Baidu: Geopolitical Dynamics of the Internet in China

This post is based on a talk on the panel titled Venturing China’s Globalized Internet at the 2023 International Communication Association. (ICA) preconference. The panel was organized by the contributors of recently published books on the political economy of China’s internet giants: Alibaba, Baidu and Tencent in the Global Media Giants book series. I revised my original talk to provide a little more context drawing from my 2022 book Baidu: Geopolitical Dynamics of the Internet in China. Baidu was primarily a search engine company, but it has diversified its business into artificial intelligence (AI) and AI-driven industrial sectors including self-driving or autonomous cars (AVs), Electric Vehicles (EVs), cloud computing, smart devices etc.

Today, it is extremely challenging to engage in a reasonable debate about the tech sector related to China – a major geopolitical flesh point between the US and China. In the Western mainstream media, the discussions are persistently framed under the themes of national security, spying, censorship, human rights, and authoritarianism vs liberal democracy, but these narrow and self-interested analytical frameworks obfuscate the underlying pollical economy of the Chinese internet industry which is deeply integrated into the US-led global capitalist order.  

In turn, the often-used term “decoupling” needs to be handled carefully. “Decoupling” actually is embedded with a longer process of coupling. The Chinese search giant Baidu, which represents the internet industry in China, sheds light on this decades-long enmeshment – and its implications for current capitalist dynamics. Thus, I’ll talk about Baidu in the context of coupling, geopolitical competition, and “decoupling.”

Coupling

Instead of going back to the 1970s when China reopened to the global market, I’m going to jump to the question of who owns Baidu and its ownership structure. In the early 2000s, Baidu was initially incorporated in the Cayman Islands through the Variable Interest Entities (VIE) framework to set up offshore shell companies. VIE is a legal structure designed to work around Chinese regulations that restrict foreign investment in a number of industries including the value-added internet services sector. This has been one of the methods that gives Chinese internet companies more flexibility to raise foreign capital and list on the US stock exchange. Concomitantly, foreign capital has been able to invest in China’s lucrative internet sector. For decades, both sides have been exploiting this grey legal area and managing transnational capital flows while keeping governments at arm’s length.[1]

According to Asia Nikkei, in 2021, Chinese companies listed in the US stock exchange using VIE were worth $1.62 trillion.[2] Baidu is far from an exception. The company is one of many Chinese internet companies that grew by tapping into foreign capital, in particular US capital.

I described the period of the growth of the Chinese internet sector between the late 1990s to 2008 as an accelerated coupling when Chinese tech start-ups and foreign capital – and, in particular, US capital – forged together for their mutual interest. In this period, the Chinese internet industry was rapidly integrated into the global market, and at the same time, as scholars like Ming Tang, Yu Hong and Hong Yu have shown, China was also able to develop and carve out its domestic internet industry.[3]

What is clear is that the growth of foreign capital fueling Chinese internet companies wasn’t an accident or a result of merely brilliant entrepreneurship; it was facilitated by Chinese industrial policy as well as US policy – the Chinese internet sector needed capital and technical know-how at that time; and the US capital needed new markets in which to expand. For decades, this mutual collaboration served the interests of both the US and China: domestic and transnational capital; however, there was a major catch. For the US, there was a condition for this cooperation: Chinese economic growth shouldn’t challenge the US led-global capitalist order. However, China’s ascendance in ICT sectoral power – the backbone of global economic and military power today – spurred US anxiety over its global hegemonic position.

Geopolitical Competition

The competition between the US and China illustrates one of the features of contemporary capitalism. Competition doesn’t take place just among individual capitalists, but also between states. The states are deeply interdependent and integrated hierarchically under what historian Ellen Wood describes as “capitalist imperialism” which is based on economic predominance rather than on direct military occupation.[4] Of course, this doesn’t mean that military power is irrelevant. It is anything but coincidental that the US has the most powerful military in the world.

From the US perspective, the empire of capital has to be managed and governed by the US. Thus, when the US sees that Chinese tech power could undercut US global dominance, Washington is spurred to make a series of offensive moves intensifying the current geopolitical competition, seeking to strengthen its geopolitical alliances to isolate or undercut China, and attempting to strategically “decouple” from the four-decade old transnational capital project.

“Decoupling”

The Trump administration is often seen as the starting point for the clash between the US and China; however, this goes back further when the Obama administration pushed its “pivot to Asia” policy to rebalance regional power in order to stymie China’s global political economic influence in the region. In particular, China’s ascendance in ICT sectoral power has prompted US anxiety over its global hegemonic position. Many people had expected that President Biden would be a little bit different, but in fact, his policy has been more hawkish even than the previous administration.

Under Biden’s mantra “America is back,” the US is reshuffling its foreign alliances to rein in China within US-led global structures. To pursue this goal, the Biden administration shored up its transatlantic tech alliance with the European Union, pushing for joint technical standards and working together in the key technology areas of 5G mobile networks, artificial intelligence (AI), and data flows.[5] The US also forged a new Indo-Pacific AUKUS trilateral security alliance between the US, Great Britain, and Australia in the Pacific to counter China.[6] In early 2022, the US and Japan deepened their military ties by signing a new five-year agreement on military-related R&D.

For Washington today, one of the central issues has been technological “decoupling.” The US has dramatically expanded on measures to control the global tech sector deploying various strategies – subsidizing the US domestic tech industry through industrial policy such as the CHIPS Act, Infrastructure bills and the Inflation Reduction Act as well as by restricting Chinese tech companies though blacklist, tariffs, and geopolitical pressure.[7]

However, this new US strategy has a problem given the decades of the entanglement of these two economies.[8] It’s difficult, perhaps even impossible, to cut off Chinses technologies from the US value chain without collateral damage, and vice versa.

In response to increasing hostility and pressure from the US and its allies, the Chinese Communist Party (CCP) has been speeding up its new economic development path, focusing on the expansion of the domestic consumption, and the investment on core indigenous technologies to reduce China’s reliance on foreign technologies in the strategic areas. However, even before the current trade dispute with the US, the Chinese state had already recognized the vulnerability of China’s factory-based and highly export-dependent economy. 

After the 2008 global financial crisis crashed the US consumer market and collapsed foreign demand, China revived both its domestic economy and the global capitalist economy by injecting $586 billion in its domestic infrastructure. However, the 2008 crisis also exposed the limitations of China’s export-led growth and highlighted the need to move up the global value chains.

To move away from a factory-based economy, the CCP has been promoting a new development model under the premise of its “Innovation-Driven Development Strategy (IDDS)” and is moving into capital intensive areas within its high tech sectors.[9] IDDS was introduced in the 13th Five-Year Plan (FYP) (2015–2020) which laid out the strategic emerging industries as new engines of economic growth – including Internet of Things (IoT), Artificial Intelligence (AI), cloud computing, big data, astronautics, biomedicine, robotics, electric vehicles (EVs), autonomous vehicles (AVs), and smart manufacturing – as core technologies to be supported by the state.[10] To implement IDDS, the CCP introduced a series of tech-centered industrial policies – “Made in China 2025” (2015), followed by the “New Generation Artificial Intelligence Development Plan” in 2017 and “Internet Plus” in 2019 – to promulgate next-generation technologies and restructure China’s entire industrial base. After the announcement of the 13th FYP, China’s R&D expenditure doubled.[11] In 2018, China spent $468 billion, behind only the US and its $582 billion invested in R&D.[12] The 14th Five-Year Plan further amplified IDDS.

Baidu

Against this backdrop, Chinese tech giants including Baidu are trying to navigate within the changing domestic and global political economic environment. In the case of Baidu, despite more than a decade’s effort, the company failed to internationalize its business so the domestic market has become more important than ever. Yet, Baidu is also facing intense competition domestically from its rivals – Alibaba, Tencent, ByteDance, JD.com etc. So the company has had to diversify its search engine business into another area – in this case artificial intelligence (AI). Baidu has succeeded in repositioned itself as an AI company.

However, its growth is not just relying on the company’s talents and technical innovations. It also hinges on China’s changing domestic political economy. In particular, the expansion of Baidu’s industrial AI businesses, including AVs and EVs, require public infrastructure, urban planning, and new regulatory environments. Thus, Baidu has to rely on the state to survive. However, this is not just one directional. The Chinese party state also needs these tech giants which have capital, talent, R&D, infrastructure, and efficiencies to assist in restructuring its industrial base to move up global value chains and actualize its larger economic policies.

Baidu is designated as one of the “national AI champions” participating in China’s AI-driven infrastructure, and has become allied with the CCP’s industrial policy. The company has begun to aggressively pursue working with local governments and has become involved in the building of new local and national digital infrastructures. From across the Pacific, this could be seen as Baidu being directly managed by the Chinese state. However, Chinese tech giants and the party state have a more nuanced and multifaceted relationship.

The Chinese government’s recent crackdowns on the oversized private tech industry with antitrust cases and new data regulations have been seen as a clash between the Chinese state and its private sector. Indeed, the CCP’s new measures have jolted China’s internet businesses, wiping away hundreds of billions from the market, and signaled the CCP’s renewed market intervention. However, the PRC is also nudging the Chinese tech giants to reorient their businesses toward China’s industrial sectors rather than consumer-oriented businesses.[13] The jolt has also brought adjustments in the Chinese tech sector which have laid the ground for new regulatory frameworks to facilitate China’s new phase of economic development.[14]

There is no question that the Chinese government is being more assertive in attempting to pursue structural reforms. However, this doesn’t mean that the state is trying to seize private Internet companies outright; nor is it aiming to block the flow of foreign capital. Rather, the Chinese government is responding to mounting pressures: the ongoing trade war with the US and its allies, rising income and regional inequality, and falling growth rates. To combat these social and structural problems, the CCP is in the midst of setting a new stage for the next generation digital economy to put China in a better position within the global capitalist market.

Within this context, Baidu and its rivals are trying to retune their corporate strategies not to reorient their businesses for social needs or socialist enterprise, but are working closely with the party-state in order to capture much-needed capital accumulation opportunities for profit maximization and their very survival.


[1] In 2021, the China Securities Regulatory Commission (CSRC) revised the VIE legal framework requiring approval from the state filing with the CSRC, but the new legal framework didn’t ban VIEs outright. And the US passed a law called the Holding Foreign Companies Accountable Act (HFCAA) which required that the US Securities and Exchange Commission (SEC) regulate and audit public companies with offices in foreign jurisdictions.

[2] Noriyuki Doi & Takenori Miyamoto, “Crackdown on US listings: Will China close $1.6tn VIE loophole?” Nikkei Asia, July 14, 2021.

[3] Min Tang, Tencent: The Political Economy of China’s Surging Internet Giant (Routledge Taylor & Francis, 2019); Yu Hong, Networking China: The Digital Transformation of the Chinese Economy (Champaign: University of Illinois Press, 2017); Shen Hong, Alibaba: Infrastructuring Global China (Routledge Taylor & Francis, 2023).

[4] Ellen Meiksins Wood, “Unhappy family,” Monthly Review, June 1, 1999.

[5] Anu Bradford & Raluca Csernatoni, “Toward a strengthened transatlantic technology alliance,” Carnegie Endowment for International Peace, January 26, 2021.

[6] Steven Erlanger, “The sharp U.S. Pivot to Asia is throwing Europe off balance,” New York Times, September 17, 2021.

[7] Bethany Allen-Ebrahimian, Special report: Trump’s U.S.-China transformation, Axios, January 19, 2021.

[8] Dan Schiller, “Digital Capitalism in the 2020s: Dividing the World,” Presentation For Delivery to Digital Capitalism Communication Symposium, 2023.

[9] Central Committee of the Communist Party of China, Outline of the National Innovation-Driven Development Strategy, trans. Etcetera Language Group, Inc. (Center for Security and Emerging Technology, 2019).

[10] Katherine Koleski, The 13th Five-Year Plan, U.S.-China Economic and Security Review Commission, February 14, 2017.

[11] Dennis Normile, “China again boosts R&D spending by more than 10%,” Science, August 28, 2020.

[12] Ibid.

[13] Angela Huyue Zhang, Chinese Antitrust Exceptionalism (Oxford: Oxford University Press, 2021).

[14] Kai von Carnap and Valarie Tan, “Tech regulation in China brings in sweeping changes,” Merics, November 3, 2021.

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