Commentary / Japan

The ‘data gap’ between the U.S. and China

by Yoichi Funabashi

In 1957, the Soviet Union successfully launched Sputnik, the first artificial satellite, into orbit. The United States was shocked to have been beaten to the punch. The Soviet Union’s superior missile technology prompted many to argue that the U.S. should rush to close the “missile gap” between the two powers.

Today, the U.S. is once again in danger of being overtaken by a rival. There is new talk of a “data gap” between the U.S. and China. The day could well come when Alibaba and Tencent leave Google and Facebook in the dust. Last month I attended a dinner with investors in California’s Silicon Valley and discovered that many of them are beginning to harbor just this kind of premonition.

The conversation was sparked by news reports of a potential Google relaunch in China. Google first entered the Chinese market in the early 2000s and initially made steady advances: In what felt like the blink of an eye, it commanded 36 percent of the online search market. Google resisted constant pressure from Chinese authorities to censor its content. It was subjected to fierce attacks from domestic Chinese hackers. In 2010, it withdrew from the Chinese market.

Google co-founder Sergey Brin protested Chinese censorship, saying: “Please do not take the free and open internet for granted from government intervention. To the extent that the free flow of information threatens the powerful, those in power will seek to suppress it.” Indeed, Google employees were reportedly the staunchest supporters of the company’s decision to withdraw from China.

However, recent reports suggest that Google is considering a return to the Chinese market, with a project called Dragonfly. There was a common thread among the investors in Silicon Valley:

“Reports say Google will also do a search engine, but their primary goal isn’t the online search market. What they really want is to bring their cloud business to China.”

“Their main purpose in relaunching won’t be B2C, it will be B2B.”

“There’s the opportunity cost to consider if they don’t relaunch there.”

“Hopefully it won’t turn out like when Uber went to China. … Uber entered the Chinese market with such fanfare, but couldn’t hold its own against Didi and ended up selling off its entire Chinese operation.”

“I question the idea that Google is giving in to China. If they enter the market, they should respect the local culture and rules. The era in which the American way of doing things can be imposed on other societies is over.”

“Put simply, this is about the AI battle between the U.S. and China. That’s why they’re competing for big data. For now, the U.S. has the technological edge in AI, but China is hot on our heels.”

This last sentiment echoed the prediction of former Google Executive Chairman Eric Schmidt: “By 2020 the Chinese will have caught up. By 2025 they will be better than us. By 2030 they will dominate the industries of AI.”

It is estimated that Chinese internet companies already have access to 10 to 15 times more data than their American counterparts. Day by day, hour by hour, Alibaba and Tencent update, accumulate, hone and use the data of 1 billion people. This data can also be controlled, disaggregated, expanded and mined. The Chinese Communist Party and government use these companies to further their own efforts at social surveillance, political control and defense of party dictatorship.

China remains, in the words of economics Nobel laureate Douglass C. North, a “society unable to develop the effective and low-cost enforcement of contracts” that will end in economic stagnation. Without rule of law, privacy cannot be established. There are thus no restrictions on how private companies and the government use individual data. Under these conditions, the technologies of the Fourth Industrial Revolution, including AI, can be deployed in society with breathtaking speed.

In the “comeback” drama of the century, it is precisely this system of one-party rule that will establish the data gap and assure China’s competitive edge.

Would Google’s re-entry into the Chinese market be a harbinger of a new era of collusion between Chinese and American big tech companies? And if this is the case, would European companies join in the collusion? And would the Chinese state itself emerge as the world’s dominant platform, incorporating American and European companies as its developers?

Or will the economic duel between China and the U.S., sparked by cyberwars and the struggle for technological hegemony, continue to intensify and eventually envelop Europe and Japan? Could this usher in a new cyber Cold War era, in which the U.S., Europe and Japan are pitted against China?

Or, in a third scenario, will technological nationalism prompt the U.S., China and EU to confront each other on industrial and data policies, and form three large economic blocs that expand on their respective “digital spheres of influence?”

As the data gap looms, we can begin to make out the blurry contours of the “great game” that will unfold amid the digital geopolitics of the 21st century.

Yoichi Funabashi is chairman of the Asia Pacific Initiative and a former editor-in-chief of the Asahi Shimbun. This is a translation of his column in the monthly Bungei Shunju.