This pieceis part of the series All About Chinaa journey into the history and diverse culture of China through short articlesthat shed light on the lasting imprint of Chinas past encounters with the Islamic world as well as an exploration of the increasingly vibrant and complex dynamics of contemporary Sino-Middle Eastern relations.Read more...
The strategic rivalry between China and the US that has developed over the past decade includes a struggle for control of the global digital economy, particularly the digital infrastructure and information communications technology (ICT) markets. In recent years, China has become a global leader in some areas of the digital economy such as e-commerce, digital payments, and investment in digital technologies. Digital economic cooperation has emerged as an increasingly important element of Chinas relations with the Gulf Cooperation Council (GCC) countries and a focal point of Sino-American great-power competition in the Middle East.
The World Economic Forum (WEF) and the Group of Twenty (G20) define the digital economy as a broad range of economic activities comprising all jobs in the digital sector and digital occupations in non-digital sectors. These include activities that use digitized information and knowledge as the key factor of production; modern information networks as a vital activity space; and ICT to drive productivity growth and optimize economic structures.[1] The digital economy is an increasingly important driver of global economic growth and plays a significant role in accelerating economic development, enhancing the productivity of existing industries, cultivating new markets and industries, and achieving inclusive, sustainable growth.
In recent years, Chinas digital economy has developed rapidly and has gradually become one of the dominant forces in its national development plan. China has not only made the digital economy a cornerstone of its future national development but also introduced various digital-specific strategies initiatives to achieve this goal (e.g., the Digital Silk Road and Jointly Building a Digital Community with A Shared Future Initiative). In January 2022, the Chinese State Council issued a plan for the development of the countrys digital economy, aiming to increase this sectors share of national Gross domestic product (GDP), increase from 7.8 percent in 2020 to 10 percent in 2025 by pushing technologies such as 6G and construction of big data centers.[2]
China ranks 50th out of 131 countries based on the World Bank digital adoption index, 59th out of 139 countries in the World Economic Forum index, and 36th out of 62 in the Fletcher School digital evolution index. Nevertheless, Beijing has become a global leader in several key digital industries, including e-commerce, fintech, online payments, cloud computing, and ICT exports.[3] China is also a leading international investor in key digital technologies (one of the global top three investors). Chinas venture capital (VC) industry has grown rapidly and is increasingly focused on the digital sector. The main industries that attract VC investment include big data, artificial intelligence (AI), and fintech.[4]
Traditionally, the GCC economies have depended primarily on oil and gas resources to drive economic and national prosperity. But this reliance on energy has tapered off in recent years, coinciding with a fall in oil prices and the rise of digital technologies. The Gulf monarchies have diversified efforts to develop their financial sectors and establish knowledge-based economies. They have made considerable progress in adopting digital technologies over the past decade. Indeed, digitalization is vital to the success of their national visions and development plans.[5]
There is great potential and bright prospects for the development of the digital economy in the GCC countries, as the number of young consumers in the region is vast, and the use of internet infrastructure is gaining increasing popularity. The rapid development of digital economy industries and relevant companies (in Saudi Arabia, Bahrain, Kuwait, and UAE) has shown the flexibility of digitization schemes when facing new markets born out of crises. Thus, it is expected that the digital transformation of the economy will play an essential role as Gulf monarchies pursue economic diversification.[6] In 2025, the GCC states will house much of the worlds growing fifth-generation telecommunication networks (5G) subscribers, with a $164 billion annual market for information and communication technology products.[7] The 5G network will positively impact multiple industries in the GCC, specifically energy usage optimization, cloud computing, ultrafast broadband, and internet of things (IoT) innovation, including self-driving cars transportation, and factory equipment.[8]
The COVID-19 pandemic has significantly impacted industries such as tourism, aviation, and hotels in Middle Eastern countries. Still, the digital economy has gained tremendous momentum against this trend, making the GCC governments realize the urgency and necessity of developing their digital economies. The coronavirus pandemic has underscored the importance of furthering the growth of the digital economy, making it a requirement for economic resilience and the development and advancement of every sector of the economy. Several GCC countries have increased policy support to facilitate digital transformation by taking initiatives such as expanding their digital sectors, investing in digital infrastructure, adopting e-government platforms, and launching technology parks and business incubators.[9]
Over the past few years, China and Gulf Cooperation Council (GCC) countries have enjoyed strong relations, and technology and innovation have become a crucial part of their cooperation. The term digital economy has become increasingly commonly used, and digitization is now the engine driving economic growth and transformation of the GCC countries. Their digital economies alone are growing twice as fast as their advanced economy counterparts.[10] Although in the near future energy will remain the central pillar of trade between China and the GCC, the technology sector has emerged as a new and promising area of cooperation.
Growing interest by GCC countries and China in pursuing digital economic cooperation was evident at the World Internet Conference in Wuzhen in December 2017, when several countries, including Saudi Arabia and the UAE, agreed to join forces with Beijing to expand broadband access and take steps to spur the development of e-commerce and other related transnational standards.[11] The outbreak of the COVID-19 pandemic led Gulf economies to bolster their digital economic cooperation with Beijing. Since lifting some of its coronavirus pandemic restrictions, China has undertaken major steps to develop global telecommunications providers industrial internet at far lower prices than their Western competitors.[12]
Through the Digital Silk Road (DSR), a component of Chinas Belt and Road Initiative (BRI), Beijing seeks to put herself in the leading position of technological innovation, helping jumpstart global digital development. Because of its central location in Asia, Africa, and Europe, the Middle East is prominent in the Digital Silk Road implementation. The Chinese government has called on Chinese firms to expand digital infrastructure construction and their respective share of ICT markets in countries participating in the BRI.[13] Under the DSR, Chinese technology companies have been rolling out digital infrastructure that facilitates the gathering, transportation, storage, and processing of massive amounts of data from partner countries. Such infrastructure includes e-commerce platforms, mobile payment systems, intelligent data centers, 5G networks, undersea cables, satellites, cloud storage, smart cities, and AI.[14] For instance, telecommunication companies in Bahrain, Kuwait, Qatar, Saudi Arabia, and the UAE have signed massive 5G contracts with Huawei.[15]
Despite Western efforts to curtail their global expansion, Huawei and other Chinese tech firms have been relentlessly extending their digital footprint across the Gulf region. Saudi Arabia has signed agreements with relevant Chinese companies and institutions cooperating in smart city construction and the development of AI technologies in Arabic. Huawei provides a solution for the worlds largest photovoltaic energy storage project in the kingdoms Red Sea region. Huawei is also working with the Ministry of Hajj and Umrah to develop digital infrastructure designed to streamline the pilgrimage to Mecca, including control rooms in Mecca and Medina reception centers. Jollychics platform, one of the most popular e-commerce apps, has extended its services in Saudi Arabia by creating a digital payment wallet and plans to expand its ecosystem to include on-demand food delivery, online travel, and transportation booking.
Alibaba has also been expanding its presence significantly in the kingdom. The Saudi Data and Artificial Intelligence Authority (SDAIA) hassigned an agreementwith Alibaba Cloud to empower Saudi cities with intelligence-driven smart city solutions. Saudi Arabias National Center for Artificial Intelligence (NCAI) will work with Huawei to train local AI engineers to ensure a skills pipeline to support a diversified and data-driven economy. In contrast, Alibaba Cloud technologies will support Saudi Arabias smart city ambitions. Meanwhile, Alibaba Cloud has agreed to work with the NCAI to develop digital and AI for smart cities. Through Alibaba Clouds AI Platform, they will jointly build safety and security, mobility, urban planning, energy, education, and health.[16] The Saudi Digital Academy signed a memorandum of understanding with Huawei on developing local talent. They will specifically study artificial intelligence, cloud computing, cybersecurity, and 5G internet uses.[17]
In UAE, innovation and technology are important contents of the cooperation with China. The collaboration includes joint work on COVID-19 vaccines and Huawei 5G technology. Huawei is building a Modular Data Centre Complex Project at Dubaiinternational airportand has teamed up withDubai Electricity and Water Authority(DEWA) to support the construction of fiber-optic infrastructure and video surveillance.[18]Huawei also plans to build the largest solar-poweredUptime Tier III-certified data centerin the UAEs Mohammed bin Rashid Al Maktoum Solar Park and is working with the Abu Dhabi City Municipality (ADM) to construct aMunicipal Disaster Recovery Data Center.[19] According to research conducted by theRWR Advisoryin 2020, China has exported smart city technology to 15 countries in the Middle East.[20] The Chinese e-commerce portals are accessible to around 80 percent of internet users in GCC countries.[21]
GCC governments are embracing digital adoption to promote sustainability, accelerate economic diversification, and help ensure that the region is well positioned to power evolve into a power-packed digital economy. According to the international consulting firm Kearney Middle East, the total e-commerce business in Gulf countries will reach more than $29 billion in 2021 and climb to $50 billion by 2025. This provides more opportunities for China-GCC digital economic cooperation.[22]
Overall, the economic influence of China through its oil and gas imports from the Persian Gulf, infrastructure investments, technology transfer, and arms sales provide influence and leverage that runs counter toUSinterests in the region. In the age of strategic rivalry, the question is whether China is already well on its way to becoming the most prominent technology partner of the GCC countries.
As, over the past decade, the United States has reduced its involvement in the Middle East, China has begun to fill the vacuum. Clear evidence of this change can be seen in Chinas increasing role in the development of the GCC digital economy. China provides the GCC a strategic opportunity, as it creates a bigger space for its Gulf partners to hedge their bets between two superpowers. It also places greater pressure on the US to align its strategic plan with the GCC states and reassure them about its commitments to their security. Sino-GCC digital economy cooperation is at the heart of the Gulf monarchies national visions and development plans. Both sides are committed to effectively linking the DSR and their national development plan and seeking opportunities to develop new ways of win-win cooperation.
Chinas growing influence in the GCC digital infrastructure network is a challenge to US dominance in the region. Washington has raised concerns about the Chinese internet giants and telecom companies' growing involvement in the region's digital economy. However, unable to compete with China on the digital economy front, the US began to apply coercive diplomacy tactics to pressure the GCC countries to slow Chinas growing influence. Yet, while the US governments efforts to halt Chinese tech companies expansion have succeeded domestically and in parts of Europe, they have thus far failed in the Gulf market.
Even so, as GCC countries become more entangled in Chinas transnational digital infrastructure network and welcome the many benefits such digital integration affords, they must also confront the possibility that this could threaten their ties with the US while expanding and deepening the strategic rivalry between the two great powers.
[5] Mordechai Chaziza, China and the Persian Gulf: The New Silk Road Strategy and Emerging Partnerships (London: Sussex Academic Press, 2019).
[13] John Chipman, Chinas Long and Winding Digital Silk Road, International Institute for Strategic Studies (IISS), January 25, 2019, https://www.iiss.org/blogs/analysis/2019/01/china-digital-silk-road. Sophie Zinser, Chinas Digital Silk Road Grows With 5G in the Middle East, The Diplomat, December 16, 2020, https://thediplomat.com/2020/12/chinas-digital-silk-road-grows-with-5g-in-the-middle-east/.
[15] John Calabrese, The Huawei Wars and the 5G Revolution in the Gulf, Middle East Institute, July 30, 2019, https://www.mei.edu/publications/huawei-wars-and-5g-revolution-gulf#_ftn1.
[16]Karl Flinders,Saudi Arabian authorities work with Chinese IT giants on digital goals, Computer Weekly, October 22, 2020, https://www.computerweekly.com/news/252490964/Saudi-Arabian-authorities-work-with-Chinese-IT-giants-on-digital-goals.
[21] Zhang Yunbi, China, Arab states upgrade digital collaboration, China Daily, March 3, 2021, https://www.chinadaily.com.cn/a/202103/31/WS6063b015a31024ad0bab29fe.html.
[22] China and the UAE launch digital economic cooperation, Seetao, December 15, 2021, https://www.seetao.com/details/128827.html.
Read more:
China-GCC Digital Economic Cooperation in the Age of Strategic Rivalry - Middle East Institute
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