20 August 2018

The Digital Silk Road

When we think about the "Belt and Road Initiative" (BRI), our minds leap to physical infrastructure: bridges, tunnels, freeways.

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Written by Quartz Creative on behalf of HSBC

But ones and zeroes increasingly form a different kind of “infrastructure” in our daily lives, and there will be a “Digital Silk Road” arguably equal in importance to the new physical one. Ajay Sharma, Regional Head of Global Trade and Receivables Finance, Asia-Pacific, HSBC, sees it as an area that’s “often overlooked, but has significant potential from a BRI perspective.”

Already, a group of funds and companies, including China’s Silk Road Fund and the British multinational Arm Holdings, have established a fund with aims of raising and investing $800 million in technology projects (like mobile and AI) around the globe.

While that figure – combined with other BRI investment in digital technologies – will inevitably be a good deal lower than the billions Beijing is spending on physical infrastructure, it still presents an enormous opportunity. Talk of a “Digital Silk Road” also has a strategic and symbolic importance, says Eric Olander, co-founder of theChina Africa Project blog and podcast. He calls the Digital Silk Road “extremely important” in that it “demonstrates China's ambitions to move not only physical goods but also to open new markets for China's digital companies.”

So who stands to benefit from the new Digital Silk Road? And what will it look like on the ground?

First, expect a major boom for China-based telecoms and satellites firms. An EY report from September 2016 makes clear that Chinese state-owned enterprises have already embarked on massive projects related to BRI. It’s not just state-owned enterprises catching the wave; ZTE, the Shenzhen-headquartered Chinese telecoms international, is behind a recent fibre optic network in Afghanistan, for instance. Analysts also see BRI as an opportunity for China to boost its Beidou-2 satellite network, a competitor to the US Global Positioning System.

Second, expect a proliferation of “smart cities” in BRI countries. Yinchuan is held up as China’s model “smart city,” with an array of digital services streamlining daily life. Expect similar, ZTE-powered smart cities cropping up along the BRI route in years to come.

Third, expect Chinese e-commerce giants Alibaba and JD.com to benefit greatly in the paths forged by BRI. Increasingly the Chinese consumer is purchasing goods made in the West via JD and Alibaba, and seeing their goods shuttled East via high-speed Chinese freight trains connected to European cities. “Few companies can rival Alibaba's e-commerce and cloud computing strengths in the developing world where competitors like Amazon have yet to venture in any meaningful way,” says Olander.

HSBC’s Sharma agrees, seeing Alibaba as a beneficiary of the Digital Silk Road from a shipping and payments perspective, with their logistics hub in Malaysia, specialising in customs clearing and warehousing coming online in 2019.

“Using technology to change the way we handle goods is going to be significantly important.” From a transactional point of view, he believes that investment in companies that are looking at payment systems, will make payments online in China simpler.

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