Digital Silk Road

I followed recently a talk about European-Chinese economic collaboration and the state of BRI, which made me become aware of the Digital Silk Road.

I think that everybody knows about Belt and Road Initiative (BRI), Chinese program launched in 2013 in order to help developing countries implement, often for the first time in their history, large and important infrastructure and industrial projects. The ‘Belt’ is continental, going through Central Asia, where the main branch continues to Russia, Belarus and ends in Germany, and the smaller branch arrives in Turkey. The ‘Road’ is maritime, going through Indian Ocean, arriving in East Africa, continuing to Mediterranean Sea, where the main branch then goes to Greece and further through Serbia, Hungary joining the Belt in Eastern Europe, and other Mediterranean branches reach Italy and Portugal.

If we want to review how BRI fits the current complicated situation in the world, we have to take into account the increasing importance of Southeast Asian region, in particular some critical points like Strait of Malacca. The US has recently taken various geopolitical initiatives to keep this zone under its control through AUKUS and QUAD. To preempt this, China has been investing huge efforts in building its naval power and seems to be more and more determined to return Taiwan under its control. But in addition to the buildup of military naval power, Belt and Road initiative is still equally important economic arm of the integral (land & sea) Chinese geopolitical strategy.

Impression is that BRI is recently being deprioritized for different reasons.  One is above-mentioned focus on Southeast Asia, and there have been reported some other challenges with BRI. Here are some comments. It is estimated that around 40% of BRI projects have not been successful or unprofitable. If it is true, I don’t think this is really a bad result. I remember statistics issued by various project management institutes about the rate of success of infrastructure projects in the world, and it is quite low in general. Just remember the airport in Berlin. So, if 40% BRI projects are unsuccessful, I think this is expected, and might even be above average. An interesting report has recently been published by AIDDATA on this topic citing corruption and scandals in some countries, but as the dataset is limited only until 2017, it is difficult to take any judgment about the “ongoing deprioritization”. Still it is true that a major challenge for BRI is anti-Chinese propaganda, especially in the host countries. I found a nice article (in Serbian) about what this really means and how intensive it can become: attacks claiming that Chinese companies charge much more than the market value (which is very difficult to prove), that these Chinese companies are bringing prisoners to work on their construction sites, that they are secretly colonizing the host country, that their factories pollute the environment more than necessary and a lot of other nonsense. What I agree is true is there is often corruption in these countries, but this is the case even without Chinese companies. Also, it is visible that Chinese don’t know how to counter this propaganda coming from various Western-controlled media and think tanks, and overall this represents a challenge. However, I think this general impression about the status, the priority and the future of BRI should be corrected by taking into account its recent digital addition.

Digital Silk Road and Blockchain Services Network

Digital Silk Road (DSR) was officially launched in 2017 and it appeared as a natural extension of the BRI in the digital (or cyber) space. As we know, China is very advanced in mobile phones, social networks, e-commerce, 5G (also 6G) and AI, so it looks very natural to try to leverage its already established presence in BRI-countries and this deep technology stack. But the aim here is not only to develop the communication infrastructure, like Huawei is doing by having built 176 local 5G networks in 59 countries, or with PEACE project building the communication route from China through Pakistan, Indian Ocean to East Africa and further to Mediterranean Sea. And it is not only to enable Chinese tech giants and FinTechs like Alibaba, Ant Group and Tencent to develop their digital presence and services in BRI countries. What is revolutionary here now is the use of Blockchain Services Network (BSN).

We know already that China is also a big player in Blockchain technologies. Even though the cryptocurrencies are banned in China, many other use cases like digital identity solutions have been actually stimulated. According to the Blockchain industry report in 2020, Chinese companies have registered half of the world patents in Blockchain. This accumulated and protected innovation potential allows China now to develop a unified blockchain framework based on its own standards, which will enable Chinese developers and the developers from other countries to easily create and deploy various Blockchain applications. And this is actually how BSN was designed. According to the BSN White Paper, this framework can be used to develop both permission and permissionless kinds of blockchain applications. The framework supports Hyperledger, Quorum, Ethereum, EOS and 16 other blockchain platforms, and provides access to all of them through a single set of APIs. BSN also includes user and admin portals, and nodes and node management services within and out of China. The standardization of the overall solution makes it possible to dramatically reduce prices to application owners to $400 per blockchain node per year. According to the lead architect behind this project, Beijing-based Red Date Tech company, BSN simplifies the design and development of blockchain applications, so that users can very easily create their own smart contracts, or even don’t need to create them, but use the existing ones from the catalog. And according to CoinDesk article based on an unpublished white paper they’ve seen, “different frameworks are not simply stacked together; rather, they are made uniform through BSN Adaptation Standards that deal with cryptographic algorithms, CA management, transaction and DApp management SDKs”, which in other words means that BSN is the layer of interoperability among these diverse blockchain platforms.

So, how can this BSN in conjunction with DSR be actually used? Blockchain as distributed ledger technology represents democratization of internet, a very different development strategy from large centralized digital companies. This already carries a large disruptive potential by itself, but if in addition there is also an underlying 5G network, and Fintech services available through APIs, and a possibility to easily develop applications for trusted transactions in this distributed system, all this together opens wonderful opportunities. Imagine automating logistical operations across borders. Or enabling blockchain-based trade financing to small farms in underbanked African countries so that they can more easily export their goods to the large Southeast Asian market.

This, together with Digital Yuan initiative, will definitely have a geopolitical impact coming from the digital sphere but reflecting in other areas, especially in the regions and countries already participating in the BRI and DSR projects.

Sasha Lazarevic,
September 2021