Speed and Scale

Huawei Technologies unveiled the 'world's fastest internet' network, which can transmit data at 1.2 terabits, China's impact on global telecommunications,

Jan 18, 2024

UPDATE: China Mobile, Huawei Technologies, and Cernet Corporation, in a ground-breaking development, unveiled the 'world's fastest internet' network, claiming that the network can transmit data at 1.2 terabits per second, reported South China Morning Post.

An historic irony is that the Communist Party of China has fostered an unprecedented wave of entrepreneurship in the developing world, by building mobile broadband networks throughout the Global South. A notionally communist party, that is, has become the most effective propagator of capitalism on record. This conclusion is richly supported by data on broadband usage, business formation, and economic growth.

China Mobile, Huawei Technologies, and Cernet Corporation, in a ground-breaking development, unveiled the 'world's fastest internet' network, claiming that the network can transmit data at 1.2 terabits per second, reported South China Morning Post.

The report said the companies in collaboration with Tsinghua University built over 3,000 kilometres of network linking Beijing, Wuhan, and Guangzhou through an optical fibre system that they claim can transmit data at an astonishing speed of 1.2 terabits (1,200 gigabits) per second, surpassing the most existing major networks by more than ten times. It is important to note that most of the major Internet networks in the world operate at just 100 gigabits per second.

Huawei and China Mobile worked with Tsinghua University and research provider Cernet.com to launch trials of the internet network stating the “industry-first” project is built and operated with China’s domestically-owned key technologies,” the official Xinhua News Agency said in a report.

Broadband, Business Formation, and Economic Growth in the Global South: Assessing China’s Impact

By David P. Goldman

There is a wealth of literature denouncing China for imposing “debt traps” on countries participating in the $1 trillion Belt and Road Initiative (BRI), and other studies that present China as “an international lender of last resort” for the world’s poorest countries. To be sure, some of China’s loans to the Global South have contributed to subsequent economic problems in debtor countries. But some have contributed to their economic well-being. To my knowledge, none of China’s critics has attempted a net assessment of the impact of China’s investment and trade activity in the Global South. This study attempts to do so, at least in part, using simple and robust measures of economic growth and its causes.

Internet Access, Business Formation, and
Economic Growth

Just as railroads turned local products into world-market commodities during the nineteenth century, mobile broadband turns marginalized people in the developing world into actors in the global economy. China’s trillion-dollar investment in the Belt and Road Initiative has digitized communications in scores of developing countries, with transformative effects. This writer advised Huawei in its Mexico expansion plans as an investment banker in 2014–15, and reportedthat the Chinese telecommunications firm helped reduce the cost of broadband in Mexico by 67 percent for low-income users and increase the percentage of internet users from 44 percent in 2014 to 75 percent in 2023. The shift in China’s export patterns toward the Global South reflects this transformation.

In 2019, Julia Voo of Harvard’s Belfer Center warned, “Between 2000–2019, an estimated 3.3bn internet users from Africa, Asia, Latin America, and the Middle East came online in contrast to only 1.1bn internet users from Europe, North America, and Oceania. China’s strategic approach toward the Global South over the past two decades, which has manifested in sales of telecommunications infrastructure, has resulted in Chinese domination of today’s rapidly growing telecommunications markets in the region, edging out international competition for contracts.” Of course, America has offered no competition, because it no longer produces telecom equipment.

The link between digital technology and economic well-being is not controversial. International Monetary Fund economists wrote in a January 9, 2023, blog post:

Digital technologies can increase the efficiency of the public and private sectors, expand financial inclusion, improve access to education, and open new markets by allowing companies to serve distant customers. For instance, during the pandemic, digitalization improved the allocation of precious resources for health and social benefits, allowing a prompt provision of relief while keeping leakages of public spending in check. Digitalization has helped support resilience during the pandemic, where, combined with large fiscal support, remote work and online sales protected workers, students, and businesses.

Strong statistical evidence shows that the buildout of broadband infrastructure predicts future GDP growth. Figure 2 compares the rate of change in internet usage to the rate of change of GDP in a universe of eighteen developing countries between 2000 and 2022. Each column shows the correlation between a contemporaneous value of one variable with lagged values of the other variable. Lagged values for internet usage have a much higher correlation with contemporaneous values of GDP growth than vice versa. In year three, for example, we observe that changes in internet usage three years earlier show a 38 percent correlation with that year’s GDP growth.¹

This intuitive presentation is consistent with academic studies of the impact of broadband on economic growth. One study reported that, in Latin America, “a 1-percentage-point increase in mobile broadband penetration produces a gain in GDP growth of 0.20 percentage points.”²

The fact that the buildout of internet infrastructure in the developing world consistently precedes GDP growth leads to a key inference: access to the internet in the Global South is not a luxury made possible by GDP growth, but rather a determinant of future GDP growth. China’s most visible investment in the Global South, in other words, promotes economic growth.

This raises another question: how does access to broadband foster economic growth? The answer suggested by the data is that it promotes entrepreneurship.

When the proportion of internet users in a given country crosses the 60 percent threshold, business formation—at least in some countries—takes off. That’s not surprising. Broadband allows individuals at the margin of society to make electronic payments, secure credit, identify suppliers and customers, and all for the cost of a $100 smartphone. Railroads drastically cheapened the cost of moving goods, and broadband cheapens the cost of moving data.

Western commentators have subjected some of the large-scale projects that China has undertaken through BRI to extensive scrutiny. These include ports, railway lines, and other infrastructure. But the grassroots impact of mobile broadband and the applications it makes possible may have the greatest impact on economic growth in the Global South.

An entrepreneurial surge did not happen in every country where broadband became available, however. The eighty-five countries shown in figure 3 exclude the developed world and very small economies, but include virtually all the developing world. The vertical axis shows the World Bank’s measure of new business registrations; depending on the country, that may or may not be an accurate measure of business formation. Nevertheless, the regression is significant at the 99.9 percent confidence level.

Business registrations, to be sure, are only one index of entrepreneurial activity. The smartphone enables a wealth of other economic stimuli. With electronic payments, governments can collect sales tax from people who previously worked outside the formal economy. Broadband also cheapens the delivery of public services, including health and education.

In several developing countries, farmers use mobile phones to find the best prices for their products. In Kerala, India, fishermen use mobile phone services to boost their profits by finding out when average fish prices stabilize and fall. They can avoid product (fish) wastage and high transaction costs by collecting market information via mobile phones. Both buyers and sellers thus achieve a higher level of well-being.

The case of Brazil is especially interesting. In the wake of the Global Financial Crisis, the rate of business formation dipped from 2.7 new registrations per 1,000 to 1.6 registrations as the national economy suffered low growth and high inflation. The rate of growth of internet users fell in parallel. As the economy recovered and the rate of growth of internet use increased, so did new business registrations.

India, by contrast, has a far lower rate of business formation than other large developing countries. This corresponds to the low rate of broadband penetration (45 percent of the population, well below the 60 percent threshold above which business formation tends to rise). It should be noted that business formation is low not because of a lack of entrepreneurial character among Indians. Indians who want to be entrepreneurs tend to emigrate. One-third of the graduates of the Indian Institutes of Technology, the country’s most prestigious universities for science and engineering, leave the country, and account for 65 percent of Indian migrants to the United States, according to a National Bureau of Economic Research study.

Additional Applications

In the popular literature, artificial intelligence is associated with the frontiers of technology. Artificial intelligence applications enabled by broadband, moreover, may have a bigger short-term impact on the poorest economies than on wealthy ones. Huawei designed mobile phone apps to connect customers and merchants, as well as users and funders. In Ghana and Kenya, I was told by representatives of the two countries’ mobile providers that artificial intelligence uses customers’ payment patterns to open lines of microcredit. At Huawei’s Intelligent Finance Summit for Africa in Cape Town in March, sub-Saharan region chief Leo Chen said, “In Africa, there’s an even greater imperative for banks to embrace digitization, as it allows for greater financial inclusion.”

Enabling entrepreneurs is one great benefit of digitization in the Global South. Another is controlling corruption. Writing in the Journal of Telematics and Informatics in 2021, three researchers reported, “In developing countries, businesses and individuals make transactions worth billions every day using physical cash. Such cash payments are often insecure, difficult to trace, and these attributes of cash payments stimulate illegal activities and foster the growth of shadow economies. With the advent of financial technologies including mobile money, digital payment options offer an opportunity to control corrupt behaviors and activities.” The study tested the relationship between digital payments in 111 developing countries from 2010–18, and found strong empirical evidence to support the thesis.

Corruption seeps into every crevice of economic life in the Global South. A Mexican of my acquaintance took a job with the water company of a certain city, in which he was supposed to turn off service to users in default. No one’s service was suspended, however. Rather, the employee took a bribe, kept 30 percent, and passed the rest up the management chain. Small-scale corruption is just as corrosive as large-scale corruption, and digital payments help to eliminate both.

Only 6 percent of people in high-income OECD countries are unbanked, compared to nearly half in the Global South, according to the World Bank. The United States has nearly thirty bank branches per 100,000 in population, compared to four in the least developed countries. Mobile broadband and inexpensive smartphones can provide the poorest countries with quick access to financial services at a fraction of the cost of brick-and-mortar banking. Billions of people now on the margin of the world market can gain access to payment services and micro-credit, promoting local entrepreneurship.

What the data show, in summary, is that China’s growing economic presence in the Global South fosters entrepreneurship and reduces corruption.

Long Mekong

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