctrine, institutions, equipment systems, strategies, tactics and man-
agement models” for information warfare. Xi called for promoting military
innovation, changing “fixed mindsets” of traditional warfare, and establish-
ing “the ideological concept of information warfare” (China Daily 2014).
Following Xi’s call for an information warfare plan, in May 2015, China’s
Military Strategy white paper emphasised the urgency of the development of
cyber forces, “as cyberspace weighs more in military security” (State Council
Information Office 2015). This military strategy white paper heralded the
coming of PLA Strategic Support Force, a new combat force.

Strategic Support Force: An Organised Cyber Force

Xi Jinping’s vision for national defence and military reforms, including the
development of cyber forces, resulted in the creation of the PLA Strategic
Support Force (SSF) on December 31, 2015. The SSF consolidated the PLA’s
space warfare (taikong), signals intelligence, network offense and defensive
cyber operations (wangluo gongfang), and electronic warfare (dianzi duikong)
capabilities (Qiu Yue 2016). The core of SSF was described as a “new quality
combat capability” (xinzhi zuozhan nengli) and “information system-based
system of systems operational capability” (jiyu xixin xitong de tixi zuozhan
nengli) (People’s Daily 2015).2 Chinese official military commentators have
portrayed the SSF as an “information umbrella” (xinxi san) for the military
system that provides “accurate, efficient, and reliable information as well as
strategic support” (Qiu Yue 2016). The SSF regrouped operational units from
the former General Armament Department (GAD) together with the network
systems, electronic warfare, and technical reconnaissance department of the
former General Staff Department (GSD). The SSF’s establishment indicates
the Chinese government’s resolution to have an “informatised” (xinxi hua)
and “world-class” military that can prevail in modern information warfare
(Lin Kongshi 2016). The SSF’s primary missions and functions—to provide
information support, information warfare, and force development—and its
organisation and personnel structure suggest that the SSF plays a leading and
perhaps coordinating role in the PLA’s cyber operations.
After its establishment in the tail end of 2015 the SSF conducted the
Equifax data breach from May to July 2017. Although this cyber intrusion
did not have the nature of a destructive or disruptive attack, the large volume
of the data the PLA hackers obtained likely provided intelligence for future
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Becoming a Cyber Superpower 179

cyber operations. The US Department of Justice (DOJ) charged four members

of the Chinese PLA in this case, which was only the second time that a DOJ
indicted Chinese military personnel for hacking since 2014 (Department of
Justice 2014).
On February 10, 2020, the DOJ unsealed an indictment charging four
members of the Chinese PLA with hacking into the computer system of the
credit reporting agency Equifax from May to July 2017 (DOJ 2020). The
indictment states that the four PLA hackers were members of the PLA’s 54th
Research Institute. These four PLA hackers obtained 145 million items of
personally identifiable information (PII) of Americans, 10 million Americans’
driver’s license numbers, 200,000 credit card numbers, and other PII. In addi-
tion, the PLA hackers obtained close to 1 million pieces of PII belonging to
United Kingdom and Canadian citizens (DOJ 2020).
The indictment stated that the four PLA hackers were “member of the
PLA’s 54th Research Institute, a component of the Chinese military.” Judging
the PLA’s organisation structure, the “PLA’s 54th Research Institute” likely
refers to the SSF’s 54th Research Institute, formerly the PLA GSD Forth
Department’s 54th Research Institute (Stokes, Lin, and Hsiao 2011).
Further research indicates that the PLA’s SSF 54th Research Institute also
operates in civilian guise as the Beijing-based Northern Research Institute
of Electronic Equipment of China (Zhongguo beifang dianzi shebei yanjiu
suo) (NRIEEC). A biography of a deputy director of the 54th Research
Institute, appearing in a Chinese-language website from the Harbin Institute
of Technology Alumna Association includes one of his job titles as “Deputy
Director of Northern Institute of Electronic Equipment of China (GSD
54th Research Institute)” (Harbin Institute of Technology Alumni Assoc
2020). Chinese-language internet searches yield little information about the
NRIEEC. Searches in Chinese-language business information repositories
have not produced any business registration information either. It is a com-
mon practice for Chinese military research institutes to have equivalent civil-
ian sounding institute names to disguise military affiliations (Sharma 2018).

CIVIL MILITARY FUSION STRATEGY:

BUILDING OFFENSIVE CYBER CAPABILITIES
IS NOT JUST A MILITARY EFFORT

China leapt into the internet era in the early 2000s when many Chinese tech-
nology companies sprang up. As described above, although the Chinese gov-
ernment initially denounced the actions of early patriotic hackers as “overly
enthusiastic,” these same hackers later became part of the establishment
after their started companies as entrepreneurs (Tencent Security Labs 2017).
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China’s leaders encouraged them to become part of the establishment, recog-

nising the importance of the dual use of technologies and attracting civilian
forces to build cyber capabilities with military benefits.
When Xi Jinping called for an information warfare plan in 2014, he urged
the integration of military and civilian innovation so the two sectors could
accommodate each other and develop together (China Daily 2014). After
the military reform gradually rolled out beginning in 2016, China elevated
its military-civil fusion strategy to a new level with the establishment of
the Central Commission for Integrated Military and Civilian Development
(Zhongyang junmin ronghe fazhan weiyuanhui) in 2017, led by Xi Jinping.
On June 20, 2017, Xi Jinping spoke at the first plenary meeting of the new
commission. According to the official Xinhua news agency, Xi said China’s
civil-military fusion policy should “value socialism’s advantages of pooling
resources to solve major problems and improve work efficiency.” Xi said,
“The ideas, decisions, and plans of military and civilian integration must be
fully implemented in all fields of national economic and defence construc-
tion,” including cyberspace (Xinhua News 2017).
Under the civil-military fusion strategy, many companies, particularly cyber
security companies, were recruited or actively participated in various civil-
military fusion projects. Companies such as Antiy Technology Group Co.,
Ltd. (antian keji), were named as part of the national team of cyber security. A
PLA unit recognised Antiy for providing technical support and network secu-
rity services during a satellite launch (Antiy 2021). In addition, leading cyber
security companies such as Qihoo 360 Technology Co. Ltd (China National
Radio 2017), Beijing Zhidaochuangyu Information Technology Co. Ltd
(Knwonsec n.d.), NSFOCUS Technologies Group Co. Ltd (Allia Z-Park Joint
Innovation Civil-Military Integration Equipment Industry Alliance 2021), Qi
An Xin Technology Group Inc (Qianxin Innovation Teams n.d.), and Topsec
Technologies Group Inc (Topsec Tech Group 2018) have military-civil fusion
centres or participate projects related to China’s military-civil fusion strategy.

From “All People Are Soldiers” (quanmin jie bing) to

“Extremely Lean” (ji qi jinggan): Cyber Combat Forces
Require Highly Skilled Personnel
As noted above, the PLA reorganisation resulted in the creation of an organ-
ised and large-scale cyber warfare force, the Strategic Support Force (SSF).
The military-private sector fusion strategy provided a channel for ICT com-
panies to participate in projects, which enhance the military’s cyber warfare
capabilities. The development of the cyber militia force likely turned some
ICT companies into part of the cyber warfare complex. As an integral part
of this complex, highly skilled ICT practitioners have been indispensable in
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Becoming a Cyber Superpower 181

building China’s cyber combat forces because they are extremely capable
forces, as in the example of Chengdu 404, below.
The authors of the 2013 Science of Military Strategy noted that cyber war-
fare has a “broad mass base (qunzhong jichu),” likely referring to the earlier
patriotic hacker activities. However, they stated it is impossible to achieve
the traditional Communist Chinese military strategy of “all people are sol-
diers (quan min jie bing)” in cyberspace. This is because network offensive
and defensive operations require specialised practitioners who are extremely
capable. The category of “civilian forces” cited in the book likely refers to
the talents from cyber security companies which play an important role in
the military-civil fusion strategy and the development of cyber militia forces.
China’s rapid technological development pushed many cyber security
companies to recruit the best talent and promote innovation. Specialists
from these companies are part of those “extremely lean” groups of capable
practitioners that the Science of Military Strategy cites. These cyber secu-
rity companies are among those civilian forces that the government and the
military often mobilise to conduct network operations. As described more
fully below, Chengdu Silingsi (404) Network Technology Company is one
of these examples.

Chengdu 404 Network Technology Company: Advanced

Persistent Threat (APT) 41
On September 16, 2020, the US Department of Justice (DOJ) released a
report detailing three separate indictments (DOJ 2020). Two of these indict-
ments, one occurring August 2019 and the other in August 2020, charge five
Chinese individuals with the computer intrusions of more than one hundred
companies located in the United States and abroad. The indictments attributed
the intrusions to APT41 (aka BARIUM), a cyber threat group security com-
panies have tracked under various names (Fraser, Plan, and O’Leary 2019).
Three of five individuals the indictment named—Jiang Lizhi, Qian Chuan,
and Fu Qiang—were leaders of Chengdu 404, a network security company
based in Chengdu, Sichuan province. Within Chengdu 404, Qian Chuan was
president, Jiang Lizhi served as vice president for the Technical Department,
and Fu Qiang served as manager for Big Data Development.
Examination of the company’s website and business registration informa-
tion shows that Chengdu 404’s business resembled the role of a red team or
an offensive team. Established in May 2014, Chengdu 404 claimed its ser-
vices included penetration testing, APT attack monitoring, firmware trojan
detection, mobile device forensics, research and products related to password
recovery and anonymous proxy. The business partners listed in Chengdu
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404’s website included state-owned enterprises, universities, and government

agencies related to information security (UMISEN n.d.).
Chengdu 404 appears to be one of the top cyber security companies in
Sichuan Province. The Chengdu Information Network Security Association,
a local industry association, named the company one of the outstanding
companies in 2019. In December 2019, the Sichuan Bureau of the National
Administration of State Secrets Protection awarded the Class B qualification
of software development for confidential information system to Chengdu 404
which allowed the company to engage in classified state projects.
Chengdu 404 also demonstrated its capabilities by developing proprietary
software and patents. According to Chengdu 404’s business registration
information, the company owns four patents and fifteen software copyrights.
The most recent patent, a platform for processing dark net intelligence was
registered on July 10, 2020 (QCC 2022).
Three indicted hackers from Chengdu 404 had appeared in local media
as technologists with visions and patriotic spirit. In October 2018, Sichuan
Economic Daily, a provincial government newspaper, published an interview
with key personnel of Chengdu 404 (Sichuan Economic Daily 2018). The
interview explained these hackers were “not typical hackers,” but “hidden
Chengdu white hats who take things seriously.” The hackers claimed they
were not crass “businessmen,” but gentlemanly “entrepreneurs.” and they
alluded to the classical Chinese saying about “certain things that a gentleman
would do, or not do (junzi you suowei yousuo bu wei).” They appeared to hold
themselves to a high standard, aspiring to contribute to society and national
security while also making their own technological dreams come true.
After the DOJ’s disclosure of APT41’s indictments, Chengdu 404 did not
stop its operations. The company’s hiring posts continued appearing at vari-
ous Chinese recruitment platforms (BOSS 2022).

“Vulnerability Should Be Considered as National

Strategic Resource”
Vulnerability refers to “a weakness in an information system, system secu-
rity procedures, internal controls, or implementation that could be exploited
or triggered by a threat source” (Computer Security Resource Center n.d.).
Since the 2013 version of the Science of Military Strategy described the
importance of discovering and quickly exploiting vulnerabilities in informa-
tion systems, China’s technology elites across the cyber security industry
expressed concerns over China’s own vulnerability to cyberattacks and
described ways the country could prepare for cyberwarfare. Zhou Hongyi, the
CEO of Qihoo 360, the largest cyber security company in China, proposed
the country should treat vulnerabilities as national strategic resources.
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Becoming a Cyber Superpower 183

In September 2017, at the 5th China Internet Security Conference, Zhou

Hongyi stated that cyber warfare is unavoidable, and vulnerabilities are weap-
ons of cyber warfare. Zhou explained that the essence of cyber warfare is
vulnerability. “This concept goes beyond technical vulnerabilities in software
and encompasses broader weaknesses in whole networks. Understanding
these network vulnerabilities, in both broad and narrow senses, is essential for
building a network of weapons.” Indeed, said Zhou, “vulnerabilities should
be considered as national strategic resources” (Sina Photo News 2017; The
Paper 2017).
Zhou Hongyi’s speech about vulnerabilities as weapons of cyber warfare
appears to be a turning point for China in recognising vulnerability discovery
and exploitation as central to their offensive cyber capability and to the coun-
try’s overall pursuit as a leading cyber power.

THE TIANFU CUP: SHOWCASING OFFENSIVE

CYBER CAPABILITY AND DEPTH OF
OFFENSIVE CYBER INVENTORIES

Shortly after the September 2017 Internet Security Conference, China prohib-
ited Chinese security researchers from participating in international hacking
competitions in early 2018. This move made it easier for the Chinese govern-
ment to control and retain vulnerability information inside the country (Bing
2018). In November 2018, Chinese technology giants including Alibaba,
Tencent, and Baidu founded China’s own international hacking competition,
the Tianfu Cup (N 2018). In the 2018 Tianfu Cup, a team from 360Security,
a subsidiary of Qihoo360, won first place. The team discovered and success-
fully exploited zero-day vulnerabilities from Apple Safari, iPhone X, Google
Chrome, Microsoft Edge, Microsoft Office, and Oracle Virtual Box, since
then, the Tianfu Cup competition target list has focused on foreign products
(N 2018). At the 2021’s Tianfu Cup, teams continued to focus on popular
Western products such as Windows 10, Microsoft Exchange Server, Chrome,
VMware workstation, and iPhone 13 Pro. In the meantime, the Tianfu Cup
has drawn more attention from the Chinese government. In 2021 a cyber
security summit, held as part of the hacking competition, attracted partici-
pants in the security field from military, central and local governments, gov-
ernment research institutes, and the Ministry of Public Security (Xinhuanet
2021). The choice of foreign products for the competition list of the Tianfu
Cup encourages the discovery of vulnerabilities that Chinese strategists or
military cyber forces can exploit.
The Chinese government values vulnerabilities so highly that it requires
Chinese researchers do not divulge the vulnerabilities they discover until after
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they have informed Chinese government authorities. As a result, Chinese

military or security personnel have an opportunity to exploit these vulner-
abilities for use against domestic or foreign adversaries before defenders
can patch them (Smalley 2022). In July 2021, the Ministry of Industry and
Information Technology (MIIT), the Cyberspace Administration of China
(CAC), and the Ministry of Public Security (MPS) published the “Regulation
on the Management of Security Vulnerabilities in Network Products” (wan-
gluo changpin Anquan loudong guili guiding), which came into effect on
September 1, 2021. This regulation outlines how network product security
vulnerabilities are discovered, reported, patched, and disclosed. It obligates
network product suppliers to report the vulnerability to MIIT Network
Security Threat Information Sharing Platform within two days of discovering
a vulnerability in their product. In turn, the MIIT Network Security Threat
Information Sharing Platform simultaneously reports vulnerabilities to the
vulnerability platforms of the National Network and Information Security
Alerting Centre. Article 9 of the Regulation prohibits providing information
on undisclosed network product vulnerabilities to foreign organisations or
foreign individuals, except for the network product supplier (CAC 2021).
The first high-profile case enforcing this regulation occurred in December
2021, involving Alibaba Cloud, one of the top cloud providers in China.
China’s MIIT suspended a cybersecurity partnership with Alibaba Cloud for
six months after it failed to report Log4j vulnerabilities to MIIT first and
instead reported it to the software provider Apache Software Foundation
(Greig 2021). MIIT’s action indicated the government’s commitment to
tightly controlling vulnerabilities and served as a warning to other technology
companies to follow the rules or suffer the consequences.
Chinese researchers announced vulnerabilities in VMware products at the
October 2021 Tianfu Cup, but VMware did not release patches for these vul-
nerabilities until February 2022, almost four months later. VMware’s patch
announcement indicated “these vulnerabilities were reported to the Chinese
government by the researchers that discovered them, in accordance with their
laws” (VMWare Blog 2022). This suggested the Chinese researchers fol-
lowed the regulation on the management of security vulnerabilities by delay-
ing their reporting to VMware until well after they reported to the Chinese
government.
At the same time, Chinese nation state cyber threat actors have taken
advantage of vulnerabilities for strategic use. MIT Technology Review
reported in May 2021 that an Apple device vulnerability discovered at the
2018 Tianfu Cup had been used in Chinese cyber espionage campaigns
against the Uyghurs, the Chinese Muslim minority, two months before the
vulnerability was reported and fixed (O’Neill 2021). A July 2020 DOJ indict-
ment alleged two Chinese Ministry of State Security (MSS) affiliated threat
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Becoming a Cyber Superpower 185

actors, Dong Jiazhi and Li Xiaoyu, targeted US biotechnology, pharmaceuti-

cal, and medical companies, seeking COVID-19 related research and trade
secrets. The indictment revealed the threat actors received a zero-day exploit
from an email sent by an MSS officer (DOJ 2020). This same tactic can be
used in any offensive cyber operation.
The Tianfu Cup competition demonstrates China’s offensive cyber capabil-
ities to hold key Western systems and networks at risk and highlights the sub-
stantial depth of China’s offensive cyber inventories (Work 2021). Military
and government agencies alike can use these capabilities for disruptive,
destructive, or psychological operations against foreign or domestic targets.

PUTTING OFFENSIVE CYBER

CAPABILITY INTO PRACTICE

China claims its national cyber security strategy is to maintain active defence,
defined as a combination of strategic defence and actively preparing for
offensive attacks (Xinhua News, Active Defense Strategy 2015). This dif-
fers from the approach of countries such as the United States and many
of its allies, which explicitly prescribes going beyond defence to develop
offensive cyber forces and cyber deterrence strategy (Lu Chuanying 2019).
At the 2021 World Internet Conference, also known as the Wuzhen Summit,
a global conference organised by the Cyberspace Administration of China,
Chinese President Xi Jinping presented China’s solution to “build a strong
digital security barrier” (shuzi anquan pinzhang) to ensure cyber security (He
Yin 2021). However, China’s Defence White Paper in 2019 also advocated
the building of cyberspace capabilities that are “consistent with China’s
international standing as a major cyber power,” thereby implying the neces-
sity of building offensive capabilities as well (Ding Yang 2019). China has
used offensive cyber resources in cyber espionage and, increasingly, in other
destructive operations.
The US government published alerts with lists of vulnerabilities used by
Chinese state-sponsored threat actors, often in particular combinations for
greater potency. One such alert from October 2020 listed twenty-four pub-
licly known vulnerabilities that Chinese state-sponsored threat actors had
exploited against various network and communication systems and devices
(National Security Agency Cybersecurity Advisory 2020). In June 2022,
the US government warned that Chinese actors were using well-known, but
inconsistently patched vulnerabilities to breach firewalls and other elements
of communications networks to gain a foothold throughout essential commu-
nications infrastructure (Cybersecurity Advisory 2022).
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Many security firms also illustrate how Chinese state-sponsored actors

exploited vulnerabilities. In March 2021, Microsoft detected a threat campaign
conducted by HAFNIUM, a group assessed to be state-sponsored operating
out of China, using multiple zero-day exploits to attack on-premises versions
of Microsoft Exchange Server (Microsoft Threat Intelligence Center 2021).
In March 2022, Mandiant reported that APT41, a Chinese state-sponsored
group, used zero-day vulnerabilities in the USAHerds application and in the
Log4J logging application to target US state government networks (Brown,
Ta, and Bienstock 2022).
Chinese state-sponsored groups have in some striking recent incidents
used destructive and disruptive tools. In May 2020, Taiwan Ministry of
Justice Investigation Bureau (Investigation Bureau) reported targeted attacks
on several Taiwan-based petrochemical companies and one semiconductor
manufacturing plant halted operations and forced the companies to isolate
the affected networks and restore backup files (Investigation Bureau 2020).
The Investigation Bureau attributed the ransomware attack to a China-based
group called the “Winnti group” (Staff writer 2020). Security company Trend
Micro analysed the ransomware family and indicated the attack was poten-
tially destructive rather than merely disruptive, as “the ransomware appeared
to target databases and email servers for encryption” (Trend Micro 2020). If
it was not intended to be reversed in return for the payment of ransom, this
points to a political rather than a financial motivation and implies the perpe-
trators were state sponsored.
This was the first major destructive attack using ransomware by a Chinese
state-sponsored group in recent years. Chinese cyberthreat actors often use
Taiwan as a testing ground because of the common language. In addition, the
Chinese perception that Taiwan is rightfully part of China that world pow-
ers will not retaliate against China for aggression against a diplomatically
isolated Taiwan.
In January 2022, Microsoft reported another China-based ransomware
operator, DEV-0401, deployed multiple ransomware attacks and exploited
vulnerabilities in internet-facing systems running Confluence and on-premises
Exchange servers. In one campaign, DEV-0401 exploited a vulnerability
targeting internet-facing servers running vulnerable instances of VMware
Horizon. After successful intrusions, the actor deployed the NightSky ran-
somware (Microsoft Defender Threat Intelligence 2021). Researchers from
SecureWorks, tracking DEV-0401 as BRONZE STARLIGHT, assessed the
short lifespan of each ransomware family the actor deployed in the attacks
suggested the actor was using ransomware as a smokescreen to cover its
cyber espionage or intellectual property theft activities (Paganini 2022).
Nation state actors sometimes use ransomware attacks for political reasons,
to disrupt or destruct target organisations, or to clean up or cover the traces
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Becoming a Cyber Superpower 187

of cyberespionage. In China’s case, testing the capabilities of ransomware

attacks is relatively new, but will likely continue.

WHAT’S NEXT?

Since Chinese President Xi Jinping publicly promoted the importance of

cybersecurity for the country in 2014 with the slogan “without cybersecu-
rity there will be no national security; without informatisation, there is no
modernisation” (Wang Yang 2014). Xi has repeatedly given high-level talks
and speeches with directives on how to ensure “cybersecurity as the impor-
tant part of national security.” Most of Xi’s talks emphasise building cyber
power for defensive purposes and he prefers phrases such as “the protection
of information infrastructure” and “the construction of cybersecurity incident
response command capabilities” (Creemers, Triolo, and Webster 2018). Xi
Jinping has not openly discussed China’s desire to build offensive cyber
capabilities. However, the statement in the 2019 Defence White Paper that
the country’s cyber capabilities must be equivalent with China’s international
standing as a major cyber power implies the country also needs an offensive
cyber capability.
In conclusion, China has been building its offensive cyber capability by
integrating resources from the military, government, and ICT industries
while making organisational changes, implementing regulations, and initiat-
ing national strategies to support the effort. Chinese military strategists have
been studying and developing operational concepts and procedures related to
information warfare for decades. To a certain degree, this has accelerated the
process of building capable cyber combat forces. Rapid technological devel-
opment in China has created a robust cyber security industry. The Chinese
government considers talents from the cyber security industry are the most
capable civilian forces to build its offensive cyber capability. These talents
are in the forefront of the cyber field to help the nation stockpile vulnerabili-
ties, one of the most effective cyber weapons, as well as develop exploits and
place vulnerabilities in use.
The Winnti group that deployed the ransomware attack against organisa-
tions in Taiwan is likely just the beginning of China’s cyber combat forces’
use of destructive and disruptive tools. As the divide between China and
the democratic world expands, becoming a cyber superpower with offen-
sive cyber capability is essential for China to compete as a major power in
the world.
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NOTES

1. Little public information is available on the details of the connection between

the military and the MPS/MSS. These agencies likely mainly carry out espionage.
The available evidence does not point to their taking an autonomous/major role in
offensive cyber activity defined for this paper. Other than the 2013 Science of Mili-
tary Strategy doctrine, there is little public information. This likely indicates an ongo-
ing power struggle within the Chinese system between the PLA’s leadership and the
government agencies to determine who truly oversees Chinese action in cyberspace,
as Joe McReynolds, a research analyst at Defence Group Inc., points out in a paper
published at the Jamestown Foundation’s China Brief (volume XV, no. 8) on April
17, 2015.
2. Systems of systems operational capability is the integration of C4ISR (com-
mand, control, communications, computers, intelligence, surveillance, and recon-
naissance) and forces to significantly multiply war-fighting capacity and enable joint
operation capability.

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PART IV

Local Dynamics

197
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Chapter 9

China—A Rising Tech Power?

National Ambitions and Local Realities

Genia Kostka

In the battle for global tech dominance, China is rapidly surpassing its
Western competitors (Olsen, 2020).1 The country is quickly reaching global
leadership in many areas of science and technology, including facial recogni-
tion, certain fields of AI and e-mobility. In this chapter, I argue that the rise
is both fueled and constrained by the specific institutions of the party-state.
The ‘fuel’ is the party-state’s capacity and will to lead China up the value
chain thanks to massive investments. The ‘constraints’ have to do with the
downside of decentralised and fragmented authoritarianism.
This chapter begins by analysing China’s growing technological power by
juxtaposing national ambitions with local realities. Despite Beijing’s impres-
sive efforts to devise industrial policies for technology upgrading (Naughton
2021), there is a substantial high-tech policy implementation gap. The term
‘implementation gap’ refers here to differences between Beijing’s high-tech
ambitions and local policy outcomes. The reason for the gap may be that
many elements of Beijing’s tech agenda fall to local governments for deliv-
ery. As local governments’ pre-existing industrial structures, interests, and
capabilities differ widely, national plans and investment funds are often not
(or only partially) implemented, poorly executed, or significantly delayed.
The analysis further shows that China’s national technology policies and
plans have been implemented unevenly across regions. By focusing on three
provinces (i.e., Sichuan, Anhui, and Zhejiang), this analysis highlights how
different institutional structures have shaped the provinces’ technological
development trajectories. A historical comparison sheds light on the diverse
state–business relations in the high-tech industry: While Sichuan’s tech indus-
try has, to a large extent, been dictated by government and defence projects,
199
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200 Genia Kostka

tech companies in Zhejiang have benefitted from more freedom to develop. In

Anhui, the tech industry has formed particularly close relationships with local
research institutes and labs located in Hefei. The historical institutional per-
spective offered here helps to explain why the high-tech industry in Sichuan
is largely focused on civil–military industry production, while in Anhui and
Zhejiang there is a stronger focus on AI technology and speech recognition.

NATIONAL AMBITIONS

China has seen astonishing technological advances in the past few decades.
It has the largest 5G network and the most extensive optical fibre cable
network in the world, and it is producing self-driving cars. It is already lead-
ing in many AI technologies, including AI-based emotion recognition and
facial recognition technologies (Kharpal 2019). Two of the world’s largest
supercomputers—Tianhe-2 and Sunway TaihuLight—are also located in the
country (Abbany 2017). Rapid advances have also been made in high-speed
quantum computing. In 2016, China successfully launched its quantum sat-
ellite, Micius (or QUESS), the first in the world (Disha 2021). Researchers
at the University of Science and Technology of China in Hefei recently
announced a new quantum computing breakthrough that allegedly surpassed
Google’s achievements, making it the world’s leader in quantum technology
(Corbett and Singer 2022). On the Global Innovative Index, China climbed
from twenty-ninth place in 2015 to twelfth in 2021 (World Intellectual
Property Organisation 2022). These are impressive achievements, and there
is no question that China is becoming a leader in global science and technol-
ogy innovation.
However, China’s industrial technology capabilities should not be over-
stated, and for many digital technologies, China is still catching up. Particular
vulnerabilities are in the integrated circuit and basic software industries. In
1999, then Minister of Science and Technology Xu Guanhua famously said,
‘The Chinese ICT industry lacks a core (chips) and souls (basic software)’
(Zhongguo xinxi chanye ’que xin shao hun’) (Bu 2020). Since then, China
has invested massive sums in the semiconductor and software industries to
increase domestic capacity, but it still relies largely on imports for high-end
chips, which state media often describe as being ‘wedged by the neck’
(Ka bozi).
No matter how one assesses China’s technological capabilities, there is
general agreement that technological progress has been at the core of the
political agenda for a very long time. The period following the global finan-
cial crisis in 2009 was especially significant as policymakers shifted from
an indicative planning approach to new industrial policies in which the state
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China—A Rising Tech Power? 201

plans to invest unprecedented amounts of money to leapfrog other nations

in technology (Naughton 2021). The 2015 release of both Made in China
2025 and Internet Plus Strategies marked a new stage in the state’s efforts
to lead the tech industry up the value chain. Other relevant policy initiatives
that support China’s tech rise include the Action Outline for Promoting the
Development of Big Data (2015), the Outline of National Informatisation
Development Strategy (2016) and the Development Plan on the New
Generation of Artificial Intelligence (AI) (2017). In the Plan on the Next
Generation of AI, the Chinese government outlines its road map to become
the primary AI ‘innovation centre’ by 2030 (Webster et al. 2017). Between
2014 and 2020 alone, China’s Industrial Guidance Funds (IGFs) raised a
staggering US$1.6 trillion for the targeted sectors (Naughton 2021: 106),2
thereby underlining the Chinese party-state’s commitment to leaping ahead
in strategically important technologies.
China’s recent five-year plans (FYPs) also reflect the growing emphasis on
tech primacy. The 13th FYP (2016–2020) called for the expansion of strategic
emerging industries (SEIs) and opens its chapter on the National Big Data
Strategy with a statement that the government ‘will make big data a funda-
mental strategic resource . . . to help transform and upgrade industries and
bring about innovation in social governance’ (NDRC 2016). The 14th FYP
(2021–2025) dedicated an entire section (section 5) exclusively to facilitating
digitalisation and establishing a digital China, and it picked seven key emerg-
ing technologies to be further promoted to speed up the country’s ambitious
tech advancement, as well as ten sectors where the technologies are encour-
aged to be applied (NDRC 2021).3
Statements by national leaders further underline the political will of
China’s party-state to win the global race for technological leadership. At
the Fourth Plenary Session of the 19th Central Committee of the Communist
Party of China in 2019, leading cadres listed data as one of the seven major
factors of production, along with labour, capital, land, knowledge, technol-
ogy, and management. Xi Jinping also stressed China’s national tech ambi-
tions in the thirty-fourth collective study of the Political Bureau of the 19th
Central Committee in 2021 when he stated: ‘In today’s era, digital technol-
ogy and digital economy are the opportunities for the world’s technological
revolution and industrial transformation, and they are the key areas of a new
round of international competition. We must seize the opportunities and seize
the commanding heights of future development’ (Xi 2022).
In addition to having comprehensive top-down planning and using massive
funds to support homegrown tech companies, China has also developed a
large-scale domestic talent promotion programme. In May 2020, the Ministry
of Education launched the ‘School of Future Technology’ programme to
upgrade technological and innovation capabilities through educational
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202 Genia Kostka

investments (Li 2021). A stated programme goal was to move Chinese inno-
vation power from ‘Made in China’ (Zhongguo zhizao) to ‘Created in China’
(Zhongguo chuangzao) (Huang 2016). In the first batch, twelve universities
were selected with strengths in critical technologies such as aerospace, AI,
quantum information science, marine technology, and life and health science.
The plan is to expand this to another twenty to thirty ‘Schools of Future
Technology’ in the future. Table 1 lists the twelve higher-education institu-
tions selected to implement the programme (Zhongguo Jiaoyu Zaixian 2021).

Table 9.1: Twelve Universities Selected for the School of Future Technology Programme
Higher-Education Institution Technologies
1 Peking University, Beijing Big Data and Biomedical Artificial Intelligence
Department: biomedical imaging, molecular
medical sciences, biomedical engineer-
ing, big data, and biomedical artificial
intelligence
2 Tsinghua University, Beijing Advanced chips, new materials, software,
AI, intelligent manufacturing, and national
security
3 Beihang University (BUAA), Aerospace/aviation
Beijing
4 Tianjin University (TJU), Tianjin
Smart/intelligent machines and systems, stor-
age science and engineering, smart city, etc.
5 Northeastern University (NEU), Control science and engineering, computer
Shenyang, Liaoning, in coop- science and technology, software engineer-
eration with Huawei ing, robotics
6 Harbin Institute of Technology AI, intelligent manufacturing, life and health
(HIT), Harbin sciences
7 Shanghai Jiao Tong University Energy and environment, health and medicine
(SJTU), Shanghai
8 Southeast University (SEU), Chip design, information materials, future
Nanjing communication, intelligent perception and
sensing (zhineng ganzhi 智能感知)
9 University of Science and Quantum technology
Technology of China (USTC),
Hefei, Anhui
10 Huazhong University of Science Advanced intelligent manufacturing, biomedi-
and Technology (HUST), cal imaging, photoelectron chips and sys-
Wuhan tem, AI
11 South China University of intelligent perception and sensing, big data,
Technology, Guangzhou AI+ technologies
12 Xi’an Jiaotong University AI, energy storage sciences and engineering,
(XJTU), Xi’an intelligent manufacturing, biomedical engi-
neering, smart city
Sources: Zou 2021; Li 2021; Zhongguo Jiaoyu Zaixian (eol.cn) 2021
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China—A Rising Tech Power? 203

Despite all the planning and investment, turning these tech ambitions into
reality is a challenge. It is well known that in China’s highly decentralised
authoritarian structures (Landry 2008), local governments play a key role
in shaping implementation outcomes, which often results in the ‘selective’
implementation of national policy (Li and O’Brien 1999). Often it is the local
governments that have to create an attractive investment environment for
innovation and research. For instance, many local governments have created
special development zones and high-tech industrial parks, but not all of them
were successful in creating the necessary conditions for high-tech industrial
cluster growth (Kania and Laskai 2021). Many examples are known where
local governments simply picked the wrong tech companies as a ‘local cham-
pion’ or where they overinvested in certain industries (Segal 2018), resulting
in a duplication of efforts. In other words, Beijing strongly depends on pro-
vincial governments to support its tech agenda with the right means and tools.
The next section highlights how technological trajectories vary across
regions. At the provincial level, the trajectory of tech advancement is often
shaped by multiple pre-existing economic, social, and political factors. By
looking at local governments’ technical, financial, and political capacities to
push for tech leadership in their locally grown tech industries, the final sec-
tion will explain why national tech ambitions are often only partially imple-
mented at the local level.

HIGH-TECH SECTOR DEVELOPMENT AND

REGIONAL PATH DEPENDENCY

China’s national technology policies and plans have been implemented

unevenly across regions. This is partly the result of local governments adjust-
ing and repurposing national policies to make them fit the local context.
Additionally, local trajectories for innovation and technological advancement
depend heavily on pre-existing infrastructures and conditions. Therefore, the
growth of regional tech hubs is very path-dependent in that new outcomes
are firmly tied to previous outcomes rather than the current conditions alone
(Isaksen 2015). Below, the focus will be on three provinces (i.e., Sichuan,
Anhui, and Zhejiang) to illustrate how different existing institutional struc-
tures shaped their provincial trajectories in high-tech sector development.

Sichuan
Located in Western China, Sichuan province is home to many car manufac-
turing plants and major high-tech suppliers of critical car manufacturing com-
ponents, such as lithium batteries for Tesla and integrated circuit assembly for
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204 Genia Kostka

foreign companies like Intel, Texas Instruments, and Onsemi. Sichuan is also
home to a large military and defence sector, with many research institutions
and factories for military-use aircraft, rockets, and components for nuclear
weapons headquartered there. Some of the high-tech products produced in
Sichuan are dual-use technologies, that is, they partly or fully originate in the
defence industry, which has made use of AI and other advanced technologies
(Chen 2022).
Sichuan showcases how a national security movement in the 1960s set
the stage for a strong linkage between a local defence industrial base and
a growing civilian, high-tech economy. The origin of Sichuan’s high-tech
industrial sector is often linked to China’s Western Development Strategy
(Xibu dakaifa) in 2001. However, this explanation gives insufficient credit to
industrial policies that can be traced back further—specifically, to the Mao
era. In the early 1960s, during the Cold War, Mao proposed a geo-military
industrial grand plan called the Third Front Movement (Sanxian jianshe),
which started in 1964 and targeted mountain regions in southwestern and
western parts of China for key military production. The isolated mountain
areas were chosen as they would be the hardest for foreign forces to invade.
As a result of Mao’s plan, large-scale investments were made in national
defence complexes in the remote and mountainous areas of Sichuan. The
new provincial military and defence sector included defence-related technol-
ogy research, the transport sector, and other basic supporting industries such
as manufacturing, mining, metal, and electricity supply. Table 2 provides
an overview of key sectors developed during the Third Front Movement
in Sichuan.
Although many Third Front plants went bankrupt after the 1980s because
of bad planning, hasty implementation, and the geographical inaccessibility
of supplies and markets, these areas retained a certain level of industrial infra-
structure into the era of reform and opening. In the early 1980s, many com-
panies and factories moved out of the mountainous areas to gain better access
to the market and reinvented themselves to produce civilian goods rather than
military supplies (Butterfield 1980). The purpose of this ‘defence conversion’
was to ‘pull the military into the process of national macro-economic adjust-
ment’ (Lee 2011: 3). By 1996, almost all former military sectors, including
the aviation and electronic industries, which formed industry clusters in
Sichuan, were producing more than 80 percent of their total output on civilian
products (Lee 2011: 4). Thus, the early industrial structures built during the
Third Front provided fertile ground to grow a local electronic manufacturing
sector in Sichuan province. In subsequent years, many of Sichuan’s military
firms diversified into the manufacturing sectors and even established joint
ventures with foreign firms.
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China—A Rising Tech Power? 205

Table 9.2: Industrial Sectors Developed During the Third Front Movement in Sichuan
Sector Location
Industrial manufacturing Chongqing*, Chengdu
Arms industry, including Chongqing* (production of conventional weapons
research institutions on such as rifles, tanks, trucks, and conventional
defence, midsize to large powered submarines), Chengdu, Mianyang,
enterprises specialising in the Guangyuan, Leshan, Xichang, Daxian (now
defence industry and civil– Dazhou)
military enterprises
Coal mining Dukou (now Panzhihua; Panzhihua Iron and Steel),
Guang’an Huaying (Lushuidong coal mine)
Petrochemical industry Nanchong
Metallurgical industry Dukou (Panzhihua), Daxian (Dazhou), Leshan,
E’mei, Zigong, Jiangyou
Hydropower stations Chengdu, Deyang, Gongzui, Zigong, Chongqing*
Machinery and electronic Chengdu, Deyang, Mianyang, Jiangyou, Guangyuan,
plants Leshan, Xichang, Zigong, Neijiang, Luzhou, Ya’an,
Fuling Dist. (Chongqing)*, Wanxian (Chongqing)*,
Guang’an Huaying
Aviation and aerospace industry Chengdu and satellite cities such as Deyang/
Guang’han (Civil Aviation Flight University of
China), Ya’an, Mianyang, Xichang and Daxian
(Dazhou)
Nuclear industry Mianyang (research, the Chinese Academy of
Engineering Physics), Yibin (components, Plant
812), Guangyuan (plutonium production com-
plex, Plant 821), Leshan
Textile industry Daxian (now Dazhou), Neijiang, Suining, Nanchong
* Although Chongqing is not counted as part of Sichuan in terms of the administrative level, it is listed here
due to its geographic proximity.
Source: Gu et al. (1999: 185), Xu and Xiao (2009), Jencks (1980) and the Federation of American Scientists
(FAS) (2010).

Sichuan’s repurposed industrial firms later provided the necessary basis for
today’s local high-tech sector to flourish. In the early 2000s, with maturing
electronic manufacturing capacity and skills, provincial policies started push-
ing for an upgrade from traditional mechanical manufacturing to a ‘digital
military industry/informatisation (jungong xinxihua)’ with a focus on reform-
ing the defence industry to adapt to information warfare, including digital
security systems, AI-equipment, and combat technologies (People’s Daily
Online 2004). Sichuan’s digital innovation industry has grown substantially,
and by 2022, the high-tech industry was contributing significantly to the local
GDP (Tian 2022).
The historical trajectory of Sichuan’s military and defence sector helps
to explain why Sichuan’s high-tech industry is spread out across the prov-
ince. Today, the high-tech industry clusters are not only concentrated in
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206 Genia Kostka

the provincial capital city, Chengdu, but they are also spread around in the
Sichuan Basin (e.g., Chengdu, Miangyang, Meishan) as well as in mountain-
ous areas (e.g., Guangyuan, Yibin, Ya’an, Ganzi). Many of these remote pre-
fectures are less developed than larger urban cities in the province, but they
benefitted from industrial development during the Third Front Movement
(Chen 2011, 40). One leading prefecture in industrial and technological
development is Mianyang prefecture, which is frequently dubbed the ‘China
Science and Technology City.’ The prefecture is leading not only in high-tech
military technologies such as AI for hypersonic weapon design but also in the
commercial electronic and high-tech industries (Chen 2022).
When tracking local digital initiatives in Sichuan from 2015 to 2022
(Digital Index Database 2022), one also notices that prefecture-level digi-
tal initiatives are widely spread across the province.4 Of the 222 initiatives
tracked, in the Sichuan Basin, Mianyang prefecture topped the chart by
leading 28 local digital initiatives. Chengdu city (the provincial capital) and
Neijiang prefecture followed closely in second place with 27 digital initia-
tives. Mianyang, Chendu, and Neijiang are all prefectures that benefitted
from machinery and electronic plants during the Third Front Movement (see
Table 2). Guang’an prefecture is also home to many digital initiatives, likely
because it is in Chongqing’s spill-over zone. Overall, in Sichuan, the setup of
a military defence sector during the Mao period helps to explain the regional
layout and character of this province’s high-tech sector.

Zhejiang
The growth of the high-tech sector in Zhejiang has a very different origin
than Sichuan’s state-led development of the military complex. In this coastal
province, developments have been shaped by the active role of the private
sector and the relatively laissez-faire style of local governance. Today,
Zhejiang is home to some of the biggest tech companies and start-ups in
China. Hangzhou’s Alibaba is the province’s most famous tech firm, but other
prominent players include Hikvision, Dataqin, Geely, NetEase, and Kuaidi
Dache. In this region, the relationship between the provincial government and
local private tech entrepreneurs has historically been very cooperative. Early
on in their development, the provincial government became a major customer
of the bigger private tech companies and provided high-tech start-ups with
a certain level of freedom essential for private entrepreneurship to flourish
(Breslin 2012).
Historical path dependencies play a key role in explaining the growth
of Zhejiang’s high-tech industry and the close public–private cooperation.
Wenzhou, a prefecture in southeast Zhejiang, has long been famous as a
cradle of private micro-entrepreneurs. The prefecture also played a key role
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China—A Rising Tech Power? 207

in shaping the province’s economic path (Tsai 2002). During the early 1980s,
Wenzhou’s high population density and lack of arable land pushed local
government officials to promote private entrepreneurship instead of agricul-
ture. This was very risky at the time, as private entrepreneurship in the early
post-Mao period was still a political taboo and framed as the ‘tail end of capi-
talism.’ Zhejiang’s local governments allowed private enterprises to formally
register as public or collective enterprises, giving rise to so-called red-hat
(Hong maozi) enterprises. These red-hat private enterprises had better access
to capital and other favourable policies and, as a result, were able to grow
quickly in the 1980s and early 1990s (Tsai 2002). Terms such as ‘Zhejiang
business culture’ and the ‘Wenzhou (economic) model’ are still very widely
used in China to describe the active bottom-up business activities that origi-
nated in Zhejiang province.
The provincial legacy of strong local entrepreneurship and its freer market
environment eventually became a growth platform for the high-tech indus-
try. Here developments were based on win-win bargains between the state
and industry. Provincial leaders benefitted from a rapidly growing high-tech
industry, which helped them to meet their economic growth targets in the
cadre evaluation process. At the same time, the development of private tech
enterprises was helped by a nurturing environment largely free of big-data
technology regulation (Lv and Luo 2018). Zhejiang’s provincial government
also served as the main customer of tech enterprises to improve the provincial
e-government services. For instance, Zhejiang was one of the first provinces
to start a ‘Maximum one visit for administrative procedures’ digital proj-
ect to showcase more efficient e-government services (Gao and Tan 2020;
Kostka 2022).
Another example of close state–business cooperation is Zhejiang’s ‘City
Brain’ project. The project took shape in 2016 when Alibaba’s then Chief
Technology Officer Wang Jian proposed the concept to integrate differ-
ent Hangzhou city administrative services in order to solve urgent city
governance issues. Alibaba’s City Brain project began in Hangzhou and
has spread to cities throughout Zhejiang province (Chen 2021) and even
abroad (Szewcow and Andrews 2020). The cooperation with Alibaba helped
Zhejiang’s government to position itself as the frontrunner and provincial
role model for smart technologies for other provinces (14th Five-Year Plan
of Zhejiang). The success of City Brain helped to deepen the provincial
government’s cooperation with the high-tech sector, creating new forms of
mixed ownership and interdependence (Kostka 2022). In 2020, the govern-
ment initiated the Zhejiang City Brain Industry Alliance, a local ‘non-profit
organisation,’ (Zhejiang University Holding Group 2021) that comprises
331 members (as of May 2021) across the public sector, private sectors,
civil organisations, and research institutions to further promote and develop
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208 Genia Kostka

Zhejiang’s flagship programme City Brain (Zhong Tuo Bang 2021). In short,
for Zhejiang, the provincial hardship in the 1970s and ’80s provided fertile
ground for local private sector growth (Kostka 2012), which, in turn, eventu-
ally helped to produce high-tech entrepreneurs such as Jack Ma.
Zhejiang province’s capital, Hangzhou, played a key role in local digital
initiatives between 2015 and 2022 by offering positive spillovers to its neigh-
bouring prefectures. The prefectures with the highest number of digital initia-
tives include Jinhua (53), Shaoxing (52), Huzhou (43), and Hangzhou (42),
while Quzhou (16) and Taizhou (14) were significantly left behind.5 Jinhua
prefecture, the locality with the most digital initiatives, is home to dozens of
industrial parks and start-up incubators and has a unique development trajec-
tory. Jinhua’s local innovation and high-tech sector was strengthened in 2015,
when the Jinhua Peking University Science Park Branch was established with
the help of the Jinhua Municipal Party Committee Organisation Department
and Peking University (China Cultural Chamber of Commerce for the Private
Sector 2017). The park’s close cooperation with the prefecture’s Party
Committee Organisation Department and Peking University, in particular,
helped to recruit top local talents from within the government and outside
the park (China Cultural Chamber of Commerce for the Private Sector 2017).
Shaoxing and Huzhou prefectures are geographically close to Hangzhou and
benefit from positive spillover effects from Hangzhou. Alibaba’s headquar-
ters are in Hangzhou, and City Brain has been an important trademark for
the entire Zhejiang province. The ‘Hangzhou City Brain Experience’ was
repeatedly used as the benchmark for the whole province’s digital initiatives
work (Zhejiang Digital Economic Development Administration and Zhejiang
Governance Digitalisation Promotion Committee 2020). Prefectures with the
lowest number of initiatives are located farther away from Hangzhou and did
not benefit from positive spillovers.

Anhui
The agricultural province of Anhui in central China has a surprisingly large
and thriving high-tech industry. In 2017, Anhui set up a fund of US$1.6 bil-
lion to support construction of the world’s biggest quantum research facil-
ity (Shi-Kupfer and Ohlberg 2019, 32). The high-tech industry in Anhui is
heavily concentrated in and around the provincial capital, Hefei City. Hefei
is home to the Gaoxin industrial complex, which encompasses dozens of
high-tech industrial parks. One of them is China Speech Valley (Zhongguo
shenggu), which focuses on AI-powered voice recognition technologies
(Hefei STIP Co. Ltd 2022). Hefei’s high-tech start-ups and companies focus
on integrated circuits, biomedicine, and high-end medical equipment. Within
the Gaoxin industrial complex, the different industrial parks work closely
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China—A Rising Tech Power? 209

together. For instance, the Gaoxin industrial complex’s flagship company,

iFlyTek, cooperated with another private enterprise in the Gaoxin industrial
complex, ListenAI, to produce their ‘AI chips’ products (Su 2021).
The history of iFlyTek is the epitome of Anhui’s provincial development
of a local high-tech industry. In 1999, iFlytek Co., Ltd was founded in Hefei
by Liu Qingfeng, then a student at the University of Science and Technology
of China (USTC) in Hefei, and eighteen of his classmates. Since then, iFlytek
has gradually grown into a large company that is the ‘One Core (Yi he)’ of
Anhui’s smart development. Among the more than one thousand companies
in China Speech Valley, iFlyTek is now the largest. It has more than 14,300
employees (Market Screener 2022) and is the only intelligent speech rec-
ognition technology company listed on the Shanghai Stock Exchange (Zhu
2019: 68).
As the case of iFlyTek indicates, university linkages were key to the early
start-up phases and have played an important role in attracting talent to the
region. Anhui is home to USTC, a prestigious university in China that is
directly managed by the Chinese Academy of Sciences. Founded in 1958 dur-
ing the early years of the PRC, USTC set up many science and tech depart-
ments that are particularly relevant to emerging sciences, such as nuclear
physics and space technology. The university founders include Guo Moruo,
the first president of the Chinese Academy of Sciences of the PRC, who also
became the first principal of USTC. Besides USTC, the Hefei University
of Technology (HFUT) and Anhui University also provide a skilled labour
force for the many start-up companies that have settled in China Speech
Valley in Hefei.
Aside from the talent incubation and close linkages with university research
institutes, Anhui’s tech trajectory is also greatly influenced by its proximity
to prosperous coastal neighbours. Anhui’s southern prefectures enjoyed vari-
ous spillover benefits on digital implementation and technological innovation
from its technologically advanced neighbours. Situated along the Yangtze
River, Anhui was naturally connected to the downstream cities, especially
those in Jiangsu and Zhejiang. In 2014, the State Council positioned Hefei
as a sub-centre city of the Yangtze River Delta city-region, which meant
Hefei would be included, along with eastern coastal cities, such as Nanjing
and Hangzhou, in the Yangtze River Delta’s national strategy (Zhao and Zou
2018). These connections facilitated the flow of tech know-how, capital, and
entrepreneurs (Kostka 2009). Table 3 summarises the ten strategic emerging
industries and their regional distribution outlined in Anhui province’s 14th
FYP (2021–2025).
In Anhui, digital initiatives are more heavily concentrated in Southern
Anhui, which is more developed than the prefectures in Northern Anhui. By
tracking 205 local digital initiatives in Anhui from 2014 to 2021,6 we find that
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Table 9.3: Anhui’s strategic emerging industries in the 14th Anhui provincial FYP.
District Strategic Emerging Industry Clusters Industry Sectors
Hefei New energy vehicles, biomedicine and Smart technology/electronic
high-end medical equipment, culture appliances, AI
and creative industry, and cyber security ICTs, Green food
Ma’anshan High-end computer numerical con-
trol machine tools, railway transport
equipment
Suzhou Cloud computing
Huainan Big data
Chizhou Semiconductors
Wuhu Robots, new energy vehicles, modern agri-
cultural machines, general aviation
Chuzhou Smart household electronic appliances
Bengbu Silicon-based new materials Six new materials: bronze-
Tongling Bronze-based new materials based, iron-based,
Anqing New materials for chemical engineering aluminium-based, mag-
Huaibei Aluminium-based metal materials, high- nesium-based, silicon-
end macromolecule material based, and bio-based
Huangshan Cultural tourism Digital culture and creative
industry
Bozhou Modern traditional Chinese medicine Life and health industry
Fuyang Modern medicine
Xuancheng Core basic assembly units and parts Units and parts pro-
(production) duction for machine
Lu’an High-end equipment assembly units and manufacturing
parts (production)
Source: Anhui Province 14th FYP (2021).

the leading prefectures in the south include Ma’anshan (18), Wuhu (14), and
Hefei (13), while many poorer prefectures were left behind. Hefei, the provin-
cial capital city, became the new focal point for Anhui’s tech industry thanks
to its industrial parks and the location of many research institutes. Ma’anshan
and Wuhu are located close to both Nanjing, the capital of the prosperous
Jiangsu province, and Hefei, the capital of Anhui. With more than thirty-three
digital initiatives, Bozhou is an interesting exception. It is in Northern Anhui
and economically in the middle among the sixteen prefecture-level cities of
Anhui (Zhang 2022), but the city’s economic development relies predomi-
nantly on a specific sector: traditional Chinese medicine. ‘Bozhou medicine’
is famous throughout China. The importance of the traditional Chinese
medicine industry in Bozhou gives its digital initiatives a distinct character:
the City Brain project in Bozhou, for example, was tasked with tracing and
controlling the quality of traditional Chinese medicine ingredients and moni-
toring online vendors, along with other general functions in the area of traffic
and pollution (Inspur 2022).
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China—A Rising Tech Power? 211

In summary, the high-tech industries in Sichuan, Zhejiang, and Anhui have

developed differently because they have distinct historical trajectories and
different levels of support for the tech sector. The historical institutional per-
spective offered here helps to explain why the high-tech industry in Sichuan
is largely focused on civil–military industry production, while in both Anhui
and Zhejiang there is a stronger focus on AI technology and speech recogni-
tion. The comparison also sheds light on the diverse state–business relations
in the high-tech industry across regions: while Sichuan’s tech industry has, to
a large degree, been dictated by government and defence projects, Zhejiang
allows more space for the tech industry to develop, albeit with tighter con-
trols, and in Anhui, the tech industry has formed close relationships with local
research institutes and labs in Hefei. Support from local governments has
had a major impact on tech development in all three provinces, and historical
conditions have played a formative role in shaping the outcomes.

LOCAL REALITIES: THE LOCAL IMPLEMENTATION

GAP IN HIGH-TECH POLICIES

Despite Beijing’s impressive efforts to devise industrial policies for tech-

nology upgrading (Naughton 2021), there is a substantial high-tech policy
implementation gap. The term implementation gap refers here to differences
between Beijing’s high-tech ambitions and local policy outcomes. There
can be a gap because many elements of Beijing’s tech agenda fall to local
governments for delivery. As local governments’ interests, capabilities, and
pre-existing industrial structures differ widely, national plans and investment
funds are often not or only partially implemented, poorly executed, or sig-
nificantly delayed.
Examples of such ‘gaps’ include overinvestment in physical infrastruc-
tures, which causes a waste of public resources, insufficient long-term finan-
cial investments, ill-functioning digital platforms, and flawed digital services
for the public. For instance, despite being home to more than 500 of the
roughly 1,000 smart cities in the world (Deloitte 2018), probably less than 10
percent of the smart city projects in China were fully functional, according
to a report by a Chinese think tank (Liu and Zhang 2020). Many smart cities
do not offer complete services or have set up too many fragmented ‘service
brains’ that overlap with each other, causing a waste of resources (Liu and
Zhang 2020). Many digital projects face delays due to data integration and
standardisation issues and fail to integrate and analyse data for predictive
policies (Große-Bley and Kostka 2021). For instance, some of the widely
reported local social credit pilots have so far failed to develop a functioning
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212 Genia Kostka

scoring or assessment system, while others engage only a small percentage of

the entire population (Li and Kostka 2022).
One sector where high-tech failures at the local level are most apparent is
the many failed cases of local government investment in the chip industry. In
2020 and 2021 alone, six Chinese multibillion-dollar chip projects filed for
insolvency. Owing to the high costs and high risks involved, the semiconduc-
tor industry has become the prime example of ‘an industry that is flush with
state cash but still scarce on expertise’ (Feng 2021).
As the next sections argue, many of the failed outcomes in local high-tech
industries can partly be traced back to the insufficient financial, political,
and technical capacities of the local agencies in charge of high-tech policy
implementation.

Insufficient Financial Capacities and Mismanagement

of Funds
Many local high-tech projects depend on initial funding from China’s
Industrial Guidance Funds (IGFs). The local governments control the major-
ity of IGFs (Naughton 2021: 109) and an estimated total sum of RMB 3.7
trillion (US$508 billion) is in the hands of prefecture governments, who are
also the main implementers of the high-tech policies. In the second place
are provincial governments, who control RMB 3.3 trillion (US$454 billion),
while the central government controls about RMB 1.96 trillion (US$270 bil-
lion) of IGFs (Naughton 2021, 109).
At the national level, China has increased funding for technological and
innovative projects (National Bureau of Statistics of China 2022) and has been
planning major future investments. Local provinces have also set aside sig-
nificant amounts in funding for smart city and big data projects. For instance,
Guangdong province has invested RMB 10 billion in the next-generation
ICT industry in Guangzhou (Liu 2017). The Guizhou provincial government
has invested RMB 1 billion in a special fund for big data development that
supports enterprises specialising in data collection and storage, data sharing,
and information security (Wu 2021). Typically, more advanced localities in
coastal provinces spend proportionally more on digital projects than less
advanced localities in central and western provinces.
Despite the significant increase in funding for local IGFs, most of these
tech funds are assigned to specific programmes. Local governments, whose
responsibilities and tasks have skyrocketed over the past decade, ­tend to be
seriously underfunded (Wong, 2021). As a result, costly high-tech projects
are sometimes not prioritised because there are more pressing local priori-
ties to fund. To overcome funding shortages, local governments can apply
for project funding and staff expansion from the municipal, provincial, and
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Table 9.4: Examples of failed semiconductor projects

Year and
City, Local Semiconductor Type of Local Type of Reason for
Province Company/‌Project Gov’t Involvement Failure Failure
Nanjing, Tacoma/‌image sen- In June 2016, July 2020, Lack of
Jiangsu sor chip the Nanjing insolvency money and
Municipal depen-
Government, dence on
Nanjing foreign
Tacoma and technology
Tal Corporation
announced
cooperation to
build a wafer
factory
Gui’an New Huaxintong A joint ven- May 2019, Qualcomm
Area, (HXT)/‌developing ture between shut headquar-
Guizhou server chips Qualcomm and down by ters shuts
based on ARM the provincial the gov- down
architecture government of ernment server
Guizhou business
and loses
technology
source
Haui’an, Dehuai/‌12-inch CIS) The Huai’an gov- 2020, Other part-
Jiangsu ernment initially incom- ners did
attracted Joseph plete pro- not fulfil
Lee, the chair- duction their
man of Tacoma, line con- investment
to set up a struction obligation
wafer factory.
After falling
out with Lee,
Dehuai bribed
a Party member
in charge of
the Huai’an
high-tech zone
to gain project
approval and
construction,
tax rebates
and further
government
investment
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214 Genia Kostka

Chengdu, GlobalFoundries In 2016, GF and Notice of GF cancelled

Sichuan (GF)/‌0.18 the Chongqing closure in investment
micron/‌22nm chip municipality May 2020
manufacturing formed a joint
process venture to set
up a local plant
Wuhan, Hongxin/‌7nm and A joint ven- 2020, Capital chain
Hubei 14nm chips ture between insolvency rupture
Wuhan’s
Dongxihu dis-
trict (municipal)
government
and Beijing
Guangliang
Lantu
Technology
Fengxi Incoflex/‌flexible Major funding: 2020, Capital short-
Xincheng, semiconductor Fengxi district insolvency age. Senior
Xixian development executives
New Area, funds departed,
Shaanxi leaving
employees
unpaid.
Sources: Reuters (2016), Feng (2021), Chinese Semiconductor Chart/‌Xin Bang (2020), Yang (2020), Geng
(2020), Li and Shi (2020).

national governments, but these funding applications are often lengthy and
require sustained effort by local leadership over several years (Lo and Tang
2006; Kostka 2014).
The shortage of funding was also very clear in local governments’ efforts
to create a local semiconductor industry. Many of the projects described in
Table 5 failed due to insufficient financial capacities. The case of Nanjing
Tacoma is a vivid illustration of the local governments’ limited capacity to
support this costly sector. Taiwanese businessman Joseph Lee established the
semiconductor company Tacoma in Taiwan in 2003. He later moved part of
the business to China. In 2015, the Nanjing government invited Tacoma to
the Nanjing Economic and Technological Development Zone and Tacoma
signed a contract with the Israeli semiconductor giant Tower Semiconductor
to buy technology know-how and IP rights from Tower for US$60 mil-
lion. In 2016, Nanjing Tacoma Semiconductor Technology was officially
founded. This took place against the backdrop of the ‘chip rush’ created
by the publication of the 2014 Guidelines to Promote National Integrated
Circuit Industry Development issued by the central government. The local
government was said to have invested US$billion in Nanjing Tacoma (Zha
2016). Nanjing Tacoma was a comprehensive project that aimed to cover
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Table 9.5: Largest Local Industrial Guidance Funds

Scale (in
billions
Fund Name Level of RMB) Key Fund Priorities
Optical Valley Fund Prefecture 10 Optoelectronic information
(Wuhan) industry, new energy and
environmental protection,
high-end equipment manufac-
turing, high-tech services
Kunpeng Fund Prefecture 50 The upstream and downstream
(Shenzhen) of the new generation of
information technology indus-
try chain
Shanxi Taihang Fund Provincial 20 Investment in the fields of mixed
ownership reform of state-
owned enterprises, develop-
ment zone construction,
strategic emerging industries,
cultural tourism industries
and civil–military integration
industries
Jiangxi Development and Provincial 100 ‘2+6+N’ industries: 2 means
Upgrading Fund non-ferrous metals and elec-
tronic information; 6 means
equipment, petrochemicals,
building materials, textiles,
food, automobiles; N means
aviation, traditional Chinese
medicine, mobile Internet
of Things, semiconductor
lighting (LED), virtual reality,
energy saving, and environ-
mental protection
Zhejiang Jinhua Science Prefecture 11 Fourteen projects in the first
and Technology Park stage. Facilities are the main
priority, including necessary
infrastructure for high-end
education and several large
industrial and innovation
parks that focus on digital
economy innovation and
urban planning (Seetao 2021)
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216 Genia Kostka

Big Data Development Provincial 1 Financially supporting the BIG

Fund of Guizhou DATA EXPO in Guiyang (64
million RMB), building the
smart airport in the Guiyang
Longdongbao International
Airport, and supporting hun-
dreds of enterprises, espe-
cially focusing on ICT
Guangzhou Next- Prefecture 10 Building an ICT ecosystem and
Generation ICT developing a self-sufficient
Industry Fund ICT industry supply chain in
Guangzhou city
Sources: Naughton (2021: 109); Optical Valley Industrial Investment (2022), Shenzhen City Kunpeng Equity
Investment Co., Ltd. (2022), Chin (2017), Liu (2022), Liu (2017), Wu (2021).

the whole semiconductor production chain: the plan was to set up IC design
studios, R&D centres, facilities reproduction factories, assembly, testing, and
packaging factories, as well as the downstream daily applications product
centres. Nanjing Tacoma also promised to deliver a mass production capacity
of 8-inch chips in June 2018.
It all turned out to be a big disappointment. Following a government
investigation, Lee was found not to have invested any money in the project
and to have relied solely on local government funds. However, according to
Lee, the local government had promised him substantial support from China
Invest Century Shareholding Investment Group Limited (Li and Shi 2020,
11). The park also failed to provide a credential financing guarantee com-
pany for Tacoma to lend money. Ultimately, the funding was unsustainable
and far below the mark for semiconductor investments. On 19 April 2019,
Lee announced that Tacoma would cease production, and eventually, the
half-finished Nanjing Tacoma factory buildings were completely abandoned.
While the local government has tried to frame Tacoma’s failure as the result
of Lee’s non-investment, the lack of sustainable government investment in
the project is hard to ignore. As Tacoma’s case highlights, initial state invest-
ments may be huge, but sustaining funding is a major problem. Similarly,
other start-ups like Hongxin, Incoflex and Dehuai (another project started by
Joseph Lee) were regarded as ‘scams,’ but they all followed the same pattern
of starting as a high-profile project with large local government investments
and high hopes from the local governments, leading to failure. The national
strategic focus on semiconductor technology development developed by the
central government generated an uncontrollable and wasteful ‘chip rush’ in
the process of implementation at local levels.
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China—A Rising Tech Power? 217

Insufficient Technical Capacities

Technical capacity constraints can further hinder the implementation of
national high-tech mandates. Two pertinent technical constraints that are
commonly cited in the literature are a lack of technical know-how and insuf-
ficiently trained local staff in the public sector (Segal, 2003; Fuller 2016).
China’s local bureaucracy is in chronic need of well-trained staff to set up
and manage complex high-tech projects, which typically require tight man-
agement of outsourced subcontracts with private or state-owned enterprises.
Project management for IT and high-tech initiatives can become incredibly
complex. Zhang and Bao (2018) highlight the need to further enhance the
high-tech literacy of leaders in key government departments and provide
training to improve leaders’ skills and knowledge.
China’s state-owned companies generally face difficulty attracting and
retaining bureaucrats with a deep understanding of technology. For exam-
ple, a Chinese article that delved into the problem of a brain drain to the
United States complained that young, highly trained personnel often work
at state-affiliated institutions or SOEs purely for the sake of earning better
Hukou and polishing their résumés. The article notes that one or two years
after government officials get what they needed, they move to the private
sector as a step toward working abroad (Lian 2022). The shortage of human
capital in the tech sector also helps to explain why digital projects in China
sometimes get stuck in Phase 1 (data collection), while Phases 2 (data analy-
sis) and 3 (using data for predictive purposes) remain locked in the distant
future (Große-Bley and Kostka, 2021).

Insufficient Political and Coordination Capacities

Local governments work under certain political capacity constraints that
influence policy outcomes. Political capacity constraints can result from
coordination difficulties because of various factors. First, the implementation
and enforcement of high-tech mandates and plans at the local level are partly
hindered by bureaucratic fragmentation, as responsibilities are allocated
among many different government agencies (Große-Bley and Kostka, 2021).
Numerous government agencies are usually responsible for the implementa-
tion of a high-tech project but often without a clear division of labour, which
in practice leads to a lack of accountability. For example, more than fifteen
departments have a role to play in the implementation of digital governance
platforms at sub national levels. Usually, the provincial or municipal govern-
ment office and the local Big Data Administration (BDA) bureau take the
lead, followed by police/legal bureaus, economic/commerce bureaus and
social security/‌housing bureaus (Kostka, 2022). Similarly, when looking at
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218 Genia Kostka

the implementation of the City Brain projects at the local level, a lead project
manager noted that there are ‘way too many brains’ involved (Liu and Zhang
2020). A city can have an environmental protection brain, a traffic brain,
a medical care brain, and so forth—all on top of a city brain. The CEO of
Hangzhou H3C City Digital Brain Research Institute, Peng Yue explained, “It
might be due to the fact that many government bureaus build their own data
warehouses and all call them ‘brains’” (Liu and Zhang 2020). With responsi-
bilities spread across many fragmented bureaucracies, it can be cumbersome
to coordinate high-tech projects. For instance, it is often not possible for a
low-ranking bureaucratic office to access relevant data from another bureau
higher up the hierarchy. The same happens with bureaus at the same level.
Many data systems and platforms are often only for internal use and not open
to external users, even those within the government.
The implementation capacity of local departments in charge of complex
high-tech projects is further constrained by competing demands and heavy
workloads in implementing local agencies. High-tech projects also fall into
the realm of local Development and Reform Commissions (DRCs), which
are powerful but often take on too many tasks and are, therefore, sometimes
understaffed. In addition, many local DRC officials lack the digital expertise
to push or coordinate complex local high-tech projects. For a project to be
successful, it often requires the local leadership taking it on as a pet project;
only such high-priority initiatives can secure sufficient long-term start-up
funding. For instance, in Zhejiang, some local digital projects have succeeded
because local politicians kept pushing for them. In particular, the fast devel-
opment of the ‘Maximum one visit for administrative procedures’ digital
project would not have been successful without significant attention from
Party Secretary Yuan Jiajun (Yuan, 2021).
In summary, local leaders in charge of high-tech projects receive mixed
signals: they are asked to fully implement high-tech projects, but these
demands by upper-level governments are not always matched by a corre-
sponding increase in political power and financial resources. The following
quotation summarises the challenge quite well: ‘In a word, Big Data bureaus
are a paradise for innovators, but hell for those who follow prescribed rou-
tines. Work in Big Data bureaus can be summarised with the following key
words: endless tasks, limited budget compared with other departments, glory,
outstanding performance, bright future’ (Zhang, 2020).

CONCLUSION

This chapter argued that China’s technological rise is both fueled and
constrained by the specific institutions of the party-state. The ‘fuel’ is the
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China—A Rising Tech Power? 219

party-state’s capacity and will to lead China up the value chain thanks to
massive investments. China’s policymakers have shifted from an indicative
planning approach to new industrial policies in which the state plans to invest
unprecedented sums to leapfrog in technology—thereby helping Chinese tech
firms to advance rapidly in the global tech war.
The ‘constraints’ involve the downside of decentralised and fragmented
authoritarianism. As illustrated with the cases of Anhui, Sichuan, and
Zhejiang provinces, at the provincial level, the trajectory of technology indus-
trial growth differs across regions and is often shaped by multiple pre-existing
economic, social, and political factors. Furthermore, many national tech
ambitions are often only partially implemented at the local level due to local
governments’ insufficient technical, financial, and political capacities to push
for tech leadership in their locally grown tech industries. In particular, the
lack of long-term finances has been the main hurdle to the development of
viable high-tech industries at the local level.

NOTES

1. The author gratefully acknowledges funding the European Research Council

(ERC Starting Grant No: 852169). The author is also very grateful for excellent
research support from Jingshin (Anita) Lin.
2. Despite strong ambition, the funds ultimately raised only about US$672 billion
in total (Luong et al. 2021, 4).
3. The seven industries are: cloud computing, Big Data, Internet of Things, Indus-
trial Internet, Blockchain, artificial intelligence and virtual and augmented reality.
The ten sectors are: smart transport, smart energy, smart manufacturing, smart agri-
culture and irrigation, smart education, smart health, smart culture and tourism, smart
community, smart household, and smart government.
4. The spread of the 222 digital initiatives in Sichuan is as follows: Mianyang (28),
Chengdu (27), Neijiang (27), Guang’an (22), Meishan (13), Ganzi (12), Dazhou (12),
Bazhong (10), Suining (9), Nanchong (9), Ya’an (8), Luzhou (8), Guangyuan (7),
Deyang (7), Ziyang (6), Aba (5), Leshan (3), Panzhihua (3), Yibin (3), Zigong (2)
and Liangshan (1).
5. The spread of the 365 digital initiatives in Zhejiang is as follows: Jinhua (53),
Shaoxing (52), Huzhou (43), Hangzhou (42), Lishui (32), Ningbo (30), Jiaxing (23),
Zhoushan (21), Wenzhou (20), Quzhou (16), Taizhou (14).
6. The distribution of the 205 digital initiatives in Anhui is as follows: Bozhou (33),
Chizhou (22), Maanshan (18), Huangshan (18), Wuhu (14), Lu’an (13), Hefei (13),
Chuzhou (11), Fuyang (10), Huaibei (10), Xuancheng (9), Benggu (8), Tongling (8),
Anqing (8), Suzhou (6) and Huainan (4).
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220 Genia Kostka

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 The Emergence of China's Smart State by Creemers, Papagianneas & Knight
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Chapter 10

Opening the City Through

Debordering IT
The Making of an Innovation
Ecosystem in a Post-Industrial
Special Economic Zone in China

Yujing Tan

During Chinese economic reform, the Shenzhen Special Economic Zone

(SEZ) has been envisaged as a site of experimentation to exhibit the success
of the Socialist market economy. The 2018 urban planning agenda regarding
Innovation and smart cities turned the Shenzhen SEZ into an open city by
removing the borders between its inner and peripheral city and constructing
infrastructure for individualistic IT-driven enterprises, aiming to build an
“international smart city” (Jiang and Xuan 2018). This chapter uses the devel-
opment of the Shenzhen SEZ as a case-study to examine the geopolitical and
social implications of how local government and enterprises, as economic
stakeholders, responded to these industrial and urban planning policies. It
asks which mechanisms these stakeholders used to transform the Shenzhen
SEZ into an innovation hub, providing an on-the-ground account of how
smart state and smart city policies are implemented. Through this analysis,
the chapter hopes to contribute to a better understanding of how communities
implement industrial and urban planning policies more broadly.
Data for this study was collected through interviews and participant obser-
vations from 2015 to 2017 and was supplemented by video interviews in 2021
and 2022 as well as official documents, historical materials, and newspaper
articles. I interviewed official local government planners, officials working in

227
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228 Yujing Tan

tech-innovation and entrepreneurship, forerunners and current immigrants in

Shenzhen, and tech-entrepreneurs-to-be running IT startups.
This chapter is structured as follows. First, the chapter traces how an
entrepreneurial borderland was formed in Shenzhen through informal eco-
nomic movement after the introduction of market reforms (1978). Second, it
explains how state-led urban and industrial planning created a market transi-
tion, new government-business relations, and new human-capital mobility in
Shenzhen. I attempt to argue that this planning of a city of innovation and
smart city is gradually formalising informal economic forces and reposition-
ing Shenzhen, the former “world factory,” in the global supply chain. This
transformation has made Shenzhen a model for innovation in China. Third,
the chapter will conclude with a conceptual reflection on the politics of
techno-spatial planning in Chinese entrepreneurial borderland of innovation.

THE FORMATION OF AN INNOVATION

BORDERLAND: INFORMAL ECONOMY IN
SOUTH CHINA’S SPECIAL ECONOMIC ZONE

Shenzhen has been subject to the Chinese state’s industrial transformation

and economic policy reform since the 1980s. But what do these transforma-
tions and reforms really mean for our understanding of innovation in China?
This section will provide an overview and analysis of how reform and
opening-up policies played out in Shenzhen. The city was assigned the role of
a special economic zone and innovation hub. In this way, the state sought to
encourage economic dynamism, private entrepreneurship, and the mobility of
the domestic population. The relationship between the state and the market in
Shenzhen, especially between the local government and private enterprises,
was also reshaped in this process. A brief historical analysis of the Shenzhen
SEZ will help illuminate how innovative enterprises, and innovation in China
more generally, formed and accumulated in this borderland.
This section highlights how the transformation that has shaped modernity
and mobility in this borderland was driven by two imaginary worlds: the
less developed mainland China, on the one hand, and the developed “west,”
on the other. This outdated binary was cultivated by the oligarchy-driven
cold war but also by unbalanced regional economic development: compared
to the capitalist world, the socialist world is poor. The two-world binary
was strengthened by China’s economic reforms in 1978. In order to revive
the stagnant domestic economy and its developmental project in the world
economy, the Chinese central state imitated the “Four Asian Tigers” (Hong
Kong, Singapore, South Korea, and Taiwan) in the 1970s. In 1979, the state
picked four coastal locations (Shenzhen, Zhuhai, Shantou, and Xiamen),
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Opening the City Through Debordering IT 229

administratively promoted them to cities, and entitled them SEZs in order to

draw foreign export-oriented and labor-intensive manufacturers away from
Hong Kong. Capital and labor flowed into Shenzhen. The first Chinese stock
exchange center was built there in 1990. The introduction of (neo-)liberal
stateless financial regulation in Shenzhen successfully moved foreign capital
to mainland China.
The earliest Shenzhen SEZ was separated by two borders. The metropoli-
tan side of this second border-line is the SEZ, which has shared a national
(first) border-line with the United Kingdom since 1898, while the other side
out of the second border-line is made up of “factory zones” established for
foreign-invested manufacturing enterprises since the 1980s. Local people
called the metropolitan side of the second border-line the inner area (guannei)
and the other side, on which many immigrant workers lived, the outside of
the border (guanwai). Since 1980, the factory zone in guanwai has attracted
a large amount of foreign capital and many immigrants from within China,
especially rural areas. Foxconn, the largest electronic manufacturing contrac-
tor in the world, is also located in this huge factory cluster. In addition to
capital from Taiwan and Hong Kong, Japanese and Korean high-tech com-
panies such as Panasonic, Sony, and Samsung invested during this period,
outsourcing their production lines to private manufacturers in Shenzhen with
the support of local government policies. Thousands of Three Import and
Compensation Trade Enterprises1 were established in the 1990s. This influx
of foreign capital led to an influx of immigrants from mainland China (espe-
cially from Hunan and Jiangxi, provinces neighboring Guangdong). Many
immigrants even quit permanent contract jobs in their hometowns to come
to Shenzhen.2 The last years of the 1990s witnessed declining border control.
In 2003, the national Regulation on Custody and Repatriation, which strictly
limits domestic migration without official permits, was relaxed. Shenzhen’s
government started to deconstruct the second borderline and loosen its con-
trol over the mobility of the population.
The Shenzhen that is described as an economic miracle—in mass media,
in official brochures, and among developers—actually arose from increased
mobility under state-sponsored economic liberalisation and a sustainable
informal urban economy. It is the informal urban economy brought by immi-
gration and entrepreneurship that sustained the imbalanced development of
China’s political economy: economic liberalisation without political liberali-
sation. Counterintuitively, in the context of Shenzhen’s export-oriented indus-
trialisation, the informal economy was supported by the state’s regulation of
economic development. In order to develop the local economy, the local state
chose to turn a blind eye to the poor welfare system workers were offered by
the private sector. Indeed, the state offered no public services (e.g., infrastruc-
ture and security regarding labour rights) during the early urbanisation period
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230 Yujing Tan

and export-oriented industrialisation of the 1980s and ’90s. Drawing data

from Shenzhen and other cities in the Pearl River Delta, many sociologists
assert that most private sectors in China are dominated by informal economy
(Hu and Zhao 2006; Huang 2009).
During the central states retreat and economic liberalisation in the 1980s,
Shenzhen became an enclave to test and implement national economic poli-
cies and spatial planning practices imitated from developed countries. This is
not to say that the central state completely retreated during the market transi-
tion. On the contrary, by marketising central state-owned sectors (marketising
the Merchant Bureau into the China Merchants Group, for example) and state
enterprises in Shenzhen, the Chinese state strengthened its economic power
in the market economy (Yang 2001; Pieke 2009). At the same time, even as
the Tax-sharing Reform consolidated the central state’s economic authority
in 1994, local government in Shenzhen still gained agency in local economic
reforms. It is this institutional dynamic that drove mobility in Shenzhen: the
state-sponsored economic liberalisation attracted human and global capital.
However, mobility implies not only to the inflow of human capital, but also
to its outflow. Recent deindustrialisation, moving away from labour-intensive
manufacturing and toward the technology industry, led to an outflow of fac-
tory workers and an inflow of IT literate individuals: enter the young profes-
sionals (Wang and Tan 2020).
The local state-led urbanisation initiated in 2003 reshaped Shenzhen into
the “first Chinese city without villages and villagers” and “a modernised and
internationalised city” (Pu and Li 2003). Shenzhen has been re-framed into
a smart city and city of innovation since 2011 (Shenzhen Government 2012;
Shenzhen STITITC 2013). The urban renewal policy that did this further
promotes the mobility of land as a form of capital. Former urban villages
were gradually transformed into real estate companies limited by shares.
Villagers ceded land use rights to local governments and became sharehold-
ers. On this land, the local government quickly established new technology
parks to support companies such as Tencent and Huawei and internationalise
them into the global market. Obsolete factory zones were gentrified into cre-
ative clusters designed in the images of Greenwich Village in New York and
co-working spaces in Silicon Valley.3
Local government’s industrial policy practices have reshaped its relation-
ship with enterprises. Foreign capital and export-oriented enterprises, which
were supported by policies at the beginning of the reform and opening-up
period, gave way to technology companies representing “independent inno-
vation” in important strategic sectors (e.g., biotechnology, the internet, the
cultural and creative industry, new energy, new materials, and new genera-
tions of information technology). In 2015, the second borderline had been
wholly deconstructed. “There is no need to set the segregated line anymore,
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Opening the City Through Debordering IT 231

because there is no sharp imbalance in economic development between the

inner metropolitan city of Shenzhen and the peripheral city of Shenzhen,”4 a
retired local official told me. In addition, Shenzhen has become the driver of
new industrial regionalisation and globalisation. The large, cheap electron-
ics production chains are leaving the peripheral city of Shenzhen and being
relocated to Southeast Asia and other western and northern provinces (e.g.,
Guizhou and Hebei) in mainland China. The central urban districts are being
highly gentrified by real estate tycoons, with expensive residential communi-
ties, hi-tech parks, financial centers, and large shopping malls.

THE MAKING OF AN INNOVATION ECOSYSTEM:

FORMALISATION OF THE INFORMAL ECONOMY

Under the aegis of a state project to form an innovation hub in Shenzhen,

IT-focused startups are burgeoning. Private, informal economic forces are
alive in the fashioning of Shenzhen into a smart city and city of innovation.
However, as part of the political economy of China’s economic reforms,
building information-friendly cities entails formalising informal urban econo-
mies. Here, “formalisation” does not mean that robust informal economic
forces are weakened and suppressed. Rather, it means that the state actively
joins in the production of new informal economic forces by building “innova-
tive” and “smart” urban infrastructure. It is the government that defines the
boundary of the formal and the informal in the market economy.

Upgrading SEZ: Markets and Talents in the Transition

from “Copycat-China” to “Innovative China”
In Shenzhen, making a city of innovation and smart city drives an upgrad-
ing project that excludes the less upgraded export-oriented manufacturers
and propels flexible startups into the global supply chain of smart goods.
This chapter argues that Shenzhen’s upgrading is intertwined with the city’s
transformation into a simultaneously marketplace, which further promotes
the accumulation and stratification of talent and capital in innovation-based
industries.
Shenzhen’s Huaqiangbei electronics market is a prime example of this
shift. Often tagged as the biggest market of copycat electronics in the world,
Huaqiangbei electronics market has attracted merchants from all over. Since
the 2010s, the central government has started trying to dispel the negative
image of Chinese products, launching a series of policies to punish produc-
ers of counterfeit goods and passing laws on issues of intellectual property
(State Council 2010). Following the central government’s crackdown on
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232 Yujing Tan

counterfeit goods and intellectual property infringement, local government

launched a purge of Huaqiangbei electronics market (Ifeng Finance 2013).5
An informant working in the market, Cui, still remembered the days when
“a lot of merchants had to quickly destroy the fake goods. Otherwise they
would be harshly punished by the troops to crack down on counterfeit goods
(dajiadui 打假队).”6 Within several years, the market was no longer a hub
for counterfeit goods. Huaqiangbei market is now seen as potentially the big-
gest consumer-end products market in the world. Its foreign customers are
not only big company buyers of electronic components, but also individual
professionals and opportunity seekers who legally or illegally affiliate them-
selves with local workplaces and start their own businesses in Shenzhen. In
other words, more and more individual foreigners (not only company expats)
are becoming producers, joining in the production of Chinese brands and
goods to meet the demands of broadening domestic markets.
In addition, China’s market shift has produced a stratified class of for-
eigners in Shenzhen. An informant, Xiao Ling, grasped this situation. The
manager of a small store who runs both retail and wholesale electronic kits
businesses in Huaqiangbe, Xiao explained that a few years ago most of the
foreigners walking through the market were Middle Easterners and Africans.
Now, however, their biggest buyers come from developed countries; often
they are Americans or Europeans working near Huaqiangbei. They come to
buy equipment to work with their Chinese business partners in the nearby
incubation centre. It seems that the socio-economic stratification of for-
eigners in the Chinese market is accelerated by its shift. The shift from an
export-oriented manufacturing economy to a consumer-driven innovation
economy asks for professional workers with diverse professional back-
grounds to answer the sophisticated demands of both domestic markets and
overseas markets. This prepares the market and talent for the building of
China’s innovation ecosystem.
In line with the state’s reshaping of the market, local government also
encourages young IT professionals to start their own businesses in the
technology sector under the guidance of the Mass Entrepreneurship and
Innovation policy (Stace Council 2015).7 This policy is intertwined with the
invention of a moral code to turn the global imagination of “made-in China”
and “copycat China” into “innovation China.” A copycat (shanzhai 山寨)
means a parody and botched imitation of foreign brands. During the early
period of export-oriented industrialisation in the 1990s and 2000s, shanzhai
products were seen as representations of China’s low-end production and
innovation-starved system. Currently, however, production using copycat
systems in Shenzhen and the Pearl River Delta has become a positive activity
to self-identified techno-hobbyists and makers.
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Opening the City Through Debordering IT 233

The moral code of this new generation of innovators promotes individual

preferences in tech-innovation. Furthermore, it is based on their desire to
break the monopoly of large European and American companies on informa-
tion technology and use open-source software “to provide individuals with
more diverse and more interesting user experiences of the product.”8 Many
techno-hobbyists justify their activities by saying that they want to design
and produce copies modifying the appearance of authentic products, and
they position this practice as innovation.9 In order to perform as innovative
subjects rather than copycat producers, these maker-entrepreneurs rebrand
“copycat China” into “innovation China” by giving copycat production a
positive meaning. “Products always consisted of hacker technology and
disruptive innovation to renovate Western-designed manufacturing products.
The ambition of making copycat is what I call the spirit of Makers.” This
was stated by an industrial designer, Xiao Bo, who wants to sell copycat
smart bracelets.10 Forerunning Chinese makers overseas and some foreign
makers also join in the reproduction and promotion of this idea: “copycat is
the innovation in China” (Liao 2017). In their mindset, in the outsourcing
system of the global economy, intellectual property (IP) is a tool to maintain
the high-value position of “Western designers” and the low-value position of
“eastern manual laborers.” “This is unequal, that the Westerners have owned
the discursive power for a long time,” said Xiao. “Why not Chinese shanzhai
as an innovation?”
The new inventions of people like Xiao include varied electronics: from
smart phones to customised devices such as power banks, consumer-end
robotics, and health-data calculators, which can affiliate with Apple or
Samsung smart phones using platforms offered by companies like Tencent,
Baidu, and Alibaba. Most entrepreneurs making smart devices in Shenzhen
are like Xiao in the firm belief that their cottage industry has a certain degree
of innovation. The goods sold in the electronics market have “applied new
information technology innovations for upgrading people’s lives. IT made the
ordinary assembly line product have more intelligence for human life.”11 This
mindset fits well with the central state’s policy that manufacturing goods are
to be upgraded with the assistance of information technology to make a smart
city and city of innovation.

Constructing Incubators for a Smart City: The

Association of Big Enterprises and Small Start-ups
In addition to reinventing markets and attracting IT professionals, foster-
ing an incubation system is critical for the local government to facilitate
Shenzhen’s transformation into a city of innovation and smart city. Since
Shenzhen’s government has been promoting innovation, entrepreneurship,
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234 Yujing Tan

and smart city policies, the city’s number of smart hardware start-ups has
surged (Shenzhen Bureau of Commence 2021). The incubator system for
these start-ups imitates the Silicon Valley model. For example, the business
incubator provides professional services such as consulting, patent registra-
tion, and business registration for entrepreneurs. The Silicon Valley model is
characterised by an industry-academia-research economy centred on univer-
sities or research institutions and supported by financial institutions (Aoki
2000). Most start-ups active in Shenzhen’s hardware innovation sector have
emerged through incubators and start-up competitions held by innovation
associations. However, the incubator system in Shenzhen is also different
from the Silicon Valley model in several ways.
First, the rise of incubators in Shenzhen is based on industrial upgrad-
ing and urban renewal planned by sectors of the local government (e.g.,
Tech-innovation Bureau and Shenzhen City Planning and Land Resources
Committee) and the local National Development and Reform Commission
(local NDRC). Since urban land in China is owned by the state, local govern-
ments convert abandoned factories into industrial parks to house innovative
incubators. Through activities such as start-up competitions organised by the
local government, entrepreneurs receive support from the local government
in the early stages of their business. Most entrepreneurs who register their
start-ups in Shenzhen can rent space at the incubator for less than average
market rent, or even use the incubator’s office space for free. At the same
time, urban industrial sites are often redeveloped into high-end residential
areas to attract financially established talent. Shenzhen’s government has
planned talent housing (rencai gongyu) in different areas, and technology
entrepreneurs who meet the criteria for talent recognition in Shenzhen can
apply for talent housing at a low price.
Second, most of the incubators in Shenzhen are registered as private
non-enterprises.12 Under the national Mass Entrepreneurship and Innovation
plan, business incubation is seen as a public service. By providing advice
to entrepreneurs and a network of investors, incubators registered as private
non-enterprises are able to take on public services from the local government.
This takes the form of the government procurement service (zhengfu goumai
fuwu) framework, a Chinese version of public-private-partnership (PPP).
It means that the local government can outsource their duty of promoting
entrepreneurship and innovation to non-governmental organisations. In some
sense, the local government distributes accountability, as well as policy risk,
to the organisations. Since the 2010s, the number of incubators that were reg-
istered as private non-enterprises in Shenzhen has increased significantly.13 It
is worth noting that the emergence of private non-enterprises does not mean
the growth of civil society in Shenzhen. Most of incubators were founded
on properties owned by either local government sectors or private real estate
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Opening the City Through Debordering IT 235

enterprises. According to an interviewee’s explanation, this organisational

change “is to allow the government to adapt to market-oriented needs and to
foster an intermediary institution that can interface with entrepreneurs, inves-
tors, and the market.”14
Third, Shenzhen’s venture capital funds mostly come from the local
governments and large local enterprises. As a sub-provincial city with
little local debt, Shenzhen used fiscal surplus funds to create a municipal
government-guided fund with a total size of more than 100 billion RMB in
2015. It is one of the earliest and largest government-guided funds in China.
An interviewee explained that the local government wanted to promote com-
petition in the financial market and participate in the international venture
capital market to attract more investors, so the fund manager separated ten
billion from the government-guided fund and established Shenzhen Angel
FOF Management Co., Ltd. Shenzhen Angel FOF is the largest government-
guided fund for investment in China. Tencent, Huawei, ZTE, Ping An Group,
and Vanke, which are flagship private companies in Shenzhen, have also been
encouraged to become investors in rising start-ups by the local government.
It should be highlighted that most of the large Chinese tech-companies active
in national and international markets are private companies, but they maintain
a relationship as well as tension with Shenzhen’s local government. On the
one hand, they are tax generators and thus favoured by local industrial policy;
on the other hand, they are subject to the policy decisions of the local gov-
ernment., They maintain a certain cooperative relationship with each other,
which I will expand on in the next section.
To sum up, the local government in Shenzhen SEZ has had, and continues
to have, a salient role in establishing an incubation system. Not only does it
guide large local enterprises into the field of innovation and entrepreneurship
investment, but it is also an investor itself. This reflects the more generally
changing relationship between the Chinese local state and local enterprises: in
the process of promoting entrepreneurship and innovation, local government
is constantly mobilising local enterprises and social associations to take on
economic and social management tasks that cannot be accomplished through
administrative force alone.

Shenzhen’s Innovation as an Expanded Ecosystem

Model in China: The Reassemblage of Local
Governments and Local Enterprises?
The result of Shenzhen’s practice of urban and innovation policy is the
Smart Shenzhen project. This reflects the uniqueness of the city’s politi-
cal and economic transformation as a special economic zone: the industrial
solutions that were tested and proved viable in Shenzhen were adopted by
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236 Yujing Tan

Beijing and then replicated elsewhere. In this way, Shenzhen has become a
model to be followed (O’Donnell, Wong, and Bach 2017). China studies and
urban anthropology have done much to analyse the political economy of this
Chinese model city. Modelling is, overall, a common way of governing urban
areas in contemporary, late-socialist China (Hoffman 2010). However, when
looking at Smart Shenzhen as a model, we have to realise that the institutional
phenomenon of modelling is rooted in the tension between central and local
government in China. This tension reverses the industrial blueprint of Smart
Shenzhen drawn by Shenzhen’s own government.
The urban-planning framework of Smart Shenzhen originally used Silicon
Valley, the EU’s smart city framework, and Singapore’s Smart State as ref-
erences (Shenzhen STITITC 2013). Although this framework emphasizes
the Ministry of Science and Technology’s launch of the smart city theme
in the national 863 program15 at the end of 2010, Shenzhen has become a
typical representative of China’s Silicon Valley. Moreover, Smart Shenzhen
is seen by pragmatic local government officials as a model for transform-
ing government services through industrial transformation. An expert who
has participated in Shenzhen’s smart city planning told me that they did not
choose smart city as a brand at the beginning. The momentum of Shenzhen’s
industrial renewal made the government realise that using the name Smart
Shenzhen to justify the city’s role as an innovation leader would help launch
other industrial upgrading projects. My interviewee said, “Around 2010,
some new technologies and technical terms began to appear in the indus-
try, such as Internet of Things (IoT) technology, which is a framework for
understanding cities as physical entities,” continuing that “The IoT was first
applied to solve the problem of manual water meter reading in hydropower
stations: by installing sensors on domestic or public sluices, hydropower
stations can account for household and even city water consumption with
relative accuracy.”16 Beyond solving the specific problem of reading water
meters, the Smart Shenzhen industrial plan aims to change the city manage-
ment model, to improve management efficiency and provide a strong techni-
cal guarantee. According to the policy discourse, its purpose is “to enhance
the monitoring, analysis, early warning, decision-making capacity and wis-
dom of urban management (Shenzhen STITITC 2013).” So far, this IT-driven
smart industry is regarded by local government as a source of technical social
management tools for public institutions.
However, the government’s hopes and expectations for smart industries
have not materialised smoothly. The plans of industrial policy experts to solve
management problems with technology require the cooperation of various
departments within the government. Smart Shenzhen requires various gov-
ernment sectors and local companies to integrate their data on one platform.
This data centring is not supported by all government departments nor by
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Opening the City Through Debordering IT 237

most enterprises and, so far, interests are simply not aligned.17 This situation
is echoed by mainstream research on smart industries and smart city construc-
tion in China (Große-Bley and Kostka 2021).
Based on this finding, I further my argument that, when it comes to actual-
ising Smart Shenzhen only the industrial transformation aspect is a relatively
smooth process. Shenzhen’s large companies in the information industry,
such as Huawei and ZTE, have become world-renowned smart city hardware
and software suppliers. For example, through the smart city concept and 5G
base station construction, Huawei has launched Huawei Cloud, Government
Cloud, Kunpeng, and other products. Smart Shenzhen has been concretised
by Huawei, ZTE, Tencent, and Ping An Insurance as a business template for
urban renewal. Ping An Group, which has a full financial license, started to
build Shenzhen’s government services app, i-Shenzhen, in January 2019. It
covers services and information regarding social security, health care, trans-
portation, police security, life insurance, cultural, sporting events, and other
areas. Moreover, these large private enterprises are driving the transformation
of an outsourcing chain of IT service products. Shenzhen’s hardware manu-
facturers (those copycat hardware suppliers who were original equipment
manufacturers for European, Japanese, and American companies), software
application startups, and small and medium-sized enterprises in Shanghai and
Ningbo provide technical support for Huawei’s Kunpeng server board.
In addition to serving to strengthen the local government’s administrative
and economic legitimacy, the smart city branding is a tool for local compa-
nies in Shenzhen to expand and create impact beyond the city’s geographic
boundaries. The largest client base for IT companies expanding their smart
city templates outside Shenzhen is made up of the governments of other
Chinese cities. Various local governments are moving through the Shenzhen
experience, constantly competing for financial policy support from Beijing
to build new smart city infrastructure. Thus, Shenzhen’s information industry
has become contractors for other local city governments in China. These
governments try to compete to create the label of an advanced smart city by
using service offerings from IT companies in Shenzhen with sophisticated
smart city plans, thus further attracting investment. As explained by one
interviewee, when many local governments order this kind of product and
think it is useful, others will imitate this behavior so as not to be left behind.
Of course, Shenzhen IT companies themselves have done a lot of marketing
this end. More than 120 Chinese cities, such as Shenzhen, Shanghai, Ningbo,
Weifang, Yiyang, and Dunhuang have purchased Huawei’s smart city ser-
vices. However, it is worth noting here that after purchasing the smart city
services, each local government mainly aims to use IT enterprises to drive the
innovation of local industries. For example, the Ningbo government’s 14th
Five-Year Plan for Smart City Construction, launched in 2021, highlights that
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238 Yujing Tan

the main purpose of Ningbo’s smart city planning is to promote “industrial

integration and digitally driven industrial development” (Ningbo Big Data
Bureau 2021).
Shenzhen’s smart city template was also affected during COVID-19.
Local government and business relationships have undergone several major
changes in the process of building Smart Shenzhen through the pandemic;
these changes are best considered in terms of how the local government
and residents are relooking at prevention and governance, the relationship
between local and central governments, and the relationship between the state
and the market. As COVID-19 proliferated, Shenzhen took the lead in launch-
ing a Health Code platform, designed and provided by Tencent. Leveraging
the strong interpersonal network reach of the company’s popular WeChat,
China’s largest social networking platform, Health Code became the most
heavily used platform during the pandemic. i-Shenzhen, the government app
promoted by Ping An Group in 2019, did not have many registrants initially,
but the number skyrocketed during the pandemic. And, following Ping An’s
initiative, Huawei and Tencent formed a strategic partnership at the end of
2020 to help some district governments in Shenzhen build smart city projects;
Tencent’s Health Code and i-Shenzhen services can be embedded with each
other. So far, the provincial and municipal government-led smart city frame-
work seems to have been replaced by a polycentric, district-based design.
The government market for smart cities, in turn, has taken on a multipolar
monopoly pattern. But fears of a monopolies on technology platforms have
also increased as the pandemic continues in early 2022. It will take time to
see if Smart cities will move beyond the Shenzhen model into re-assemblages
of local governments and enterprises in a polycentric state.

CONCLUSION

The sociological exploration and explanation of the Shenzhen SEZ’s transi-

tion shows a strong push toward a digitally driven innovation ecosystem in
China. The Shenzhen SEZ, the former borderland of the market economy
under socialism, has been de-bordered and standardised into a City of
Innovation and smart city driven by local government, migrant young profes-
sional, and IT-intensive enterprises. This chapter finds that the production of
this innovation ecosystem is a process of transforming market space, upgrad-
ing industry, and increasing the mobility of people and capital.
First, this chapter has analysed how young tech-professionals experience
the production of this City of Innovation: how they remake working pat-
terns and their subjectivities to fit into the supply chain of the new urban
economy. This itself is a key objective of local governance in Shenzhen.
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Opening the City Through Debordering IT 239

Shenzhen’s plan to establish itself as a City of Innovation and its implementa-

tion of Mass Entrepreneurship and Innovation policy aims to attract talented
people with IT skills. The hope is to foster indigenous innovation projects,
to meet the growing needs of the domestic market, and to further replace
the export-oriented economic model of early industrialisation. Second, the
chapter has shown that Shenzhen’s innovation agenda entails a particular
process of formalising the informal economy, a process driven by the local
authorities. This was pioneered by the local government in Shenzhen, as the
city was the first SEZ of China’s reform and opening up. In this context,
formalisation means that the local government encourages and even creates
grassroots entrepreneurial activities with the support of large local enter-
prises (e.g., IT companies, real estate companies, and financial institutions)
and NGOs. This further attracts talented to Shenzhen. Third, in the tension
between the local government and the central government’s macroeconomic
policy, the local government has adapted its Smart Shenzhen project under
the aegis of the national smart city industrial policy. In practice, because the
application of smart city policy has not inherently changed the governance
paradigm in China, the local government sees the urban planning of Smart
Shenzhen primarily to promote industrial upgrading. This local strategy has
ultimately strengthened the collaboration between the local government and
local enterprises and start-ups, further expanding Smart Shenzhen as an inno-
vative model for other cities in China.

NOTES

1. Three Import and Compensation Trade Enterprises (sanlai yibu): shorthand for
enterprises that process imported raw materials, manufacture products according to
imported samples, assemble imported parts, and repay loans for imported equipment
and technology with products. Emerging along the coast in the late 1980s, all these
enterprises export their products abroad.
2. Interview Huang, 12 September 2012.
3. Interview with Fu, an architect working at the Institute for Rural and Urban Plan-
ning Shenzhen, 5 October 2015.
4. Interview with Huang, 19 October 2015.
5. For more information about the influence of this policy purge, see “The
Cleansing of Copycat Cellphones,” available at: http:​//​finance​.ifeng​.com​/news​/tech​
/20130103​/7507386​.shtml (Accessed 8 August, 2018).
6. Interview with Cui, 22 November 2015.
7. Mass Innovation and Entrepreneurship is an innovation and entrepreneurship
policy promoted by the State Council of the People’s Republic of China since 2015.
This policy advocates sub-national government to promote entrepreneurship among
professionals, especially young people, in the technology sector. This arrived in the
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240 Yujing Tan

context of the rapid growth of the new global economy and the rise of internet tech-
nology. Following this policy, local governments have issued policy documents to
support the construction of tech-entrepreneurship infrastructure (e.g., crowdsourcing
spaces, entrepreneurship guidance funds, and urban redevelopment funds).
8. Interview with Xiao Bo, 6 December 2015.
9. Interview with Xiao Bo, 6 December 2015.
10. Interview with Xiao Bo, 6 December 2015.
11. Interview with Bai, 22 November 2015.
12. According to the Interim Regulations on Registration and Administration of
Private Non-enterprise Units, the phrase private non-enterprise refers to social organ-
isations and other social forces, as well as private citizens, using nonstate assets to
engage in non-profit social service activities.
13. For more information about the influence of this policy purge, see “Hundreds
of Innovation Incubators: How Can the Quantity be High Quality?” available at: http:​
//​finance​.china​.com​.cn​/roll​/20150727​/3252851​.shtml (Accessed 8 August 2018).
14. Interview Cai, 8 February 2016.
15. The 863 Program was approved by the State Council in March 1986 to promote
the development of high technology in China. This program began with an emphasis
on government policies and funding to nurture scientific and technological talent
and to support research in basic subject areas. Since then, as local governments have
worked towards and reshaped this central macro-goal, the central government has
continually revised the goals of the program. The most recent goal proposed that
China should not imitate the West, but rather focuses on “indigenous innovation.” The
program ended in 2016. For a more in-depth discussion of its evolution, please read:
Zhi, Q., and Pearson, M. M. 2017. China’s hybrid adaptive bureaucracy: The case of
the 863 program for science and technology. Governance 30(3), 407–24.
16. Interview with Zhang, 20 June 2022.
17. Interview with Zhang, 20 June 2022.

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/ Open Access PDF from Rowman & Littlefield Publishers

Index

5G, 1, 75, 111–112, 114–116, central-local relations, 22–23, 35,

164 200, 237 41–44, 68–69, 199–226, 227–242
Central Cybersecurity and
Academy of Military Sciences, 176–177 Informatization Commission, 9, 16,
Alibaba, 72, 85–90, 98, 124, 140–141, 19, 25, 128
183–184, 206–208, 233 Central Leading Group
Alipay, 85–88, 91–93, 95–96 for Cybersecurity and
Anhui, 199–200, 203, 208–211, 219 Informatization, 1, 11
Ant Group, 86–93, 95–96; China Internet Investment
cancelled IPO, 92 Fund, 12–13, 24
Antiy Technology Company, 176, 180 China Internet Network Information
Apple, 59, 113, 164, 183–184, 233 Center, 12, 16, 160
APT 41, 181–182 China Mobile, 141
artificial intelligence, 1, 14, 39–40, China National Knowledge
48, 127, 164, 199–202, 205–206, Infrastructure, 128
208–211, 219 China Telecom, 141
ASML, 58, 73, 75 Chinese Communist Party, 1, 9, 11,
automation: in governance, 36–37, 14, 19–20, 25, 36–37, 40, 47, 103,
40, 43, 47–48 161, 166, 174
Civil Code, 134
Belt-Road Initiative, 113–115, 117, 164 civil-military fusion, 179–183
Big Fund, 2, 64, 66, 69; corruption critical information
probe in, 2, 70 infrastructure, 15, 135
blockchain, 1, 4, 14, 46, 219, 222 Comprehensive and Progressive
BRICS, 131 Agreement for Trans-Pacific
ByteDance, 12, 135 Partnership, 130–131
COVID-19, 19, 44, 96–97, 165–166,
censorship, 9–10, 13–14, 124, 127 185, 190, 238

243
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244 Index

cybersecurity, 9–10, 14–18, 21–26, 44, industrial policy, 57–58, 61, 104,
108, 116, 184–187 127, 199, 202
Cybersecurity Law, 2, 13, 15, 20, information warfare, 172–178,
24, 128, 134 180, 187, 205
Cyberspace Administration of China, informatisation, 2, 20–22, 35–37,
2, 9–33, 128–129, 132, 124–136, 47, 91, 187
139, 141–142 innovation,25, 41–42, 47, 60–62, 68–69,
71, 74, 76, 83–86, 80, 92, 95–96,
data protection, 10, 13–14, 95–96, 113, 115, 117, 143, 163, 172, 178,
123–152, 179 181, 201, 205, 208, 209, 212, 215,
Data Security Law, 2, 13–15, 20, 24, 218, 228–229, 231–239
128, 130, 134 International Electrotechnical
Didi, 15, 21, 23–24, 87, 128 Commission, 109–111, 113
digital currency, 83, 88–90, 94–96 International Standardization
Digital Silk Road, 141, 162–164 Organisation, 109–111, 113
Douban, 23 International Telecommunication
Union, 109–111, 131, 139, 153,
espionage, 63–64, 171, 184–188, 192 154–159, 164–166
extraterritoriality, 62, 107 Internet Corporation for Assigned
European Union, 107, 117, Names and Numbers, 12, 114, 139,
123, 140, 236 153, 157–162, 164–166
Internet Engineering Task Force,
Facebook, 12 111, 114, 139
fintech, 1, 4, 83–99, 142–143, 147 Internet Plus, 1, 201
free trade agreements, 130 Internet Society of China, 12, 160
Foxconn, 229
Japan, 57–58, 62, 75, 89, 93, 110, 112,
geopolitics, 55, 153, 174, 199 155, 174, 229, 237
Global Data Security Initiative, 131–132 JD, 86, 124, 140
global Internet governance, 12,
19 153–170 Li, Keqiang, 11, 20
globalisation, 55–57, 61, 65, Lu, Wei, 9, 11–12, 17–18, 161
76, 164, 231
Ma, Jack, 85, 90, 208
hacking, 15, 96; competitions, 172–193 Made in China 2025, 61, 63, 201
Hafnium, 186 Microsoft, 11, 113, 183, 186
health codes, 44, 238 Ministry of Commerce, 128, 141
HikVision, 123, 206 Ministry of Finance, 12, 24, 68–69
Hong Kong, 133, 143, 228–230 Ministry of Foreign Affairs, 18, 26
Huawei, 2, 60–61, 70, 73, 106, 123, Ministry of Industry and Information
158, 202, 230, 235, 237–238 Technology, 2, 11, 16, 21, 24–26,
67–69, 141, 158–160, 171, 184
IANA transition, 159–160, 162 Ministry of Public Security, 14–15,
iFlyTek, 42, 209 20–21, 25, 129, 172, 184, 188
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Index 245

Ministry of Science and Technology, Social Credit System, 25,

68, 115, 236 35–52, 211, 222
Ministry of State Security, 172, 1840185 Socialist Core Values, 38
South Korea, 57–58, 62, 69, 72, 76,
National Computer Network Emergency 111–112, 130, 141, 228
Response Technical Team/ sovereignty, 124, 127–129, 133–136,
Coordination Center of China, 12, 15 139–140, 143–144, 154, 157, 162–
National Cybersecurity Centre, 2, 26 163, 165, 166
National Development and Reform standards, 3, 9, 11, 21, 37, 43–47,
Commission, 20, 25, 38, 41, 42, 45, 75, 94, 103–122, 137, 155–157,
68, 86–88, 91, 94–95, 113, 234 159, 164, 166
New IP, 117, 155 STAR Stock Exchange, 2
North Atlantic Treaty Organisation, 174 start-ups, 63, 206, 208–209, 216, 218,
233–235, 239
online lending, 91–92 State Council, 10–21, 38, 41, 45, 84,
offensive cyber capabilities, 171–195 103, 127, 209, 239
Strategic Support Force, 178–179
People’s Bank of China, 41, 45, 84–89, supply chains, 59, 62, 68–69, 76,
91, 94–96, 141 228, 231, 238
People’s Liberation Army, 172– Supreme People’s Court, 39–41, 44–46
179, 193–194 surveillance, 124, 141, 171, 188
Personal Information Protection Law, 2,
13–14, 20, 24, 130, 134–136 Taiwan, 57–59, 62, 69, 71–72, 112,
platform economy, 2, 10, 13–14, 21–23, 151, 156, 159, 174, 186–187,
60, 206–208 214, 228–229
Technical Committee 260, 11, 16–17,
Qihoo 360, 180, 182–183 Tencent, 84–87, 93, 95, 124, 137, 183,
quantum computing, 200, 202, 208 230, 233, 235, 237–238
Tianfu Cup, 172, 183–185
Regional Comprehensive Economic TikTok, 124, 137
Partnership, 130–131 TSMC, 59, 62, 64, 71, 73

Semiconductors, 2, 4, 55–82, 186, 200, United States, 2–3, 112, 118, 140,
210, 213–216, 220, 225 174, 176; indictments of Chinese
SenseTime, 12 individuals by, 179, 184–185;
Shanghai Cooperation sanctions from, 2–3, 55–56,
Organisation, 131, 139 61–62, 123
Shenzhen, 23, 73, 142, 155, 227–242
Sichuan, 181, 182, 199, 203–206 vulnerabilities, 172, 177, 182–187
smart cities, 1, 202, 211–212, 227–228,
230–233, 235–238 WeChat, 137, 238
smart courts, 35–52 WeChat Pay, 85, 87–89, 91, 93
SMEE, 73 Weibo, 11–12, 23
SMIC, 73, 80 Wen, Jiabao, 86
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246 Index

World Internet Conference, 12, 18–19, Zhao, Houlin, 109, 155, 157, 166
139, 153, 162–166, 185 Zhao, Zeliang, 16
World Trade Organization, 57, 105–106, Zhejiang, 42, 199, 206–209, 211, 218
130, 139–140 Zhou, Xiaochuan, 86
World Wide Web Consortium, 139 Zhuang, Rongwen, 12
Zoom, 128
Xi, Jinping, 1, 10–11, 18–20, 24–25, ZTE, 2, 158, 235, 237
90–91, 131, 178, 180, 187, 201
Xu, Lin, 12
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About the Editors and Contributors

Martin Chorzempa is a senior research fellow at the Peterson Institute for

International Economics. He gained expertise in financial innovation while in
Germany as a Fulbright Scholar and researcher at the Association of German
Banks. He conducted research on financial liberalization in Beijing, first as
a Luce Scholar at Peking University’s China Center for Economic Research
and then at the China Finance 40 Forum, China’s leading independent think
tank. In 2017, he graduated from the Harvard Kennedy School of Government
with a master’s in public administration in international development. He
recently published The Cashless Revolution: China’s Reinvention of Money
(PublicAffairs, October 2022).

Rogier Creemers is a university lecturer in Modern Chinese Studies. With

a background in sinology and international relations, and a Ph.D. in law,
his research focuses on Chinese domestic digital technology policy, as well
as China’s growing importance in global digital affairs. He is the principal
investigator of the NWO Vidi Project “The Smart State: Big Data, Artificial
Intelligence and the Law in China.” For the Leiden Asia Centre, he directs a
project on China and global cybersecurity, funded by the Dutch Ministry of
Foreign Affairs. He is also a cofounder of DigiChina, a joint initiative with
Stanford University and New America.

Mei Danowski is a researcher focusing on cyber threat intelligence and East

Asia political, strategic, and economic affairs. Her work has supported vari-
ous US government organizations. She has also held roles in the private sec-
tor, including Microsoft, Accenture, and Verisign.

Hunter Dorwart is a Policy Counsel for the Future of Privacy Forum’s

Global Privacy team, where he analyzes new bills, laws, and regulatory
actions around the world with an impact on the digital economy, personal data,
and data flows. He has previously worked with the Federal Communications
Commission (FCC) on global digital development issues as well as the
Telecommunications Industry Association (TIA), a leading standard-setting
organization for the information communication technology industry. Prior
247
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248 About the Editors and Contributors

to that, he spent time with a boutique law firm and the International Bar
Association (IBA) where he helped coordinate a project exploring the legal
implications of artificial intelligence and next-generation technologies.

Jamie Horsley is a visiting lecturer in law and a senior fellow of the Paul
Tsai China Center at Yale Law School. Her project work and research revolve
primarily around issues of administrative law, governance, and regulatory
reform, including promoting government transparency, public participa-
tion, and government accountability. She was formerly executive director
of the Yale China Law Center. Prior to joining Yale, she was a partner in the
international law firm of Paul, Weiss, Rifkind, Wharton & Garrison; com-
mercial attaché in the US embassies in Beijing and Manila; vice president
of Motorola International Inc.; and a consultant to the Carter Center’s China
Village Elections Project. She holds a BA from Stanford University, an MA
in Chinese Studies from the University of Michigan, a JD from Harvard Law
School, and a Diploma in Chinese Law from the University of East Asia.

Adam Knight is a Ph.D. candidate at the Institute for Area Studies at Leiden
University, where he focuses on the design, implementation, and conse-
quences of the Chinese social credit system. Adam holds a First-Class degree
in Chinese Studies from the University of Oxford, during which time he was
a Fung Scholar. Adam also holds an MSc in social science of the Internet (dis-
tinction) from the Oxford Internet Institute, where he was a Henfrey Scholar.
Adam frequently contributes to reports in media such as the BBC, Financial
Times, and South China Morning Post.

Genia Kostka is a professor of Chinese politics at the Freie Universität

Berlin. Her research interests include digital media and technologies, digital
participation, and digital governance with a regional focus on China. For her
current ERC Starting Grant (2020–2025), she examines how local govern-
ments use digital technologies for urban governance in China.

John Lee is director of the consultancy East West Futures. He is also a

researcher at the Leiden Asia Center, a consultant for the International
Institute for Strategic Studies and co-lead on the EU China Semiconductor
Observatory. Lee’s research focuses on China and digital technology, in par-
ticular the semiconductor industry, China’s cyberspace governance regime,
and future telecommunications networks. Previously he was a senior analyst
at the Mercator Institute for China Studies and worked at the Australian
Department of Foreign Affairs and Trade and Department of Defence. John
holds a master of laws from the Australian National University and a master
of arts from King’s College London.
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About the Editors and Contributors 249

Gianluigi Negro is an associate professor in Chinese Studies at the University

of Siena and research a fellow at the China Media Observatory (CMO),
Università della Svizzera italiana (USI), Switzerland. After his Ph.D. at USI,
he was a post-doctoral research fellow at the School of Communication of
Tsinghua and Peking Universities. He is a member of the Global Internet
Governance Academic Network (Giga-Net) and serves on the international
editorial board of the Palgrave Series in Asia and Pacific Studies, as well as
the editorial board of H-Hermes—Journal of Communication and the Journal
of Transcultural Communication. His research focuses on Chinese media his-
tory and Chinese Internet governance.

Straton Papagianneas is a Ph.D. candidate at the Institute for Area Studies

at Leiden University, where he studies the automation and digitisation of legal
courts in the People’s Republic of China. He is strongly interested in the study
of Chinese law and society, governance, automation of justice and adminis-
tration, and its surrounding ethical and normative questions. He also teaches
courses on Chinese law and society, governance, and automation and justice.
Outside of his academic work, Papagianneas is an editorial board member at
Sinotalks, a trusted repository of knowledge about Chinese law and policy
that focuses on elucidating proposed, pilot, and polished solutions to prob-
lems related to China and discussing their global implications. Previously, he
was a senior editor of Mapping China Journal and assistant managing editor
of the China Guiding Cases Project at Stanford Law School. Straton is also
affiliated with the Leiden University’s VVI Institute for Law & Society, and
the e-Law Centre for Law and Digital Technologies.

Tim Rühlig is a research fellow at the German Council on Foreign Relations

(DGAP) researching Europe-China relations, Chinese foreign and indus-
trial policy including high technology, and Hong Kong politics. His current
projects focus on China’s growing footprint in technical standardization,
the emerging US-China technology rivalry and its implications for Europe
as well as the politics of Hong Kong. He is a member of the China Task
Force of the European Standardization Organizations CEN and CENELEC,
and a member of the Management Committee and the Core Group of the
EU-funded COST Action “Europe in China Research Network” (CHERN),
where he chairs Working Group “High technology and Innovation.” He holds
a Ph.D. from Frankfurt University with a thesis on sovereign state control
in China’s foreign policy, and recently published China’s Foreign Policy
Contradictions (Oxford University Press, 2022)

Yujing Tan is a tutorial lecturer in international studies at Leiden University.

She conducts ethnographic research about “doing innovation” in the
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250 About the Editors and Contributors

socio-technological transition of China. She approaches the emergence

of Chinese innovation, a political economic transition as well as a social
movement, from the perspective of economic sociology and anthropol-
ogy. Focusing on transformation of the Leninist state, her research includes
Chinese local governance, industrial upgrading and innovation in China, and
more recently China-driven internationalization.