April 26, 2019The IntersectionInformation Ageeconomicstechnology

There is no free trade with China

In this piece I advance the argument that censorship and restrictions on free speech are barriers to free trade, especially in the Information Age.

Mint This is from The Intersection column that appears every other Monday in Mint.

Should we applaud the Madras High Court’s decision to revoke a ban on Tik Tok, a video sharing app owned by Bytedance, a Chinese technology firm, that has over 120 million active monthly users in India? On the face of it, India should not block any social media platform, and certainly not because you can access pornography on it. So the judiciary’s initial decision banning the app in response to a Public Interest Litigation against Tik Tok was troubling. The ban was an abridgement of freedom of expression and a restriction on free media. It is just as well that the High Court revoked the ban, albeit after extracting a commitment from Bytedance that it would take measures against pornography.

China’s internet and technology firms enjoy a massive home advantage that their Western and Indian competitors do not

Yet if free speech suggests we shouldn’t ban Tik Tok, free trade suggests otherwise. There is a case to restrict Chinese apps from the Indian market. Why so? Remember that Indian content creators have always been locked out of the Chinese internet. The Communist Party of China might have erected the Great Firewall to prevent the Chinese people from getting ideas about liberty, freedom and democracy, but it has also become an economic barrier that shields Chinese companies from competition, permits them to steal intellectual property and creates an uneven playing field for foreign companies operating there. Beijing has used its power to dictate who and what is allowed to keep out global giants like Google, Facebook and Twitter. This allowed home-grown clones like Baidu, Tencent and Weibo to first dominate the China’s domestic market before stepping out into foreign markets. China’s internet and technology firms enjoy a massive home advantage that their Western and Indian competitors do not.

Most of the platforms China blocks — Google, YouTube, Twitter, Facebook and Soundcloud, for instance — might not be owned by Indian companies but are heavily used by Indian content creators. This means everyone from India’s biggest media companies to millions of individuals are practically denied access to the Chinese market. The argument that you can always use the Chinese equivalents if you want to reach the Chinese market” doesn’t diminish the fact that Beijing’s restrictions and the Great Firewall are non-tariff barriers.

So when Beijing intentionally and systematically prevents Indian companies and individuals from profiting from the Chinese market, should we allow Chinese companies to have a free play in ours? Without reciprocity, the free trade argument is weak. The answer thus becomes one of strategy. To the extent that imports from China provide us with net benefits, we should permit them. If computers, modems and phones produced by Chinese companies help us rapidly achieve high internet penetration while enlarging the consumer surplus, then it is in our interests not to restrict their imports. The same, however, does not apply to Chinese apps and social media platforms.

India can ban Tik Tok without losing much. Users have quite few alternatives. On the other hand Bytedance, by its own admission, loses $500,000 every day it is not available in India.

New Delhi must not fritter away the leverage. It should create a list of countries that do not provide our technology firms and content creators a level playing field, and then calibrate counter-measures in proportion to the level of discrimination. China is sure to figure on such a list. Beijing can hardly complain as long as it maintains its massive internet censorship and protectionist regime (and, incidentally, is closing down thousands of apps that promote pornography and other undesirable content.)

Now, by itself, denying Chinese internet firms access to the Indian market will not persuade Beijing to bring down the Great Firewall. It will, nevertheless, serve as a global signal and strengthen New Delhi’s negotiating positions vis-a-vis Beijing. Moreover, in a plausible future where cyberspace is divided into two or three spheres of influence, restricting the market share of Chinese platforms will reduce the risk of being locked in to them. It is abundantly clear that Beijing, along with Moscow, intends to supplant the citizen-empowering liberal values that the internet has proliferated so far. If they have their way, they want cyberspace to serve as an instrument of the authoritarian state.

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This contest will intensify over the coming decade. India’s national values put us firmly on the side of liberty, and we shouldn’t let the hangover of 20th century mindsets deter us from aligning with the West. Which is why it is prudent for us to keep Huawei, ZTE and others out of our core 5G networks, and to prevent Chinese social media platforms from entrenching themselves into our politics and society. Had the judiciary upheld the ban on Tik Tok, we might have achieved the right outcome for the wrong reasons. That would have been a bad thing. It is now up to the government to evolve a strategic response to China in the technology and information domain.

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