Clouded Judgment

The global leaderboard in cloud computing infrastructure is a familiar set: Amazon, Microsoft, and Google. But disruption lingers right beyond the “big three” of American “big tech” champions. Alibaba stands in fourth place with Tencent and Huawei not far behind. Collectively, they give China three out of the top 10 cloud infrastructure players in the world.

At this point, it’s a common arc: American innovators demonstrate the value of a technology, bring it to market, and enjoy some time at the head of the pack – then, ultimately, lose to China’s fast following, state-backed, hyper-scalers. In the cloud competition, Chinese industry observers think that in a few years, China’s players will be ready to supplant their American peers and “become the kings of global cloud computing.” And, should that come to pass, it will cement Beijing’s leverage over a host of downstream applications that depend on cloud infrastructure to store and process data. That position would be a digital analogue to the stranglehold China asserts in rare earths.   

Chinese players in the field have several natural advantages, despite their relatively late entry into global cloud markets: China’s domestic data endowment and protected domestic market guarantee scale for Beijing’s champions in the field. And counterintuitive though it might be, the Chinese Communist Party’s “techlash” may be compounding this advantage: That effort to increase the government’s authority over the tech ecosystem is intended better to fuel a “State led, Enterprise driven” approach to global markets.

This is particularly true as China’s techlash is taking place in parallel with deliberate CCP efforts to shape digital trade – and broader digital governance – systems internationally; in doing so to advance a regulatory system for the digital era aligned with the CCP’s political, commercial, and security interests.

And right now, Washington risks supporting this effort. The Alibaba Tencent rise is not all China’s doing. The uneasy relationship between Washington, DC and America’s big tech – and a broader US absence in the digital governance arena -- only helps China in the global cloud competition. A recent USTR decision to stand down on digital trade provisions in WTO deliberations is one recent example. That decision created a vacuum for Beijing to shape global rules on digital trade and governance more broadly.

Nor is that the only US move that has granted China the initiative. Again and again, the US has dropped the ball on issues including privacy, cross-border data flows, data localization, and artificial intelligence (AI) regulations – and in doing so failed to spur domestic development and shape the international environment.   

While the United States sits back, China is forging ahead in defining global digital governance in its interest – through international organizations, bilateral and multilateral agreements, and commercial partnerships – all while it supports the tech champions positioned to pounce at the opportunity. This carries obvious commercial concerns: Chinese firms battling for global market share will benefit from Chinese-made rules and a clear Chinese regulatory framework.

It also carries national security risk. With DC stalling in advancing a clear digital policy vision, America’s adversaries have an opportunity to shape the global regulatory environment, threatening US interests that include the protection of individual data, trust in foundational models and algorithms, and access to data troves necessary to propel everything from autonomy applications to cybersecurity.

Stall in DC also means that America is hamstrung in its ability to coordinate with democratic, market-based allies from Tokyo to Tallinn. China’s digital ambitions are at odds with America’s interests and those of the world. But without articulating a proactive vision in international for a like the WTO, Washington will be unable to make that case clearly to allies and partners.

And critically, but radically under-recognized, influence over digital governance will grant Beijing a leg up in defining and vetting foundational models and their expanding applications in both text and visual learning use cases. This longer-term threat reflects the playbook Beijing has already implemented in capturing sectors through supply chain and production advantage, whether pharmaceuticals or solar energy: Beijing’s digital governance model, including data localization policy, risks hardwiring PRC control over global data. Should that happen, those building applications on top of or via those data pools will be at the whim of the CCP. Early in the COVID-19 pandemic, Beijing hoarded personal protective equipment; over a decade ago, the CCP restricted rare earths exports to Japan over a territorial dispute. In a digital era, imagine if Beijing had that same coercive leverage over data.

China still considers America the leader in digital trade. But China’s “relatively complete digital infrastructure” and “huge market scale” have Beijing well positioned to leapfrog. If China shapes digital governance, too, it risks capturing a foundational resource of tomorrow’s economic and security environment.

The world is a better, more secure, fairer place when America leads. That’s true in traditional security realms. It’s also true in the emerging digital landscape. China’s approach to data underscores the costs of not leading: Beijing’s use of its domestic data control to infringe on personal privacy and propel human rights abuses should be enough to give global and American regulators pause about a China-defined digital order. US policy makers and regulators need to see the strategic game at play and work to advance a vision that protects privacy at home and abroad while also guaranteeing that market-based competition can proceed across emerging tech domains.

If we stall out, China is at the ready to overtake.