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Are US tech firms scared that China will dominate Web 3.0?

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The Financial Times released a fascinating story recently about the lobbying activities of US tech firms. Four of the five FAANG companies (Google, Amazon, Facebook and Apple) have significantly increased funding to four of Washington’s most prestigious foreign policy think-tanks: the Center for Strategic and International Studies, the Center for a New American Security, Brooking and the Hudson Institute. According to the FT’s analysis of financial disclosures, total donations from these firms have almost doubled from $625,000 in 2017-18 to around $1.2 million in 2019-20 – with the trend only going in one direction.

It is hardly surprising that that FAANG seems to be ramping up their lobbying efforts. After all, they are all facing huge pressure from Capitol Hill, on multiple fronts. There are allegations from the right that tech companies are censoring conservative opinions and are politically overreaching – as evidenced by Facebook and Twitter banning President Trump from their platforms. From the left, the revelations of Frances Haugen last year reignited fears that tech companies and social media platforms are profiting from disinformation and are helping to undermine democratic processes. The result is a bipartisan effort to regulate tech firms more stringently and reign in some of FAANG’s more politically controversial activities, particularly surrounding how they use consumer data.

But what is interesting is the “anti-China” approach the tech firms have taken as they attempt to resist this. Silicon Valley firms are arguing that greater regulation could lead to “Chinese tech giants getting more powerful.” Why?

On one hand, this could just be a case of cynical political manoeuvring. The percentage of Americans holding unfavourable opinions on China has reached historic highs, and to assert your stance as the “anti-China” position might be an appeal to this sizeable demographic. However, it could also betray a more fundamental worry that US tech firms (understandably) have – that Chinese giants are indeed “getting more powerful” and are on the way to market domination.

This worry is rooted in numbers. Big Tech’s ability to take advantage of the Chinese market is steadily decreasing. While social media firms like Facebook do make some money through advertising in the country, despite technically being banned, the major players in China are domestic alternatives like WeChat. Tencent, Alibaba and Huawei are also all giants that tower easily over any Western alternative (apart from Apple).

Particularly following the Chinese government’s regulatory crackdown on tech companies last year, Microsoft, Yahoo and Amazon have all found relations with the authorities to be increasingly strained – and have pulled operations out of the country as a result. China-based revenues will, inevitably, have decreased. In Hong Kong, too, the National Security Law and burdensome new regulations around data are threatening to drive US tech giants away. Social media companies, especially, are finding it difficult to stay in a territory where freedom of expression is now being limited. Little wonder the BBC has asked: “will Apple be the last US tech giant left in China?”

At the same time, Chinese tech companies are enjoying more and more success in Western economies, including the US. ByteDance, which owns TikTok, saw its revenue surge to over $30 billion in 2021 – a rise of 91% from 2020 (despite Trump’s threats to ban the company from operating in the country). Huawei has faced much political pressure, but its AppGallery nonetheless has over 90 million monthly active users in Europe. As US presence in China is decreasing, Chinese presence in the US and Europe is increasing – and Big Tech is worried.

If the US tech firms are concerned that China is starting to win the present, they must be even more concerned about the future, particularly when it comes to Web 3.0. Xi Jinping is already pouring trillions into innovative companies, research centres and critical infrastructure. Of course, there is a risk that this will end up proving to be an immense waste of money. But the signs are pointing the opposite way.

Web 3.0 is based largely on blockchain technology, as well as artificial intelligence (AI) and the Internet of Things (IoT). It is often envisaged as a decentralised form of internet provision, boosting transparency and offering even more accessible content. It is partly a reaction against overpowerful tech companies: proponents of the scheme argue that Twitter would not be able to ban Trump on Web 3.0. It is the next stage of the Internet’s evolution, and may come into widespread use within the next few years.

While America – and what you might loosely call “the West” – have dominated previous generations of the Internet, it is clear that Web 3.0 could become the next 5G. That is to say, pioneered by Chinese companies – and, more worryingly, potentially governed by the Chinese state.

The Chinese government, while banning crypto, has fully endorsed blockchain technology and is pouring money into research. It has already launched the pilot of the digital yuan, when most central banks are only just starting to consider the very concept of CBDCs. Xi Jinping himself has hinted at the importance he is attaching to the blockchain, referring to a “reshaping of the global economic structure […] with artificial intelligence, internet of things and blockchain constantly making application breakthroughs.” Chinese consumers are significantly ahead of their Western counterparts when it comes to awareness of Web 3.0. The result? Not only that China has (another) huge head start, but that it is making Web 3.0 in its image – and, indeed, is centralising the decentralised. If the West is uncareful, it could soon find itself subject to Chinese governance over large swathes of internet activity – which would be both uncomfortable, and potentially a threat to national security.

This is what US tech firms are worried about. That they will be left streaks behind Chinese rivals while the US Congress debates regulating FAANG (important though this is). Or even that they will face stringent regulation that stifles innovation, looking on passively as Chinese companies make huge progress. That China will come to dominate the third generation of the Internet, in a way that has huge geopolitical implications.

So, yes, US tech firms probably are worried that China will dominate Web 3.0. And rightly so.

Author: Harry Clynch

#BigTech #FAANG #ForeignPolicy #Lobbying #China #Asia #WeChat #Tencent #Alibaba #Huawei #HongKong #TikTok #Web3 #Blockchain #IoT #Crypto #DigitalYuan

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