Chinese cloud services cost 40% less than American-run ones

"A technology tussle between the two superpowers is never far away. 

This week the Wall Street Journal reported a breach of American telecoms networks by a Chinese hacking group known as “Salt Typhoon”, which was seemingly intended to glean knowledge about American wiretapping activities. 

In both countries, deep mistrust has led to a policy of shunning the other’s digital infrastructure. Uncle Sam bars Huawei, a Chinese firm, from installing its telecoms kit in America; China discourages the sale of Silicon Valley’s servers and cloud-computing products within its borders.

Yet in much of the world American and Chinese infrastructure—the data centres, undersea cables and wires that underpin the internet—sit side by side, as the two countries compete for market share, profits and geopolitical clout. The fiercest contest is in Asia. There the presence of Chinese digital-infrastructure firms is already substantial. Some 18% of all new subsea cables worldwide in the past four years have been built by a single mainland firm, many criss-crossing Asia. Alibaba’s cloud operation is active in nine Asian countries and Huawei has built many mobile networks.

China’s success partly reflects a government plan. Its Digital Silk Road strategy, a branch of President Xi Jinping’s Belt and Road initiative, aims to dominate the region’s internet plumbing. It helps, too, that Chinese firms are innovative and cheaper than American ones, though some are aided by hidden subsidies from the government. By one estimate Chinese cloud services cost 40% less than American-run ones.

If China came to dominate Asia’s digital infrastructure, the consequences would be profound. Its ruling Communist Party wants to set the norms that govern data and the internet. China’s pull within the world’s technical standard-setting bodies has grown and it has promoted a vision of “data sovereignty”, under which governments control information and make sure it is stored locally, so nothing can escape the state’s grasp.

Digital dilemma

Worse, Chinese-run digital infrastructure could expose Asian countries to the risks of snooping and sabotage. Some governments are complacent about this. They should not be. Chinese hackers have stolen intelligence on the South China Sea from the Philippines, and have targeted Malaysia’s Kasawari gasfield, which is in waters that China claims.

When mobile-telecoms networks were being built in the 2000s, two Chinese firms, Huawei and zte, soundly defeated their American and European rivals in Asia. But that does not mean Chinese firms will necessarily win the battle to supply the next generation of digital infrastructure. The investment cycle has barely started. Tech firms will be investing tens of billions of dollars annually in data centres in Asia for years to come. And the picture is far from uniform. One study finds that China dominates cloud-computing hubs in five of 12 Asian countries, America leads in five and they are neck and neck in two. Some countries, including India, have recently grown warier of the security risk posed by Chinese firms.

To prevail, America should focus on three priorities. The first is to get tougher with its treaty allies which have become wholly reliant on China, in particular Thailand and the Philippines. The latter is intensifying its military links with America even as its digital infrastructure is vulnerable, which makes little sense. Some countries, such as Pakistan and Cambodia, have ceded digital sovereignty to China and are lost causes.

Second, America should aim to develop an Asian alliance for cyber-security and artificial intelligence. In 2017 Donald Trump abandoned an ambitious regional trade deal, the Trans-Pacific Partnership, that would have governed digital commerce among many other things. Reviving that will be impossible, due to America’s protectionist turn, but a narrower agreement could plausibly be struck with some countries, giving them access to American technology in return for assurances of heightened caution over Chinese security risks.

Last, America’s intelligence agencies could shed more light on Chinese cyber-shenanigans. Public knowledge about the scale of Chinese snooping and hacking is limited. It is time to raise awareness that cheap Chinese digital infrastructure has a sting in its tail." [1]

1. A sting in the tail. The Economist; London Vol. 453, Iss. 9418,  (Oct 12, 2024): 11, 12.