"The Chinese are competing with us," says James Lewis, senior fellow at the Center for Strategic and International Studies. "We need to recognize that and figure out how we are going to compete with them."

Why China Needs a New Internet

The story of China’s Next Generation Internet project began here in the United States in 1983, when the Internet, a Department of Defense project connecting a select group of academics and researchers, adopted an addressing system, IPv4, so that computers connected to the Internet could each have a unique identity for recognizing and communicating with each other. The addressing scheme, which uses a series of four decimal values, each of which can be a number from 0 to 255 (also known as 32-bit addressing), has a total of 4.3 billion possible addresses. In 1976, when computer engineers Vint Cerf and Robert Kahn developed IPv4, that seemed like plenty. "[A longer address] sounded just a little excessive in 1976," Cerf said at a government roundtable in 2004. "I mean, after all, [the Internet] was an experiment. So I thought, well, 4.3 billion addresses should be enough for an experiment."

At that time, the Internet was a mostly American phenomenon, so U.S. universities, commercial ISPs and some companies gobbled up large blocks of IP addresses on a first come, first served basis. Today, U.S.-based organizations have more than 1.2 billion IP addresses, close to 30 percent of the theoretical total, serving an online population of about 200 million.

That has left relative latecomers to the Internet, like China, in a bind. China, which is expected to surpass the United States as the world’s biggest Internet user later this year, has just 2 percent of the world’s IP addresses, or around 60 million—about as many as Stanford University. To its credit, the Internet Engineering Task Force, the organization responsible for setting standards on the Internet, saw this problem coming a long time ago and formally adopted a replacement standard, IPv6, in 1994. IPv6 solved the address shortage by increasing the number of decimal values in each address from four to 16 (or 128 bits), resulting in a near infinite number of combinations—enough addresses for every grain of sand on the planet, for example, or for every person alive to have about 50 octillion unique IP addresses. IPv6 can also recognize IPv4 traffic, allowing network operators to phase out the old standard over time.

But before IPv6 could gain any traction, engineers developed a workaround to IPv4’s address limitations so they could avoid rebuilding their Internet networks. Dynamically assigned IP addresses allow ISPs to give a user a temporary address that is reclaimed at the end of an online session, and Network Address Translation (NAT) devices allow multiple users to connect to the Internet through a single IP address. This saved the world from a costly infrastructure upgrade, "but NAT also made the Internet more complicated and more fragile," says Nurani Nimpuno, outreach coordinator for APNIC, the registry that covers the Asia-Pacific region. NAT, China’s dominant strategy for parsing out precious IP addresses, introduces more intermediate connections between computer users and the Internet, increasing susceptibility to slowdowns and interruptions and complicating high-bandwidth, real-time services like voice over IP or streaming video.