On a Friday night in mid-April, a gang of Friendlies, the multicolored, panda-cum-Teletubby-like creatures, which are the official mascots of the 2008 Olympics, mill about awkwardly, waving to confused tourists stumbling out of the bars that ring Houhai Lake in Beijing. Several miles away, construction crews are working around the clock on the Olympic stadium and other venues, trying desperately to keep to their schedules for the opening ceremony two years away.Meanwhile, out of sight, in research labs throughout China, engineers are busy working on another project that the Chinese government plans to unveil at the Olympics: China\u2019s Next Generation Internet (CNGI), a faster, more secure, more mobile version of the current one. And unlike the Friendlies and the stadiums, which the world will forget as soon as the games end, CNGI\u2019s impact will be felt for decades. CNGI is the centerpiece of China\u2019s plan to steal leadership away from the United States in all things Internet and information technology. The strategy, outlined in China\u2019s latest five-year plan, calls for the country to transition its economy from one based almost entirely on manufacturing to one that produces its own scientific and technological breakthroughs\u2014using a new and improved version of today\u2019s dominant innovation platform, the Internet. "CNGI is the culmination of this revolutionary plan" to turn China into the world\u2019s innovation capital, says Wu Hequan, vice president of the Chinese Academy of Engineering and the chairman of the CNGI Expert Committee, the group overseeing the project. "We will use it as a way to break through and be competitive in the global economic market."The technology at the heart of CNGI is an emerging communication standard called Internet protocol version 6 (IPv6). The Internet protocol is the Internet\u2019s version of a postal envelope, containing information such as the destination and return addresses, and details about a package\u2019s contents. The current standard, IPv4 (IPv5 never made it out of the lab), doesn\u2019t have enough unique addresses for every would-be user in the world to connect to the Internet. IPv6 solves this problem, and is also more secure and efficient than its predecessor. For these and other reasons, most experts agree that a shift to an IPv6-based Internet is inevitable.China is betting that by moving to the next-generation Internet before the rest of the world, China\u2019s researchers, academics and entrepreneurs will be the first ones to develop applications and services that take advantage of the new capabilities. (China isn\u2019t alone in this thinking. Japan and Korea have also launched national initiatives to move to IPv6.) If all goes according to plan, those services will be commercialized, making China home to the next wave of eBays and Googles. But China is also working on ways to use IPv6 to enhance its now infamous control over Internet traffic into and out of the country\u2014which could have dramatic security implications for the United States (see "A New Weapon for Control and Intelligence?" below).Call CNGI the first-mover advantage to end all first-mover advantages. "[China is] looking to leapfrog the U.S.," says Michael Gallagher, who was assistant secretary of commerce for communications and information, and President Bush\u2019s top adviser on Internet issues before joining the law firm Perkins Coie in February. According to Chinese and U.S. sources familiar with the project, the Chinese government has already invested close to $200 million in CNGI and has created a special office of the State Council dedicated solely to the project. China\u2019s major telecommunications companies, each of which is responsible for building a portion of the network, have also spent hundreds of millions of dollars so far. Today, CNGI connects 100 universities, 100 research institutes and 100 companies in 20 cities. At the Beijing Olympics in 2008, China plans to use CNGI for everything from broadcasting the events to controlling the Olympic facilities.The Coming ThreatThe United States is still the undisputed leader when it comes to the Internet. "[But] we cannot let our current success become a liability, with a continued reliance on the present protocol, while everyone else moves forward," says Rep. Tom Davis (R-Va.), chairman of the House Committee on Government Reform.But that\u2019s exactly what\u2019s happening, in large part because few people in the United States know the threat exists. "Over time IPv6 could revolutionize what we can do with the Internet," says David Powner, director of information technology management issues for the Government Accountability Office. "My concern is that we will get behind."If China gets too big a head start, U.S. CIOs could be in the unfamiliar position of having to play catch up to the rest of the world\u2014while paying as much as 30 percent more to manage their networks, according to estimates by the National Institute of Standards and Technology. Worse, organizations that lag behind the world in IPv6 adoption will be more vulnerable to hackers and other security threats. According to research by the U.S. Department of Commerce, the cost for an enterprise to build an IPv6 infrastructure is minimal if it is spread out over time as part of the normal technology refresh cycle. However, companies that wait until demand for IPv6 services emerge\u2014either from overseas business partners or U.S. customers\u2014could face a massive onetime hit in the ballpark of what it cost to fix the Y2K problem.And while China\u2019s first-mover advantage is by no means a given, China has already established itself as the world\u2019s leader for IPv6, and, accordingly, is positioned in IPv6-related standards organizations. That could mean that the next-generation Internet is China-centric, the way the rest of the world feels the current one is U.S.-centric. "We used to be behind on the Internet," says Xiang Yangchao, executive vice president of Digital China Networks. "But we hope that we can become the leader of the IPv6 Internet.""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 InternetThe story of China\u2019s 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\u2019s biggest Internet user later this year, has just 2 percent of the world\u2019s IP addresses, or around 60 million\u2014about 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\u2014enough 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\u2019s 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\u2019s 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.Given that China will have almost twice as many broadband users as the United States by the end of 2007, the sense of injustice among China\u2019s Internet officials is palpable. "When 26 Chinese share one Internet protocol address, while each American possesses six IP addresses\u2026this is the quandary facing China in the IPv4 era," Zhao Houlin, director of the International Telecommunications Union, said in 2005. The bottom line for China, says Jiang Lintao, chief engineer at the China Academy of Telecommunications Research, is that "We cannot survive without IPv6."The Leapfrog EffectLatif Ladid, organizer of the IPv6 Global Summit, the world\u2019s largest IPv6 conference, recalls being unable to order a drink at a caf\u00bfnside the Beijing International Convention Center when the conference was first held there in 2004. In April 2006, sitting at the same caf\u00bfthe conference humming 100 feet away, he had no problem. "Now everyone speaks English," he says.And that\u2019s just the beginning of China\u2019s accommodations to the West. A bellhop at one of the conference hotels has adopted a Western alias, Harrison, to save foreign guests the trouble of having to decipher and pronounce his real name. A Chinese technology PR woman changed her Western pseudonym from Daisy to Edelweiss when she realized she had misidentified her favorite flower and finally settled on Dandelion after surmising that Edelweiss was too hard to pronounce.It\u2019s all part of China\u2019s plan to integrate with\u2014and compete against\u2014the West, says Ladid, pointing to the 2,000-plus Chinese engineers on hand at the conference to learn about IPv6. They are the soldiers in the battle for the next Internet, the ones who will build China\u2019s new network and design the services that take advantage of it.The innovation potential provided by IPv6 is enormous. Every device, from cell phones, to street lights, to a household thermostat, can have its own unique position on the Internet and be connected all the time. Utility companies will be able to read meters remotely over the Internet. Consumers parked outside a grocery store will be able to download shopping lists from their Internet-connected refrigerators to their BlackBerrys. Since every computer will have its own permanent IP address, users will be able to authenticate the source of e-mails or other requests, providing the means to track and prevent today\u2019s hacking, spam and phishing schemes.For defense strategists, IPv6 is science fiction come to life. John Stenbit, former CIO of the Department of Defense, says that every soldier, spy plane and even every bullet will eventually have its own IP address, giving the military an incredible level of real-time visibility into combat zones.The first services built with IPv6 in mind are just hitting the market. Microsoft\u2019s upcoming Vista operating system, for example, includes a feature where two IPv6 compatible computers can work in the same Office document without going through a server or other host. This ad hoc networking, where one of the devices essentially acts as the server, has broad implications for computer gaming, sensors and RFID. Will the Bet Pay Off?Some Internet experts, such as Paul Francis, a computer science professor at Cornell University who also happened to invent NAT devices, say that upgrading networks to IPv6 will cost so much and take so long that engineers will develop workarounds\u2014be it improvements to NAT devices or something new\u2014that solve the problems with IPv4, keeping the current Internet in place forever. But most people familiar with IPv6 say that the protocol has too much promise and can save CIOs too much money for it not to be adopted. Plus, most equipment makers are already selling IPv6-capable equipment today, meaning you could be building a next-generation network without even knowing it (see "Your Hidden IPv6 Network" on Page 45). "In the next 10 years everyone will [begin] moving to IPv6," says Robert Atkinson, president of the Information Technology and Innovation Foundation, a technology policy think tank. "That is not in doubt." The question, he says, is how long it will take for the United States to reach critical mass on the new protocol.The federal government is moving now, thanks to an Office of Management and Budget mandate that says agency networks must be IPv6-capable by 2008. But a June 2005 GAO study found that only one agency, the Department of Defense, even has a transition plan in place (an updated report due out this summer is expected to show more agencies making plans, however).The major U.S. telecommunications companies, meanwhile, are taking a wait-and-see approach to IPv6, says Prodip Sen, director of data and service architecture at Verizon Laboratories. They are buying equipment that can handle both IPv4 and IPv6 traffic, and waiting for demand for the new standard to emerge. The result is a chicken-and-egg dilemma: No one wants to invest in the infrastructure until there are applications that require it, but few companies will develop those applications until there is a network that can run them. The United States\u2019 reluctance to invest in IPv6 makes it more likely that China will be in a position to gain the first-mover advantage it seeks. A draft version of a January 2006 report by the Department of Commerce on IPv6 contained a section on competitiveness that highlighted several threats to U.S. Internet leadership, including a further shift of high-tech R&D and product innovation eastward and less available investment capital because of the higher costs of maintaining IPv4 networks. What remains to be seen is whether China can develop the services that take advantage of the next-generation Internet. But China\u2019s researchers are already working on it. At the IPv6 Global Summit in April, China\u2019s major telecommunications and Internet companies got up on stage one by one and told the audience that they have research facilities dedicated to developing these services. "CNGI will continue to be the most important topic of research for us," says Zhao Huiling, vice president of the Beijing Research Institute of China Telecom. Similarly, the Chinese government decided that CNGI\u2019s first users should be universities, research labs and leading companies precisely because that is where it imagines innovation will come from. Liu Dong, president of the Beijing Internet Institute sums it up succinctly: "We think we can develop the killer applications," he says.The 2008 Olympics: IPv6 on DisplayChina plans to show the rest of the world just how advanced its Internet is at the 2008 Olympics in Beijing. CNGI will control the facilities\u2014everything from security cameras to the lighting and thermostats\u2014at the Olympic venues, and events will be broadcast live over the Internet. Even the taxis in Beijing\u2019s snarled traffic will connect to CNGI via IPv6 sensors so that dispatchers will be able to direct their drivers away from congestion.If the United States hopes to maintain its Internet dominance, it must act. But there are few voices spreading the alarm. The Department of Commerce removed the section on the competitive threat of IPv6 from its final report, because the government did not want to be seen as pushing private-sector technology projects, according to former assistant secretary of commerce Gallagher. But he says the government is "acutely aware" of the threat. However, Chairman Davis, who has asked the president to appoint an IPv6 transition czar and is consistently one of Congress\u2019s most outspoken advocates on technology issues, doesn\u2019t mind offering private-sector CIOs advice of the most urgent kind."We need to begin planning now," he says.