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Startup Nation Stands Up to China: Estonia Sounds the Alarm on PRC Tech Intentions

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Startup Nation Stands Up to China: Estonia Sounds the Alarm on PRC Tech Intentions

February 22, 2021

With a population of just 1.3 million, Estoxnia may seem an unlikely adversary to the People’s Republic of China, but a report published Wednesday by its intelligence service has established the Baltic country as a vocal opponent of Chinese sharp power.

The report’s final section is devoted to reproaching China for its “increasingly confrontational foreign policy,” “its influence operations,” and what Estonia perceives as a Chinese effort to establish technological hegemony. Despite its size, Estonia’s economic strategy and history sensitize it to these concerns and make it a logical foil to Xi Jinping’s digital authoritarianism.

Estonia to 1991

To most Americans, any notion of Estonia is tied to the half-century it spent under the Soviet yoke. But the country’s economic history, language, and culture differ markedly from those of the Slavic East and a quick lesson is in order to establish context.

Estonia’s capital and population center, Tallinn, was incorporated into the Hanseatic League in the 13th century and thrived as a port (then known as Reval) in the early-modern maritime network. The country was thus historically more linked with Prussia, Pomerania, and Sweden than with the Tsardom of Muscovy. An ethnic German elite continued to play an outsized role in the territory long after the Russian Empire engulfed Estonia in 1721 (See: Rennenkampf, Paul von) and the vast majority of Estonians adhered to the Lutheran faith until the 20th century.

Estonia declared independence in 1918 amid the upheaval of the Russian Revolution and was recognized as a sovereign state until it was again subsumed by the giant next door in the maw of the Second World War. From 1944 until 1991, Estonia was, of course, a part of the Soviet Union.

The New Digital Nation

Modern Estonia practices a parliamentary system of government with a Prime Minister, currently Kaja Kallas, serving as head of government and a President, Kersti Kaljulaid since 2016, elected by parliament serving as head of state. Estonia joined the European Union in 2004 and adopted the euro as its currency in 2011. Since 2004, it has also been one of the more enthusiastic NATO members, spending more than 2 percent of its GDP on defense. Politically, economically, and militarily, Estonia has leaned overtly to the West since independence.

While extraordinary in its courage, Estonia’s intelligence report is characteristic of the country’s spirit. Modern Estonia has charted one of the most forward-thinking strategies of any country on Earth.

Estonia used the blank canvas in the aftermath of the Soviet-era to orient its government and economy towards the promise of the tech, quickly becoming a global pioneer in electronic governance. In 1997 it launched its Tiigrihüpe (Tiger Leap) program, which poured public investment into the development of computer and network infrastructure. In 2002 it instituted a free wi-fi network and in 2007 it implemented digital voting. Estonian citizens can pay taxes online and stand to benefit from the country’s status as a 5G early adopter.

Estonia has also committed itself to a program of economic and personal freedom, ranking in the top ten in both the Heritage Foundation’s 2020 Index of Economic Freedom and the Cato Institute’s 2020 Human Freedom Index. According to the World Bank's Doing Business rankings, Estonia comes in 6th on the "registering property" list, 8th on "enforcing contracts," 12th in "paying taxes," and 14th in "starting a business."

Three decades into the Estonian experiment, the results are remarkable. Its GDP per capita (denominated in current dollars and on a purchasing power parity basis) climbed from below 8,000 in 1999 to just shy of 40,000 in 2019. Estonia has created an impressively dynamic economy and places among the world leaders in companies with billion-dollar valuations per capita. Some of the country’s most successful startups are Skype, TransferWise, and Pipedrive. Estonia has now emerged as a European continental hub for fintech. Fintech firms Funderbeam, Veriff, and Bondora anchor a roster of more than 400 Tallinn startups.

Key to this startup smorgasbord is Estonia’s most innovative strategy for building its global profile and productivity: its e-residency program. For just €120, anyone with access to the internet can obtain an Estonia-issued digital identity, which confers the right to form and manage a European Union-based company from anywhere in the world.* Since e-residency was launched in 2014, more than 77,000 people from over 170 countries have applied for e-residency and formed over 15,000 companies, according to the Estonian government. The program has yielded €41 million in tax revenue.

Estonia has earned its self-designated moniker, the new digital nation. But its digital conversion has not come without tribulation. In 2007, Estonia was dealt a serious blow when, amid a civil crisis, it came under a sustained cyberattack, presumably executed by Russian state and non-state actors. The episode, during which online banking, government communications, and print media production were disrupted, remains prominent in Estonian memory and lends added weight to its judgments on PRC intentions and tactics today. As explained by the BBC ten years after the attack, the trials of 2007 contribute to the guarded attitude of the Estonian security establishment of today. "It was a great security test,” Tanel Sepp of Estonia's Ministry of Defense told the BBC, “We just don't know who to send the bill to."

International Security and Estonia 2021

Estonia’s economic platform and its history at the hands of Russia heighten its sensitivity to Russia’s cyber warfare and China’s sharp power. The report released Wednesday is the culmination of a series of rebukes Estonia has leveled at the PRC.

Last spring, Estonia’s parliament approved the Electronics Communications Act, which calls Huawei a security threat in all but name. The act empowers the intelligence service to review security on all telecommunications kit needed in the development of future networks. Then, earlier this month, Estonia and a handful of other countries snubbed Xi Jinping by sending lesser ranking officials to a PRC-organized confab with Central and Eastern European countries called the 17+1.

But Wednesday’s report, with an official English-language title of International Security and Estonia 2021, marks an escalation in Estonia’s China rhetoric.

In fairness to the letter of the paper, it should be noted that it focuses its first two-thirds on Russian foreign policy, not China. Given the history of hostility and Estonia’s precarious geography (it shares a 135mi border with Russia and its easternmost city, Narva, sits just 80mi from St. Petersburg), that makes sense. Even in 2021, physical realities matter and the looming threat of Putin’s chaotic energy is omnipresent.

“Russia continues to be the primary security threat to Western democracies also in cyberspace,” the document states. “In addition to espionage, Russian special services are actively using cyberspace in their influence operations to create divisions in Western societies, transnational relations, and NATO.”

What the report goes on to highlight, however, is that Russia and China are operating from similar playbooks and that the Sino-Russian partnership is increasingly Beijing-led. A leitmotiv running through the report is Estonian fear that Russian and Chinese interests will fuse.

As noted by the Estonian Foreign Policy Institute’s Frank Jüris in Axios, Estonia's experience of domination by its eastern neighbor and the continued threat from it gives salience to Estonia's outspokenness on China.

Growing Pressure from China

The report lays out a litany of Estonian concerns, among them China’s increasingly confrontational posture; its ambitions of tech hegemony; its exploitation, alongside Russia, of cleavages within the broader Western economic and military order; its infiltration of Western business, even if done by nominally private companies; its use of its economic heft to stifle criticism; and what the report calls “the Chinese propaganda machine.”

On Chinese foreign policy doctrine, the report describes China’s main goal vis-à-vis Europe as splitting it from the United States. Further it describes Xi’s stated aim of a “community of common destiny” as code for a community submissive to PRC preferences. “(D)espite its calls for closer cooperation,” the report accuses, “China has no intention of changing itself but instead wants to use its size and influence to muffle any critical voices from Europe.”

The report is highly critical of China’s manipulation of Western information channels, particularly platforms like Twitter and Facebook, which PRC officials and affiliates use to disrupt discourse in the U.S., Europe, and elsewhere while blocking them from mainland citizens. The report expresses worry that “(t)he introduction of new technologies will help the CCP to intensify and expand its agitation and propaganda work” and it says recent behavior on the web from Chinese-state accounts “has become more aggressive.”

Drawing on its intimate awareness of Putin’s Russia, the report asserts that China is following Russia’s example on disinformation, though it does not claim there is yet coordination between the two on that front. “At present, China does not use disinformation as actively and as professionally as Russia,” the intelligence service writes, “but it is likely that it will expand and intensify its activities in this area in the near future. China’s influence operations aim to weaken Europe’s open society by promoting its own propaganda messages.”

In an allusion to the Made in China 2025 initiative, the report warns that countries like Estonia risk being drawn into the Chinese technology ecosystem and thus must be assertive and vigilant. Given Estonia’s tech-forward economic strategy this assessment is appropriate and it’s encouraging that a country with a population smaller than that of Santa Clara County is willing to express it so confidently.

Estonia’s indictment of Chinese sharp power further distinguishes it as a 21st century visionary and positions it as a haven for tech companies wary of meddling from Beijing.

Estonia and the Geopolitics of 2021

With the Biden administration now in the White House, America foreign policy from 2021 will place more focus on partnerships across Europe. But while European countries have now largely come to share the American position on Huawei, gaps between U.S. and European interests—the gaps that Estonia fears are ripe for Russian and Chinese exploitation—remain. Estonia’s branding of Russia and China as major threats will be well-received in the United States, where our consensus of PRC-skepticism is growing, but it may find a less receptive audience in Europe, particularly as some leaders, like Angela Merkel's likely successor as German Chancellor, Armin Laschet, seek to differentiate European policy from American.

Estonia’s warning—coming from a frontline NATO member and a past victim of a crippling cyberattack—deserves the attention of leaders in the U.S. and Europe. As the Biden administration attempts to cinch up trans-Atlantic relations, it ought to highlight Estonia’s willingness to confront Chinese tech aggression. The Estonian case illustrates that renewed suspicion on China emanating from the United States is not merely an expression of a new great power rivalry, but rather is an outgrowth of the real threat that the PRC poses to free societies.

*If you, like me, find yourself curious about establishing e-residency with Estonia’s one-of-a-kind program, you can do so through this quick-and-easy application.

Image Source:"Arms Race" by Khahn Tran is licensed under CC BY 4.0

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