CHAPTER 3
CASE STUDIES: CHINA’S DIGITAL YUAN AND BEIDOU SATELLITE SYSTEM
3.1 China’s Digital Yuan
Structural Power in International Finance:
International finance is a perennial subject in both interdependence and structural power literature. Susan Strange, an economist by training, illuminated how certain states – namely the U.S. – have structural advantages in the international monetary system. Strange (1989) dedicates one of her four derivative power structures as the ability to offer, withhold, and demand credit in the international finance arena. Many scholars, including Strange, ground their arguments empirically in the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system, the leading global financial transaction network, and discussions of U.S. dollar centrality. Both disciplines regard the United States as deriving a substantial amount of its global influence through its operation of and ability to garner information through financial systems. Furthermore, nearly a third of all global transactions occur in U.S. dollars. From sanctioning capacity to espionage capabilities, the United States gains tremendously from the centrality the U.S. financial system. The U.S. has enjoyed the privileges of the postwar financial system largely independently (or in conjunction with the UK and other allies). However, current advancements in Chinese financial technology threaten to undermine decades of dollar dominance. This section explores how current financial networks face considerable challenges in the form of the Chinese digital yuan, and how this technology may grant China both significant structural power and the capacity to create and leverage new interdependencies.
For most of recent history, the United States has been the leading economic powerhouse in the global economy. Yet from 1992 to 2017 the United States ran a cumulative current account deficit of $10.2 trillion (Schwartz 2019, p. 4). These statistics alarm scholars and U.S.- policymakers alike. However, notwithstanding the seemingly precarious state of the U.S. dollar, it has maintained its centrality, and the U.S. still leverages its structural control of the global economy. One of the major structural sources of power for the U.S. and select European countries is the SWIFT banking system. Since the 1970’s, nearly all international bank communication has been provided by SWIFT. To this day, SWIFT plays a critical role in authorizing transactions, authenticating parties, and documenting exchanges (Farrell and Newman 2019, p. 59). The invention of the internet reconfigured SWIFT operations. Due to the complexity and size of the internet and its threat on connection speeds, internet exchange points emerged in major cities to facilitate communication across service providers and infrastructure backbones. Most exchanges nodes are in the U.S. and Europe. The placements of these nodes means that the U.S. and some European nations have unique access to financial transaction data.
In the wake of the September 11th terrorist attacks, the United States began examining ways in which the global financial system could curtail terrorist financing and track terrorist money supply. The U.S. government determined it could lawfully issue enforceable subpoenas against SWIFT to turn over financial data in the name of national security. The Treasury initiative became referred to as the Terrorist Finance Tracking Program (TFTP) and relied on SWIFT data as a key source of information (Farrell and Newman 2019, p.66). The SWIFT data unveiled complex networks of terrorist financing and was routinely defended by U.S. and the EU officials despite international pushback. Farrell and Newman refer to the U.S. and EU’s ability to gleam important financial information as a “panopticon” effect.
However, the SWIFT system is not only an observational mechanism, but also has been utilized to exercise power in the global arena. Most notably, the joint ability of the U.S. and EU to inflict sanctions on other states by disconnecting them from the SWIFT network. The weaponization of SWIFT is most clearly demonstrated the U.S.’ decades-long sanctions regime against Iran. The conflict began in the 2000s when a group of U.S. policymakers led a private campaign, entitled United Against Nuclear Iran (UANI) to increase pressure on the Iranian regime. UANI identified SWIFT as complicit in assisting the Iranian regime because nineteen Iranian banks as well as twenty-five Iranian institutions relied on the messaging system (Farrell and Newman 2019, p.68). In 2012, UNAI contested that “the global SWIFT system (was being) used by Iran to finance its nuclear weapons program, to finance terrorist activities, and to provide the financial support necessary to brutally repress its own people” (Soloman and Entous 2012). The U.S. and EU both followed up on this threat and passed regulations that prohibited SWIFT from providing services to targeted institutions. Iran’s major financial institutions including its central bank were locked out from the international payment system and the country suddenly felt those consequences. In turn, unwinding the SWIFT measures became a key negotiating tool in the negotiations surrounding the Iranian nuclear program (Farrell and Newman 2019, p. 69).
The case of Iran shows how structural powers can easily be manipulated in an interdependent world. It is also an interesting case because the SWIFT measures were the result of joint pressure from both U.S. and EU policymakers. The U.S. might not have been able to act without the EU given SWIFT’s primary location is Europe. In 2018, when the U.S. withdrew from the Iran deal while the EU remained, tensions between the two powers rose. The U.S. opted to reimpose SWIFT sanctions while the EU resisted the “re-weaponization” of SWIFT (Farrell and Newman 2019, p. 69). Pressure from the U.S. has led some European politicians to discuss whether the EU needed to start building its own financial payment channels. While it is unclear if the EU could build financial networks that would challenge the U.S., the sentiment behind the statement is important. It indicates the rising frustration of international actors on hegemonic networks.
However, it is not just command over the SWIFT system that grants states like the U.S. power in the global economy. Since the advent of the U.S. dollar as the global currency reserve in 1971 through present day, the United States has transitioned from the world’s largest creditor to the world’s largest debtor. Herman Mark Schwartz explores how the dollar has maintained its centrality despite massive U.S. account deficits and a steadily worsening net international investment position. Schwartz elaborates on Susan Strange’s ideas of finance as a source of power, arguing that Strange correctly identifies finance as a key structure but does not sufficiently explore the mechanisms that sustain U.S. economic hegemony. Schwartz claims two main mechanisms provide a structural basis for dollar centrality. The first is that international structures, originating from late development, suppress domestic demand in many major current account surplus countries, making them reliant upon external demand for growth. This demand is met in U.S. dollars and locks nations in continued use of the dollar and reliance on the U.S. Federal Reserve during times of crisis. The second mechanism relates to profits and production. Due to globalization and increased fragmentation of production, U.S. firms have built commodity chains through which they capture disproportionate shares of global profits via control of intellectual property rights. Schwartz argues these two mechanisms “transform the (U.S.’) exorbitant burden – current account deficits associated with use of the dollar as the international reserve currency – back into an exorbitant privilege” (Schwartz 2019, p.4)
Many scholars agree that the United States currently has firm hold of the international financial system – for now (Schwartz 2019, Smith 2020, Farrell and Newman 2019). Schwartz puts it this way:
In a world of perfectly mobile capital and low asset specificity, U.S. current account deficits would disappear through currency depreciation and capital flight anticipating and exacerbating depreciation. In our world, however, a set of successful late developers have institutionally rooted domestic demand deficiency that generates current account surpluses. Their accumulation of excess export revenues in turn locks their banking systems into continued use of the U.S. dollar in global credit creation. (Schwartz 2019, p.23)
Schwartz’s observations indicate potential cracks in the financial system. In his argument, Schwartz points to open product and financial markets as a threat to U.S. dollar hegemony. He suggests, “if a major export surplus economy were to open its financial and product markets – then some other currency might displace the dollar” (Schwartz 2019, p.24). According to Schwartz, China and the EU are the only economies large enough to create this disruption, and China’s intentions, as articulated in 2019 suggest the country is heading down a path of more import substitution and self-reliance. However, what if China could come up with a way to keep its state-centric model while undermining U.S. capital control? The answer may lie in nextgeneration cryptocurrency and the Digital Yuan.
Cryptocurrencies and Digital Currencies in the International Economy
Since the advent of Bitcoin, a decentralized form of currency created emerging in 2008, international actors have invested in cryptocurrency technology. Cryptocurrencies were a revelation in the world of finance because innovative block-chain technology allowed for payments to be made across a shared public ledger. Transactions via Bitcoin and similar blockchain backed cryptocurrencies occur anonymously, and without regulation from central banks. Digital currencies have now scaled beyond initial privatized forms to adoption and innovation among major banks, firms, and sovereign governments (Aggarwal and Marple 2020, p. 81). Some of these new forms of currencies include block-chain technology, while some opt for more regulated forms and less technically advanced forms of fiat currency.
For countries dissatisfied with the American-centric liberal international order (LIO), digital currencies offer unique opportunities to subvert traditional economic channels. Nicholas Ross Smith poses that for revisionist countries trying to modify the LIO, “supporting and encouraging the growth of cryptocurrencies might become a tangible policy” direction (Smith 2019, p. 87). Smith outlines two possible ways a revisionist power could weaponize digital currencies. The first is that major powers (i.e. Russia or China) could turn themselves into a haven for independent cryptocurrencies. Smith argues that independent cryptocurrencies offer more anti-hegemonic potential than state-backed currencies because of their decentralized and mostly anonymous nature. This route, although possibly more anti-hegemonic, seems especially unlikely in China. China is ranked as a “mostly unfree” economy according to the 2018 index of economic freedom, and all signs point to stricter economic regulation in coming years (Smith 2019, p.87). The second path is that states can create their own form of cryptocurrency and crack down on alternative independent forms of currency. China has charted their own path. Rather than promote independent cryptocurrencies which are largely decentralized and rely on blockchain technology, China has invented a digital fiat currency which (as of now) does not rely on block-chain and is highly centralized and monitored.
Characteristics of the Digital Yuan Since 2014, the PBOC has been researching ways to digitize its currency. Now in 2021, the PBOC is gearing-up for a nation-wide rollout of its Digital Currency Electronic Payment System (DCEP) that could occur within the year. The project has been somewhat fast-tracked due to the COVID-19 pandemic (which has increased reliance on the U.S. dollar) and in response to momentum in Facebook’s digital currency, Libra. The DCEP is a 100% programmable, traceable, and liquidated form of cash that has the potential to majorly disrupt global financial transactions and international relations – all while granting China greater structural power.
The digital yuan is distinct from the more than 1,600 cryptocurrencies currently in existence in a variety of ways. Its revolutionary technology offers the modernization and concrete benefits many businesses and individuals are seeking in the digital age. The digital yuan is token-based fiat currency, meaning it is designed as a replacement of cash. Initially it will be backed yuan-for-yuan with hard assets and financial institutions will be required to maintain a 100% ratio on the digital yuan. Transactions using the digital yuan occur instantaneously and without the need for banks or intermediary institutions. On a micro-level, payments between two mobile phones may occur without internet via ‘touch to touch’ technology (Peters 2020, p.1). Transactions can occur in this manner because the currency is vigorously encrypted and tracked on a digital ledger. Theoretically, this approach is much faster, less expensive, and more secure than the SWIFT system, through which transactions can take multiple days to complete. Furthermore, the SWIFT system faces security concerns as it has recently been the target of multi-million-dollar attacks (Murray, 2020).
The distribution of the digital yuan is also unique. As a fiat currency, the digital yuan will be distributed in ways that largely preserve regular institutional channels of cash distribution. The Chinese government will work in conjunction with select banks to each citizen a “digital wallet” in which their money would be stored, limiting the need for a bank account. Electronic payments are nearly ubiquitous in China. Most mobile payments, 93% to be exact, are handled by TenPay (WeChat pay) and Alipay (Alibaba’s platform). Popular methods of payment WeChat Pay and Alipay will remain in use with the digital yuan, however the new program will grant Beijing with greater control and monitoring. In terms of electronic payments within China, Beijing seeks to benefit from the digital yuan. The PBOC is concerned about China’s dependence on apps like platforms like Alipay and WeChat because if those systems were to be compromised or fail in any manner, there is not enough paper currency in circulation to support commerce, running the risk of panic or collapse of the Chinese financial system (Murray, 2020).
However, China’s motivations for creating a digitized currency are by no means confined to the domestic sphere. Although PBOC has claimed the impetus for creating the DCEP is to “protect our monetary sovereignty and legal currency status,” creation of the DCEP is aligned with rumblings of RMB internationalization on behalf of the Chinese government. If China can convince world powers to buy in, it could internationalize the digital yuan and promote it as a reliable and rival alternative to the U.S. dollar. This could potentially allow China to expand its surveillance capabilities, as much like the SWIFT system, the DCEP may provide China a window into and control over the economic activity of its users both home and abroad (Murray, 2020). Even more radical, it may allow China and other member nations, to subvert international sanctions, arms embargos, and money laundering regulations.
Security, Structural Power and Interdependency Implications of the Digital Yuan:
As the concept of the digital yuan becomes closer to reality, conversations over the implications of an internationalized Chinese currency have increased in intensity. Some are even referring to digital currency proliferation as the next Cold War (Aggarwal and Marple 2020). If successful, China’s DCEP could challenge the structural power of nations like the United States and rewrite patterns of interdependency. Specifically, the DCEP may challenge the U.S.’s power in borrowing, a privilege the country has leveraged to avoid costly trade adjustment costs, undermine the U.S.’s sanction capacity, and create new debt regimes in conjunction with the Belt and Road Initiative (BRI).
Previous discussion has outlined the U.S. dollar’s status as the global reserve currency. Central bank digital currencies, including the digital yuan, stand to threaten the dollar as a globally hegemonic reserve currency, especially if new sovereign digital currencies can produce more liquid money with greater certainty. This is a direct threat to Schwartz’ idea of U.S.’s “exorbitant privilege” generated by the nation’s ability to avoid costly adjustments through importing goods in its own currency. Aggarwal and Marple contend the consequences of a shift to an internationalized digital currency would be “enormous” because most of the U.S.’ domestic and military expenditures are byproducts of its capacity to incur large volumes of debt that it otherwise would not be able to if it weren’t for its reserve privileges (Aggarwal and Marple 2020, p. 82). Furthermore, although the bar for fully unseating the U.S. dollar is high, even a regionally hegemonic digital yuan (i.e., East Asia, and Middle East) would introduce substantial constraints on the dollar, vis-à-vis empowering China.
A second facet of the digital yuan that is particularly relevant to the discussion of interdependence is the interoperability and internationalization of the digital yuan. DCEP is being designed with cross-border payments in mind. Since the digital yuan and many other forms of cryptocurrency operate on their own networks, payments between nations may not be processed through the SWIFT network. As illuminated in prior discussions, the SWIFT system grants the U.S. enormous structural power through its ability to gleam important information and impose sanctions on rival nations. If certain nations, like Iran from the previous example, were to avoid the SWIFT system, then the United States would lose some ability to push through its objectives. Aditi Kumar and Eric Rosenbach, writing for Foreign Affairs ask us to imagine this scenario:
Imagine that it is 2022 and the United States has received intelligence from the Mossad that Iran is procuring essential components for nuclear weapons and missile programs. U.S. economic sanctions on Iran remain in place, but Iran has shifted much of its international commerce to a new yuan-based system—a Chinese digital currency that allows Tehran to avoid dollar transactions and thus evade U.S. financial institutions. As a result, Iran’s oil sales to China, India, and Europe are up, providing the Iranian regime with critical revenue streams that U.S. authorities cannot monitor. And when Iran decides to move quickly toward the development of nuclear weapons and new medium-range missiles to deliver them, the United States can no longer turn to sanctions as one of its primary means of responding to the threat.
Although seemingly farfetched, these kinds of scenarios are not implausible. If the digital yuan is rolled out successfully and trusted by international actors, it may circumvent the SWIFT system. Furthermore, if the digital yuan is utilized throughout the BRI, the DCEP’s highly centralized network may provide Beijing with a panopticon ability akin to the U.S. and EU’s use of SWIFT.
Related to the BRI, central bank-backed currencies offer new means of denominating international debt (Aggarwal and Marple 2020, p. 82). Currently, most international debt is stored in U.S. dollars. However, growing discontent among major players (including European allies) over a hegemonic U.S. dollar may mean that countries will be interested in alternative lending parties and instruments. The digital yuan may be particularly interesting to borrowers because it may address liquidity shortfalls associated with traditional lending instruments. The transformation from a dollar-denominated global debt market to one that includes central bank currencies could interfere with the U.S.’s capacity to implement strategic priorities through its lending programs, and conversely increase China’s ability to advance its global priorities. China seeks to gain from a scalable state-backed digital currency, especially in the context of the BRI. Chinese firms at the forefront of the digital Belt and Road will capture revenue through facilitating cross-border payments, which could be made more efficient through the new digital currency system (Kumar and Rosenbach 2020).
Additionally, a digital yuan could raise China’s power in institutions like the International Monetary Fund (IMF). The IMF is very much aware of trends in digitization and has indicated interest in central bank digital currency. As states begin to utilize digital currency technologies, issues of standard-settings and interoperability will inevitably be raised at global forums. If China successfully rolls out one of the first internationalized state-backed digital currency, it could play an important role in determining global standards and regulations surrounding new digital currency networks. Power through global institutions is another premise of both structural power arguments and interdependence literature. The NIA, in particular, points to institutions as points of contention, rather than “rules of the game.” If China’s DCEP is positively received by the international community, it may grant China greater bargaining power in global institutions.
Many of the arguments in this chapter hinge on the condition that international actors trust the both the DCEP itself and the Chinese government. Applying Cox’s ideas of hegemony to the situation of digital currency, China needs to be perceived by other powers as representing a greater global interest, as well as provide concrete benefits to other countries under its hegemonic leadership. It could be argued that through the digital yuan, China would both represent global interest in breaking apart U.S. dollar hegemony and offer concrete benefits via increased cash liquidity, payment speeds, and subversion of the SWIFT network. However, China’s state-centric ideology raises national security questions for many global leaders. It is possible that competition between state-backed digital currencies increases throughout the next decade, resulting in a large and decentralized network of individual currencies. Currently, Facebook is promoting its digital currency, Libra, to the U.S. government. Nations like Iran and Russia are also engaging in conversations surrounding new forms of digital currency. Nonetheless, China’s development of the digital yuan is a clear example of the state’s attempts to increase its structural power and challenge current interdependency structures through networked technology.
The case of China’s digital yuan aligns with theories of structural power. Structural power literature, beginning with Susan Strange in States and Markets has repeatedly turned to the international finance system as a source of power for privileged states. While it is the interdependent nature of global trade that provides the need for networks (the need to transfer money between nations), it is the actual network structure and location of hubs that grant power to certain states. There is overlap, of course, between interdependence and structural power literature. Farrell and Newman, speaking from the perspective of interdependence, discuss the U.S.’s panopticon ability derived from its joint control (with the EU) of the SWIFT system. This ability, however, is reliant upon the initial framework. If the international community, or even certain key states “buy in” to China’s digital yuan, China may derive a similar form of structural power through control of the network of currency transfer. However, again referring to Cox’s theory of hegemony, there is reason to question whether China’s structural power would be as great as the U.S.’s due to growing international distrust of the Chinese government, particularly from the West.
3.2 “Serve the World and Benefit Mankind”: China’s BeiDou Global Navigation System
On July 31st, 2020, after nearly twenty years of research and development, China declared its version of Global Positioning Signal (GPS) fully operational. Known as BeiDou (meaning ‘north star’ in Chinese), China’s Global Navigation Satellite System (GNSS) now consists of 35 active satellites – the most of any GNSS orbing the earth. China’s BeiDou system, which was designed to rival the U.S.-owned GPS, offers free and precise location accuracy for international and domestic users. The slogan “Serve the World and Benefit Mankind,” serves as the motto of China’s pioneering navigation system, as the satellite system poses to both connect the world and inspire technological innovation.
Despite its philanthropic motto, BeiDou’s purpose is not purely benevolent. GNSS technologies serve numerous military, diplomatic, and economic objectives for leading nations. For China, BeiDou represents yet another piece of its grand ambitions of becoming a high-tech world power and its maturing outward FDI strategy. China is marketing BeiDou as an integral part of the BRI, offering incentives to nearby countries to build a network of differential ground stations through Asia. BeiDou also serves as an example of China’s growing interest in both preserving its national security interests and creating new opportunities for Chinese-led networks in high-interdependency areas. If successful, BeiDou is likely to bring prestige to the nation, as well as enhanced opportunities for diplomatic, and economic growth, and increase Chinese influence in several international and regional organizations that deal with satellite navigation issues.
China’s BeiDou system timed with fears of an increasingly militarized “space race” posit valid concerns from international actors. The most overt of which have to do with China’s military capabilities, and most obscure, with the extent to which China could ‘weaponize’ such a system in support of its domestic strategy. All the while, BeiDou and GNSS systems are a relatively neglected subject in interdependence and structural power literature. This section will focus on exploring the satellite navigation industry and China’s BeiDou system through the lens of structural power and interdependence to determine its implications for China’s position in the world order.
A Brief History of GNSS The GPS system we know today originated as a military technology. In the 1970s, the U.S. Department of Defense launched a system of satellites that offered precise ground locations for both defensive and offensive purposes (Kaplan 2006, p. 696). The U.S. GPS System was initiated in 1978 and achieved global coverage by 1995. GPS receives signals from at least four satellites at different points in the GNSS constellation to calculate accurate information regarding the receiver’s location, velocity, and local time (Wilson 2017. p. 3). The U.S. most notably used GPS as an offensive mechanism during the first Persian Gulf War in 1990-91. Since then, and in conjunction with cooperative ventures between civilian, military, and commercial interests, GPS has become an omnipresent technology, utilized in nearly every mobile phone, and available in devices like cars, watches, and PDAs (Kaplan 2006, p. 696).
These initial advancements by the U.S. GPS system paved the way for current GNSS. GNSS are intensive systems requiring expert R&D and industry knowledge. BeiDou poses to be one of only for four global CNSS systems in operation. Those include: The United States’ GPS, Russia’s Global Navigation Satellite System (GLONASS) (initiated in 1978 and achieved global coverage in 1996, and again in 2011 after system failures), the European Space Agency’s Galileo system (initiated in 2005 and projected to achieve global coverage by 2020), and now China’s BeiDou (initiated in 1994 and achieved global coverage July of 2020).
In the decades following their launch, GNSS systems have had revolutionary commercial impacts. Since the United States’ ended its practice of intentionally downgrading its GPS signals to the public in 2000, the world has witnessed rapid downstream developments in consumer industries. From personal navigation assistants, in-dash GNSS systems pre-installed in automobiles, smartphone applications, GNSS-equipped wearable technology, to autonomous vehicle navigation, GNSS downstream applications are a billion-dollar industry. The GNSS downstream industry can be divided into three sectors.
Component manufacturers, which produce receivers for either stand-alone use or integration into systems.
System integrators, which integrate CNSS capability into larger products like electronics, vehicles, and personal navigation assistants.
Value-added service providers, which deliver GNSS-enabled software such as maps, telecommunications, and location-related data downloads (i.e., Google Maps, Google Weather, Uber, Waze, DiDi, Skype and many more applications) (Wilson 2017, p. 4).
Like many globalized technologies, interoperability is a main component of satellite systems. As the world becomes more integrated through mobile devices, the global downstream industry is moving rapidly towards “multi-constellation” devices, built to receive signals from multiple or even all four of the world’s GNSS systems. This trend is a product of multiple technical, economic, and political factors including providing consumers with greater reliability and accuracy, achieving greater interoperability of GNSS systems, and encouraging the use of foreign PNT services to “augment and strengthen the resiliency of GPS” (Wilson 2017, p. 4). Nonetheless, China seeks to gain from domestic downstream technological innovations through the form of increased revenue for Chinese businesses.
Characteristics of the BeiDou GNSS and China’s Objectives For the past two decades, China has been heavily investing it its BeiDou satellite system. As one of 16 “megaprojects” in China’s 2006-2020 Medium- and Long-Term Plan for Science and Technology Development. The BeiDou project is regularly referred to as one of China’s top space projects in its government white papers. With 35 satellites, BeiDou is the largest of the four global GNSS and will offer position accuracies of under ten meters worldwide, and up to one meter and even within centimeters in some areas of China. From 1994 to 2012, China reportedly spent $2.57 billion on the BeiDou program and in 2013, and indicated it would spend an additional $6.41-$8.02 billion from 2013-2020 (Wilson 2017, p. 2). The BeiDou satellite system will be deeply integrated in the domestic market. Much like how European cars are embedded with Galileo navigation systems, vehicles, and smartphones (like Huawei, Xiaomi, and OnePlus) manufactured in China are all BeiDou compliant (Chen 2016).
BeiDou has some unique characteristics not largely featured in current GNSS systems. One being BeiDou’s ability to offer short messages. Unlike GPS, BeiDou offers a short messaging service which can transmit messages up to 120 characters to other BeiDou receivers. This service would allow Chinese fishing vessels to sound “instant alarms” to fishing department in case of emergency, while a complementary “vessel management system” allows them to request assistant from nearby ships. As described in a 2017 U.S. – China Economic and Security Review Commission staff report, “this feature is particularly relevant to the ongoing disputes in the South China Sea, where fishing rights are at stake and where China’s maritime militia—a quasi-military force of fishermen that are tasked by and report to the PLA—plays a key role in advancing Beijing’s claims” (Wilson 2017, p. 6). This is one example of BeiDou’s two-way communication abilities. In short, BeiDou’s two-way communication system allows it to identify the locations of receivers and accept data from BeiDou-compatible devices. A China CCTV state broadcaster in June of 2020 explained the capability like this: “in laymen’s terms, you can not only know where you are through BeiDou but also tell others where you are through the system” (Xie 2020).
China has numerous reasons to invest in satellites despite existing free access to navigation systems. For decades, the U.S. has been the leading GNSS provider with the GPS system and has used its system for security purposes. China’s BeiDou is driven by similar militaristic intentions. As described in a 2015 U.S. – China Economic and Security Review Commission Annual Report to Congress:
The PLA has considered [its] dependence on a foreign PNT (Position Navigation and Timing) system to be a strategic vulnerability since at least the mid-1980s. These fears were exacerbated during the 1995–1996 Taiwan Straits Crisis. According to a retired PLA general, the PLA concluded that an unexpected disruption to GPS caused the PLA to lose track of some of the ballistic missiles it fired into the Taiwan Strait during the crisis. He then said that “it was a great shame for the PLA … an unforgettable humiliation. That’s how we made up our mind to develop our own global [satellite] navigation and positioning system, no matter how huge the cost. BeiDou is a must for us. We learned it the hard way.”9
China has clear objectives through the proliferation of the BeiDou system. The 2017 U.S. – China Economic and Security Review Commission Report nicely summarizes China’s ambitions into three clear goals: 1) to end military reliance on GPS, 2) to build a commercial downstream satellite navigation industry and take advantage of a rapidly expanding market, and 3) to bolster domestic and international prestige by fielding one of four global navigation systems. These three goals fit into China’s grand plans of becoming a leading power in space and opening the door to international cooperation activities.
Structural Power and Interdependency Implications of BeiDou
China’s BeiDou System has many consequences for China’s military capabilities and position in the global economy and order. Both structural power and interdependence literature look beyond military capacity (budget, spending, size) and more towards the weaponization of networks that can have military and economic implications. However, both handle these ideas
9 U.S.-China Economic and Security Review Commission, Chapter 2, Section 2, “China’s Space and Counterspace Programs,” in 2015 Annual Report to Congress, November 2015, 302.
slightly differently. In this sense, BeiDou fits uniquely into this discussion. It embodies certain characteristics more aligned with structural power, and others akin to interdependence. This is not uncommon, as the literatures often overlap in certain areas, and these emerging technologies are incredibly complex and far-reaching. The security element of BeiDou is better explained by ideas of structural power, while its integration in across Belt and Road member countries is better illuminated though ideas of interdependence.
i. BeiDou and The Security Structure
Security is a central talking point in structural power literature. One of Susan Strange’s four sources of structural power outlined in States and Markets is security. Strange defines security as the capacity for the provision of security for oneself and for others. One of BeiDou’s central tenets is providing increased security for both Chinese citizens and international allies. There is both a domestic and military aspect of this security. China has marketed an increase in domestic security via the BeiDou system. BeiDou’s website devotes a page to ‘public security.’ The passage below is taken from the BeiDou’s website and describes in what capacity the system can be used for public safety:
A large number of public security services such as anti-terrorism, social stability maintenance, social security demand for high sensitivity and confidentiality. Therefore, it is imperative to popularize BDS in the field of public security. A BDS-based public security information system has realized the dynamic dispatch and integrated command of police resources, which has improved the response time and the execution efficiency.
The sector mainly includes the command and dispatch of public security vehicles, the on-site law enforcement management, emergency incident information transmission, public security time service, and other applications. Among them, the emergency incident information transmissions can be implemented by using the unique BDS short message function.10
As Strange reiterates, in the modern political economy, the security structure is built around the state. The state takes the responsibility for protecting its citizens, and in return, the state claims political authority and the monopoly of legitimate violence. (Strange 1988, p. 50) Through its dictated domestic uses, the Chinese government is attempting to provide a safer environment for its citizens, whether that be faster ambulances, faster police response, or timely public service announcements. However, when states then abandon their responsibility to protect, this service could take a sinister turn. The implications for increased surveillance of Chinese citizens are profound and beg the question of how this technology will be used in high-tension areas like the current crisis in Xinjiang.
BeiDou’s security services are not limited to the provision of emergency response vehicles. The satellite system will also serve China’s national security and military interests, especially in the case of missile defense. With its new satellite system, China could potentially avoid the circumstance of U.S. interference of global positioning systems to launch long-range missiles. In 1996, China fired three missiles towards Taiwan as a warning. One of those missiles struck the sea approximately eleven miles from a Taiwanese military base. The other two missiles disappeared. China claims that the U.S. interfered with GPS signals and was responsible for the missing missiles (Goward 2020). Having its own sovereign GNSS eliminates the issue of
10 http://en.beidou.gov.cn/APPLICATIONS/PublicSecurity/
relying on other nations for satellite navigation for a precision strike. Although concrete information about China’s incorporation of BeiDou into its weapons system is few and far between, it can be reasonably assumed that China would equip its ballistic and cruise missiles to operate with both GPS and BeiDou. If true, Chinese operators would be able to switch between platforms (from GPS to BeiDou) if GPS were denied, and it would also be able to attack an adversary’s access to GPS without compromising its own capabilities. Furthermore, China could potentially interfere with adversaries use of the BeiDou network. Just as Americans fear China’s monitoring and manipulation of its networks, China fears U.S. intervention. An essential component of feeling secure is being equipped with both information and legitimate elements of protection. BeiDou provides China with greater structural power in its ability to both protect and launch offensive attacks against its rivals.
BeiDou also has the potential to provide security for other nations. A major component of Strange’s understanding of the security structure is one’s ability to provide for allies. One example of China’s use of BeiDou as a bargaining tool is seen in China’s relationship with Pakistan. Pakistan and China have deepened their relations over the past half-decade especially as Pakistan’s relationship with the United States worsened under President Trump. However, China’s investment in Pakistan predates the Trump Administration. Since the beginning of the BRI in 2013, Pakistan has been a flagship site of the BRI, with some $62 billion in projects planned in the “China-Pakistan Economic Corridor.” Pakistan is now the only other country that has been granted access to the system’s military service, the one which allows for more precise guidance of missiles, ships, and aircrafts (Abi-Habib 2018). This indicates that China is open to sharing some of its security services with its allies and may eventually serve as a blueprint of China’s expansion to other BRI member nations.
ii. BeiDou and the BRI: New Patterns of Interdependence
Pakistan is just one of the many member nations participating in the BRI which China is encouraging to adopt the BeiDou system. By implementing BeiDou in countries across the east, China aims to increase integration and interdependency among BRI nations. By 2018, China had signed 121 agreements with 37 countries and four international organizations regarding cooperation in the space sector via the Belt and Road Initiative (Paladini 2019). As of 2019, 30 nations, including Pakistan, Laos, Brunei, and Thailand have connected to the BeiDou system (Cheney 2019. p. 6). The plan is to extend BeiDou systems to all 64 BRI countries. China is suggesting partner nations use the BeiDou system to enhance the efficiency of BRI infrastructure, such as railways and pipelines. The line of thinking is that as nations become more dependent upon the BeiDou system, Chinas influence will grow in BRI nations as they become reliant upon Chinese systems for sustained economic growth. In fact, China has referred to efforts in satellites and space technology as building a “Space Silk Road” (Cheney 2019. p. 7)
BeiDou provides China with a tangible entry point to global institutions and organizations. The 2015 U.S. – China Economic and Security Review Commission Report to Congress argues that BeiDou’s achievement of global coverage could provide Beijing with more influence over PNT-related decisions in several key forums, such as the International Telecommunications Union, the International Committee on Global Navigation Satellite Systems, the Asia-Pacific Economic Cooperation forum, and the International Civil Aviation Organization. (Wilson 2017, p. 9). Satellite and downstream technological innovation represent areas of “rule overlap” as discussed in Farrell and Newman’s New Interdependence Approach. Therefore, China’s voice in these institutions act as “opportunity structures” for China to further its agenda. Furthermore, as illustrated in the case of Pakistan, BeiDou system represents how countries can work cooperatively to achieve common goals (i.e. circumvent the American system). The proliferation of BeiDou ground systems throughout the BRI represents a broader trend of increasing interdependencies and influence throughout the world. Referring again to Robert Cox’s theories on hegemony, it serves as yet another example of how China is attempting to provide tangible benefits to nations across the globe.
In terms of more recent interdependence literature, it remains unclear how BeiDou can be analyzed. Issues of data retrieval and China’s burgeoning ‘panopticon’ ability have been raised. However, at the moment, it remains too soon to tell if the BeiDou system can be ‘weaponized’ in the same capacity as the SWIFT and other empirical examples. Only time will tell how the Chinese government will handle its new system, and if it will alter interdependency patters. Furthermore, While Keohane and Nye claim that military force is largely irrelevant, it nonetheless plays an important role in the perception of foreign nations. Even if BeiDou does not constitute a ‘weaponized’ relationship, it has elevated China’s status as an emerging power in space and is incredibly important to the nation.