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Time:March 23-25, 2019
Beijing Diaoyutai State Guesthouse
Sponsor:Development Research Center of the State Council
Organiser:China Development Research Foundation
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The internet is at the core of digital technology revolution.   Without it you don’t have connectivity between people, computers and databases.  Most of the transformations in individual economies and in the global economy of the past 25 years, and all of the future potential innovations rely on the network.  These linkages enable ecommerce,  rapid, low cost synchronous communication, social networks, highly efficient complex global supply chains, access to valuable information, sharing economy models, online education and training,  the accumulation of and access to masses of data underpinning machine learning — the modern version of Artificial Intelligence.  Twenty-five years since the WWW became available to ordinary citizens and businesses, is an astonishingly short period to have produced so much change in communication, trade, retail, media and entertainment, automation, and more.  And most analysts believe what we have seen so far is the tip of the iceberg.

The other revolutionary development is the mobile internet.  It is even younger, about 15 years.  It arrived when wireless technology developed for mobile voice communication merged with similarly small personal digital assistants that initially connected indirectly to the network via computers.    As they merged, the computer was eliminated, and the phone became well – the phone, the computer and the connector to the internet, all in one.   This has had many profound effects.  Probably the most important is that it has vastly expanded the set of people who are connected to the internet.  A close second is that people are connected more or less all the time, enabling the rise of a host of important new applications - social networks, mobile payments systems, nearly continuous synchronous communication,  location specific services like maps, ride and bicycle sharing platforms.

But there is a problem.  For much of the early history of the internet after the mid-1990’s going to the main stream, ,the internet was largely a globally open system, with standardized protocols and a shared underlying belief that an open internet serves the best interest of users , communities, and nations   .  It was regulated lightly if at all, and mostly with a focus on adapting protocols and maintaining an orderly domain name structure.  The difficulty is that experience has shown that there are numerous areas in which the development has had serious negative impacts.  These include monopoly power, data security and privacy, vulnerabilities to attack with respect critical infrastructure including financial market structures and electoral processes, poorly understood impacts on social and political processes and cohesion, and on childhood development and more.

As mobile internet permeates every corner of the economy and society and the user base continues to expand rapidly across the world, it is clear that the downside risks and, vulnerabilities  in the global internet cannot and will not be ignored in the next chapter of development.  Our main message is that we have entered a new and chaotic period of change, during which the open internet of the early years is likely to be replaced by an increasingly regulated internet.   A more regulated internet, depending on the nature and scope of the new regulations, will likely produce many intended and unintended consequences.

New regulation will be largely initiated by individual states.  There is a strong case for international cooperation, but thus far it has been very limited and its prospects seem dim given the current unilateralist and protectionist tendencies of major powers.  And because some of the threats and negative outcomes are initiated by non-state actors, international agreements among sovereign nations may have their own limits. .  It is not even clear that countries will agree to treaties banning the use of cyber warfare of various kinds.

Further, the approaches to regulation will vary widely from one country and society to the next, in large part because their values, governance structures and principles differ.  These differences will be fundamental.  Who is responsible for and liable for data security.  Does the state have access to the data and for what purpose.  What is the state allowed to do with it. Even in the early stages, it is clear that countries will diverge in a fundamental way in terms of answers to these questions.

As a result, the overall effect of these processes will be a much more heavily regulated internet, and one that is highly balkanized.  That is, there are boundaries, and firewalls, across which regulations shift and data flows are restricted.   Because data is so critical in almost every dimension of change, both positive and negative, it seems clear that cross border data flows will be substantially restricted.   They already are except for the numerous data breaches.  China does not allow western social media platforms to operate in large part because of the concern that the latter won’t play by the Chinese rules with respect to government access to certain kinds of user data, and the right to filter content deemed inconsistent with the broad public interest.

This disorganized (at least in western countries) and largely national pattern of regulation will have negative consequences.  There will be spillover effects on international trade and investment.  There already are.  Most of the US based  technology platforms are blocked in China for the reasons stated above.

Huawei has been consistently blocked in entering the US market, including investment in software startups, the sale of network equipment to US wireless carriers, and recently along with ZTE in mobile phone handsets.  The US authorities have blocked Huawei and ZTE on the national security grounds, while Huawei and ZTE maintain they enter for commercial reasons with no links to government, and they play by the laws and rules of the countries they are in. In contrast to the hardline positions towards Chinese IT companies in the United States, nearly all European countries, including United Kingdom, are generally receptive and Huawei and ZTE are major players in the European market .

One might be tempted to say that these are technology companies where the fear of government intervention (real of imagined) is front and center. But this would be a huge mistake.  The fact is that the entire global economy and all of the sectors and companies are becoming integral parts of the digital economy.   To be sure the process is incomplete.  If regulation of the internet and digital technologies is sloppy, non-cooperative (in the game theory sense) ,  incomplete, and giving rise to new  protectionist barriers,   then there will  be adverse effects on global economic integration with all the benefits and admittedly some challenges that integration and openness bring.  In the absence of sound and harmonized international rules and agreements embraced by all countries, there will be a cloud of uncertainty surrounding cross border trade and investments in information technology, and flows of data and knowledge transfer.   Inconsistent national rules will inevitably lead to harmful economic conflicts, mistrust, and instability in the global system.

Now is the time to think carefully about the regulation of the internet within countries and, perhaps most crucially, about forging multilateral agreements that proscribe destructive activity but more important that facilitate normal international commerce and finance by clarifying rules and eliminating risks and uncertainty associated with the chaotic, fragmented, and opaque system solely determined by domestic regulations of individual countries alone without a common global framework.

These issues are so important and if left unattended, so potentially damaging, that a major China and US led international initiative to sort through the multiple regulatory and related issues described above, would be welcome and would yield huge potential benefits for all.