Category Archives: geoeconomics

US v. China: The Slow and Sure Conquest of Internet Infrastructure


A new front has opened in the battle between the U.S. and China over control of global networks that deliver the internet. This one is beneath the ocean. While the U.S. wages a high-profile campaign to exclude China’s Huawei Technologies Co. from next-generation mobile networks over fears of espionage, the company is embedding itself into undersea cable networks that ferry nearly all of the world’s internet data.

About 380 active submarine cables—bundles of fiber-optic lines that travel oceans on the seabed—carry about 95% of intercontinental voice and data traffic, making them critical for the economies and national security of most countries. 

The Huawei Marine’s Undersea Cable Network majority owned by Huawei Technologies, has worked on some 90 projects to build or upgrade submarine cables around the world…US o fficials say the company’s knowledge of and access to undersea cables could allow China to attach devices that divert or monitor data traffic—or, in a conflict, to sever links to entire nations.  Such interference could be done remotely, via Huawei network management software and other equipment at coastal landing stations, where submarine cables join land-based networks, these officials say.

Huawei Marine said in an email that no customer, industry player or government has directly raised security concerns about its products and operations.Joe Kelly, a Huawei spokesman, said the company is privately owned and has never been asked by any government to do anything that would jeopardize its customers or business. “If asked to do so,” he said, “we would refuse.”

The U.S. has sought to block Huawei from its own telecom infrastructure, including undersea cables, since at least 2012. American concerns about subsea links have since deepened—and spread to allies—as China moves to erode U.S. dominance of the world’s internet infrastructure…..Undersea cables are owned mainly by telecom operators and, in recent years, by such content providers as Facebook and Google. Smaller players rent bandwidth.Most users can’t control which cable systems carry their data between continents. A handful of switches typically route traffic along the path considered best, based on available capacity and agreements between cable operators.

In June 2017, Nick Warner, then head of Australia’s Secret Intelligence Service, traveled to the Solomon Islands, a strategically located South Pacific archipelago. His mission, according to people familiar with the visit, was to block a 2016 deal with Huawei Marine to build a 2,500-mile cable connecting Sydney to the Solomons.  Mr. Warner told the Solomons’ prime minister the deal would give China a connection to Australia’s internet grid through a Sydney landing point, creating a cyber risk, these people said. Australia later announced it would finance the cable link and steered the contract to an Australian company.  In another recent clash, the U.S., Australia and Japan tried unsuccessfully in September 2018 to quash an undersea-cable deal between Huawei Marine and Papua New Guinea.

U.S. and allied officials point to China’s record of cyber intrusions, growing Communist Party influence inside Chinese firms and a recent Chinese law requiring companies to assist intelligence operations. Landing stations are more exposed in poorer countries where cyber defenses tend to be weakest, U.S. and allied officials said. And network management systems are generally operated using computer servers at risk of cyber intrusion. Undersea cables are vulnerable, officials said, because large segments lie in international waters, where physical tampering can go undetected. At least one U.S. submarine can hack into seabed cables, defense experts said. In 2013, former National Security Agency contractor Edward Snowden alleged that Britain and the U.S. monitored submarine cable data. The U.S. and its allies now fear such tactics could be used against them. American and British military commanders warned recently that Russian submarines were operating near undersea cables. In 2018, the U.S. sanctioned a Russian company for supplying Russian spies with diving equipment to help tap seabed cables.


The Ionian Sea Submarine Cable Project (Greece) 

China seeks to build a Digital Silk Road, including undersea cables, terrestrial and satellite links, as part of its Belt and Road plan to finance a new global infrastructure network. Chinese government strategy papers on the Digital Silk Road cite the importance of undersea cables, as well as Huawei’s role in them. A research institute attached to China’s Ministry of Industry and Information Technology, in a paper published in September, praised Huawei’s technical prowess in undersea cable transmission and said China was poised to become “one of the world’s most important international submarine cable communication centers within a decade or two.” China’s foreign and technology ministries didn’t respond to requests for comment…

Huawei Marine Networks

Bjarni Thorvardarson, then chief executive of the cable’s Ireland-based operator, said U.S. authorities raised no objections until 2012, when a congressional report declared Huawei Technologies a national security threat. Mr. Thorvardarson wasn’t convinced. “It was camouflaged as a security risk, but it was mostly about a preference for using U.S. technology,” he said. Under pressure, Mr. Thorvardarson dropped Huawei Marine from Project Express in 2013. The older cable network continued to use Huawei equipment.

The company is now the fourth-biggest player in an industry long dominated by U.S.-based SubCom and Finnish-owned Alcatel Submarine Networks. Japan’s NEC Corp is in third place.Huawei Marine is expected to complete 28 cables between 2015 and 2020—nearly a quarter of all those built globally—and it has upgraded many more, according to TeleGeography, a research company.

Excerpts from America’s Undersea Battle With China for Control of the Global Internet Grid , WSJ, Mar. 12, 2019

How Iranian Oil Escapes US Sanctions

 At least two tankers have ferried Iranian fuel oil to Asia in February 2019 despite U.S. sanctions against such shipments, according to a Reuters analysis of ship-tracking data and port information, as well as interviews with brokers and traders.  The shipments were loaded onto tankers with documents showing the fuel oil was Iraqi. But three Iraqi oil industry sources and Prakash Vakkayil, a manager at United Arab Emirates (UAE) shipping services firm Yacht International Co, said the papers were forged.  The people said they did not know who forged the documents, nor when.

“Some buyers…will want Iranian oil regardless of U.S. strategic objectives to deny Tehran oil revenue, and Iran will find a way to keep some volumes flowing,” said Peter Kiernan, lead energy analyst at the Economist Intelligence Unit.  While the United States has granted eight countries temporary waivers allowing limited purchases of Iranian crude oil, these exemptions do not cover products refined from crude, including fuel oil, mainly used to power the engines of large ships. Documents forwarded to Reuters by ship owners say a 300,000 tonne-supertanker, the Grace 1, took on fuel oil at Basra, Iraq, between Dec. 10 and 12, 2018. But Basra port loading schedules reviewed by Reuters do not list the Grace 1 as being in port during those dates.  One Iraqi industry source with knowledge of the port’s operations confirmed there were no records of the Grace 1 at Basra during this period. 

Grace 1 oil tanker

Reuters examined data from four ship-tracking information providers – Refinitiv, Kpler, IHS Markit and Vessel Finder – to locate the Grace 1 during that time. All four showed that the Grace 1 had its Automatic Identification System (AIS), or transponder, switched off between Nov. 30 and Dec. 14, 2018, meaning its location could not be tracked.  The Grace 1 then re-appeared in waters near Iran’s port of Bandar Assaluyeh, fully loaded, data showed. The cargo was transferred onto two smaller ships in UAE waters in January, from where one ship delivered fuel oil to Singapore in February 2019.  Shipping documents showed about 284,000 tonnes of fuel oil were transferred in the cargoes tracked by Reuters, worth about $120 million at current prices…

One of those vessels, the 130,000 tonne-capacity Kriti Island, offloaded fuel oil into a storage terminal in Singapore around Feb. 5 to 7. Reuters was unable to determine who purchased the fuel oil for storage in Singapore.  The Kriti Island is managed by Greece’s Avin International SA… Avin International’s Chief Executive Officer George Mylonas told Reuters. Mylonas confirmed the Kriti Island took on fuel oil from the Grace 1.There is no indication that Avin International knowingly shipped Iranian fuel oil. Mylonas said his firm had conducted all necessary due diligence to ensure the cargo’s legitimate origin….

Kriti Island oil tanker

Excerpts from Roslan Khasawneh et al, Exclusive: How Iran fuel oil exports beat U.S. sanctions in tanker odyssey to Asia, Reuters, Mar. 20, 2019

Premature De-industrialization in Africa

“Name any country in Africa, and I could have found a world-class firm there a decade ago,” says John Page of the Brookings Institution, a think tank, the co-author of a forthcoming book on African manufacturing. “The problem is, two years later, I’d go back and still find just the one firm. In Cambodia or Vietnam, I would go back and find 50 new ones.”

To be sure, many countries deindustrialise as they grow richer (growth in service-based parts of the economy, such as entertainment, helps shrink manufacturing’s slice of the total). But many African countries are deindustrialising while they are still poor, raising the worrying prospectthat they will miss out on the chance to grow rich by shifting workers from farms to higher-paying factory jobs.

Thi is not just happening in Africa—other developing countries are also seeing the growth of factories slowing, partly because technology is reducing the demand for low-skilled workers. “Manufacturing has become less labour intensive across the board,” says Margaret McMillan of Tufts University. That means that it is hard, and getting harder, for African firms to create jobs in the same numbers that Asian ones did from the 1970s onwards.

Yet deindustrialisation appears to be hitting African countries particularly hard. This is partly because weak infrastructure drives up the costs of making things. The African Development Bank found in 2010 that electricity, a large cost for most manufacturers, costs three times more on average in Africa than it does even in South Asia. Poor roads and congested ports also drive up the cost of moving raw materials about and shipping out finished goods.

Africa’s second disadvantage is, perversely, its bounty of natural riches. Booming commodity prices over the past decade brought with them the “Dutch disease”: economies benefiting from increased exports of oil and the like tend to see their exchange rates driven up, which then makes it cheaper to import goods such as cars and fridges, and harder to produce and export locally manufactured goods.

Excerpt from Industrialisation in Africa: More a marathon than a sprint, Economist, Nov. 7, 2015, at 41

Natural Gas and Freedom

[A] tanker chartered by Cheniere Energy, an American company, left a Louisiana port this week with the first major exports of U.S. liquefied natural gas, or LNG. This shipment isn’t going to Europe, but others are expected to arrive by spring.  “Like shale gas was a game changer in the U.S., American gas exports could be a game changer for Europe,” said Maros Sefcovic, the European Union’s energy chief.

Many in Europe see U.S. entry into the market as part of a broader effort to challenge Russian domination of energy supplies and prices in this part of the world. Moscow has for years used its giant energy reserves as a strategic tool to influence former satellite countries, including Lithuania, one of the countries on the fringes of Russia that now see a chance to break away.

Some are building the capacity to handle seaborne LNG, including Poland, which opened its first import terminal in 2015. In Bulgaria, which buys about 90% of its gas from Russia, Prime Minister Boyko Borissov said last month that supplies of U.S. gas could arrive via Greek LNG facilities, “God willing.”… Deutsche Bank estimates the U.S. could catch up with Russia as Europe’s biggest gas supplier within a decade, with each nation controlling around a fifth of the market. Russia supplies about a third of Europe’s gas via pipeline….The U.S. will compete with Russia, Norway, U.K., Australia and others in Europe’s gas market. Germany, for example, gets half its gas and Italy a third from Russia.Low prices also mean natural gas could compete with coal and help Europe achieve its commitment to reducing greenhouse gas emissions .In Lithuania, officials have accused Moscow of engaging in a campaign of espionage and cyberwarfare to keep its share of the lucrative energy market….

Bulgarian officials allege Russia bankrolled a wave of street protests in 2012 that forced the government to impose a moratorium on shale gas exploration. In 2014, Anders Fogh Rasmussen, then-head of NATO, told reporters that Russia was covertly funding European environmental organizations to campaign against shale gas to help maintain dependence on Russian gas.

Until 2014, Gazprom owned 37% of Lithuania’s national gas company, Lietuvos Dujos, and dominated its boardroom, said current and former officials.“There was no negotiation about gas prices,” said Jaroslav Neverovic, Lithuania’s energy minister from 2012 to 2014. He said Gazprom would send Lietuvos Dujos a list of gas prices, which the board automatically approved..  In 2015,  [though] Lithuania began receiving Norwegian LNG, reducing Gazprom’s gas monopoly to a market share of less than 80%. In the months before the terminal opened, Gazprom lowered Lithuanian gas prices by 23% and it remained cheaper than Norwegian gas. Still, Lithuania plans to increase its purchase of Norwegian gas this year. The U.S. is next….

Klaipeda’s mayor, Mr. Grubliauskas, said during a recent interview at his office, decorated with photographs of U.S. naval drills in the port: “U.S. LNG is more than just about gas. It’s about freedom.”

Excerpts With U.S. Gas, Europe Seeks Escape From Russia’s Energy Grip, WSJ, Feb. 26, 2016

Shut-out, Cut-off and Suicidal: Aliens v. America

The United States leads the world in punishing corruption, money-laundering and sanctions violations. In the past decade it has increasingly punished foreign firms for misconduct that happens outside America. Scores of banks have paid tens of billions of dollars in fines. In the past 12 months several multinationals, including Glencore and ZTE, have been put through the legal wringer. The diplomatic row over Huawei, a Chinese telecoms-equipment firm, centres on the legitimacy of America’s extraterritorial reach.

America has taken it upon itself to become the business world’s policeman, judge and jury. It can do this because of its privileged role in the world economy. Companies that refuse to yield to its global jurisdiction can find themselves shut out of its giant domestic market, or cut off from using the dollar payments system and by extension from using mainstream banks. For most big companies that would be suicidal.

But as the full extent of extraterritorial legal activity has become clearer, so have three glaring problems.  First, the process is disturbingly improvised and opaque. Cases rarely go to court and, when they are settled instead, executives are hit with gagging orders. Facing little scrutiny, prosecutors have applied ever more expansive interpretations of what counts as the sort of link to America that makes an alleged crime punishable there; indirect contact with foreign banks with branches in America, or using Gmail, now seems to be enough. Imagine if China fined Amazon $5bn and jailed its executives for conducting business in Africa that did not break American law, but did offend Chinese rules and was discussed on WeChat.

Second, the punishments can be disproportionate. In 2014 bnp Paribas, a French bank, was hit with a sanctions-related fine of $8.9bn, enough to threaten its stability. In April ZTE, a Chinese tech firm with 80,000 employees, was banned by the Trump administration from dealing with American firms; it almost went out of business. The ban has since been reversed, underlining the impression that the rules are being applied on the hoof.

Third, America’s legal actions can often become intertwined with its commercial interests. As our investigation this week explains, a protracted bribery probe into Alstom, a French champion, helped push it into the arms of General Electric, an American industrial icon. American banks have picked up business from European rivals left punch-drunk by fines. Sometimes American firms are in the line of fire—Goldman Sachs is being investigated by the doj for its role in the 1mdb scandal in Malaysia. But many foreign executives suspect that American firms get special treatment and are wilier about navigating the rules.

America has much to be proud of as a corruption-fighter. But, for its own good as well as that of others, it needs to find an approach that is more transparent, more proportionate and more respectful of borders. If it does not, its escalating use of extraterritorial legal actions will ultimately backfire. It will discourage foreign firms from tapping American capital markets. It will encourage China and Europe to promote their currencies as rivals to the dollar and to develop global payments systems that bypass Uncle Sam…. Far from expressing geopolitical might, America’s legal overreach would then end up diminishing American power.

Excerpts from Tackling Corruption: Judge Dread, Economist, Jan. 19, 2019

Genetically Modified Crops in Africa: opponents

According to the acting director, Andrew Kigundu,  of Uganda’s National Agricultural Research Organisation (NARO): “The idea of work on genetically engineered bananas is a result of many years of testing of Banana production.” The experiments started in 2005 and work is still ongoing to improve on the content of the fruit and resistance to parasites….The East African country is the first African country to turn toward GM to improve its production of bananas. An option which should make the country remain the first producer in the world .

The adoption of restrictive policies across Africa has been pursued under the pretext of protecting the environment and human health. So far there has been little evidence to support draconian biosafety rules. It is important that the risks of new products be assessed. But the restrictions should proportionate and consistent with needs of different countries.

Africa’s needs are different from those of the EU. There are certain uniquely African problems where GM should be considered as an option.   The Xanthomonas banana wilt bacterial disease causes early ripening and discoloration of bananas, a staple crop for Uganda. This costs the Great Lakes region nearly US $500m annually in losses. There is no treatment for the disease, which continues to undermine food security.  Ugandan scientists at Kawanda Agricultural Research Institute have developed a GM approach but their efforts to further their research in the technology are hampered by opposition to it. Those opposed to the technology advocate the adoption of an EU biosafety approach that would effectively stall the adoption of the technology. In fact, some of opponents using scare tactics against the technology are EU-based non-governmental organizations.

Genetically modified bananas solve Uganda’s productivity problems, AllAfricanews, May 24, 2016; See also Excerpt FromHow the EU starves Africa into submission,” by Calestous Juma, a professor of the practice of international development at the Harvard Kennedy School of Government:  “EU policy undermines African agricultural innovation …in the field of genetically modified (GM) crops. The EU exercises its right not to cultivate transgenic crops but only to import them as animal feed. However, its export of restrictive policies on GM crops has negatively affected Africa.”

The Internet Was Never Open

Rarely has a manifesto been so wrong. “A Declaration of the Independence of Cyberspace”, written 20 years ago by John Perry Barlow, a digital civil-libertarian, begins thus: “Governments of the Industrial World, you weary giants of flesh and steel, I come from Cyberspace, the new home of Mind. On behalf of the future, I ask you of the past to leave us alone. You are not welcome among us. You have no sovereignty where we gather.”

At the turn of the century, it seemed as though this techno-Utopian vision of the world could indeed be a reality. It didn’t last… Autocratic governments around the world…have invested in online-surveillance gear. Filtering systems restrict access: to porn in Britain, to Facebook and Google in China, to dissent in Russia.

Competing operating systems and networks offer inducements to keep their users within the fold, consolidating their power. Their algorithms personalise the web so that no two people get the same search results or social media feeds, betraying the idea of a digital commons. Five companies account for nearly two-thirds of revenue from advertising, the dominant business model of the web.

The open internet accounts for barely 20% of the entire web. The rest of it is hidden away in unsearchable “walled gardens” such as Facebook, whose algorithms are opaque, or on the “dark web”, a shady parallel world wide web. Data gathered from the activities of internet users are being concentrated in fewer hands. And big hands they are too. BCG, a consultancy, reckons that the internet will account for 5.3% of GDP of the world’s 20 big economies this year, or $4.2 trillion.

How did this come to pass? The simple reply is that the free, open, democratic internet dreamed up by the optimists of Silicon Valley was never more than a brief interlude. The more nuanced answer is that the open internet never really existed.

[T]e internet, it was developed “by the US military to serve US military purposes”… The decentralised, packet-based system of communication that forms the basis of the internet originated in America’s need to withstand a massive attack on its soil. Even the much-ballyhooed Silicon Valley model of venture capital as a way to place bets on risky new businesses has military origins.

In the 1980s the American military began to lose interest in the internet…. The time had come for the hackers and geeks who had been experimenting with early computers and phone lines.  Today they are the giants. Google, Apple, Facebook, Amazon and Microsoft—together with some telecoms operators—help set policy in Europe and America on everything from privacy rights and copyright law to child protection and national security. As these companies grow more powerful, the state is pushing back…

The other big risk is that the tension between states and companies resolves into a symbiotic relationship. A leaked e-mail shows a Google executive communicating with Hillary Clinton’s state department about an online tool that would be “important in encouraging more [Syrians] to defect and giving confidence to the opposition.”+++ If technology firms with global reach quietly promote the foreign-policy interests of one country, that can only increase suspicion and accelerate the fracturing of the web into regional internets….

Mr Malcomson describes the internet as a “global private marketplace built on a government platform, not unlike the global airport system”.

Excerpts from Evolution of the internet: Growing up, Economist, Mar. 26, 2016

+++The email said Google would be “partnering with Al Jazeera” who would take “primary ownership” of the tool, maintaining it and publicizing it in Syria.  It was eventually published by Al Jazeera in English and Arabic.