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January 16, 2017

Responding To: Tangible Cooperation in 2017

Bridging the Digital Divide

Vicky Gu

There are countless areas of collaboration between the United States and China, and they will only increase in number and magnitude. The more pressing matter lies in tangibly and sustainably realizing this potential. While innovations in technology have brought citizens of both countries closer together, the barriers in digital trade have also bred separation.

The United States and China both affirm innovation as a critical driver of development and prosperity (White House). While the two agree that innovating together is key, regulatory actions and public sentiments speak otherwise. This especially manifests in the technology and information communications industry—an area permeated by exciting potential yet rife with security suspicions. Different civil liberties and government priorities prove a divergence in values, and it reflects in discriminatory policies and practices.

As an industry in relative infancy, it’s an area China understandably seeks to own for itself. Indeed, domestic firms such as Baidu, Alibaba, Tencent, Didi Chuxing, Xiaomi, and Huawei testify to China’s ability in areas spanning social networking to e-commerce to hardware. However, the side effect of shifting emphasis to indigenous innovation is the alienation of firms who could provide healthy competition. Google, Facebook, Amazon, and Uber have risen as leading platforms for a reason, and while not all may be fit for the Chinese population, there surely exists overlap for both sides of the Pacific to benefit. Likewise, Chinese innovation in consolidating mobile platforms can provide direction for the development of American-born platforms.

Ventures from both sides have met regulatory affronts. Even the occasional success story meets its fair share of restrictions. Beijing’s increased crackdown on foreign online publishing included shutting down Apple’s iTunes movies and iBooks in April of 2016 (The Guardian). Both countries bar certain technology firms from state-approved purchase lists (Cisco to China, Huawei to the United States) (Reuters). While there are places for valid security concerns, there are also spaces where Beijing can act with greater transparency. It can take inspiration from other countries who have embraced American technology products in ways that would benefit their populations (e.g. “Facebook-Loving Farmers of Myanmar”).

So far, Beijing has welcomed goods and services that provide public utility in ways Chinese firms haven’t quite mastered (Apple, LinkedIn, Tesla). But what if the Chinese government were to open up to American firms working towards a vision greater than business needs?

Missions of unrestrained connectivity seem to be the common thread of failed U.S. firms (Google, Facebook, Medium). China is not yet concerned with global connectivity. They’re concerned with developing a sustainable competitive advantage but not through the same type of big picture and bordering philosophical strategy that drives Western firms.

If both countries believe in the power of an interconnected global digital infrastructure, they must match their actions with the truth that connection requires multiple parties. Looking at the American landscape, China should reframe incentives for domestic firms to compete instead of allowing app startups to compete to bitter bankruptcy with unsustainable subsidies (WSJ). They could redevise policy favoring domestic over foreign technology providers and loosen the tiger hold on digital content. On the other hand, American firms should focus on the relevant value they can add to the Chinese public, being mindful of cultural context.

Measures such as these can be addressed in a bilateral investment treaty (BIT) between the United States and China. Though negotiations have been ongoing (White House), the new presidency presents a timely opportunity to clarify investment expectations. Ideologically, both countries agree on shared objectives of open investment opportunities in the annual U.S.-China Strategic and Economic Dialogue. However, in 2014 U.S. foreign direct investment (FDI) into China was $65.8 billion while China’s FDI into the U.S. was a much lower $9.5 billion (USTR). A treaty would address possible biases in the Committee on Foreign Investment in the United States’ (CFIUS)
evaluations of Chinese attempts to invest in the U.S., also giving Chinese firms more insight into Western standards. It could prevent the millions of dollars lost in failed U.S. ventures into China and billions of missed opportunities (
LA Times).

Ultimately, there needs to be a trade adviser at the policy table just as there needs to be a policymaker in the boardroom. Yet firewalls and ideological walls notwithstanding, given time, history has a way of breaking down walls.

Vicky Gu is a senior at Georgetown University studying finance and international business.

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