Tag Archives: United States Hong Kong internet cable

Conquering Virgin Digital Lands a Cable at a Time

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Facebook  said it would back two new underwater cable projects—one in Africa and another in Asia in collaboration with Alphabet — that aim to give the Silicon Valley giants greater control of the global internet infrastructure that their businesses rely on.

The 2Africa project, a partnership between Facebook and several international telecom operators, said that it would add four new branches: the Seychelles, Comoro Islands, Angola and Nigeria. The project’s overall plan calls for 35 landings in 26 countries, with the goal of building an underwater ring of fiber-optic cables around Africa. It aims to begin operating in 2023… Separately, Facebook that it would participate in a 7,500-mile-long underwater cable system in Asia, called Apricot, that would connect Japan, Taiwan, Guam, the Philippines, Indonesia and Singapore. Google said that it would also join the initiative, which is scheduled to go live in 2024.

Driving the investments are costs and control. More than 400 commercially operated underwater cables, also known as submarine cables, carry almost all international voice and data traffic, making them critical for the economies and national security of most countries…Telecom companies own and operate many of these cables, charging fees to businesses that use them to ferry data. Facebook and Google used so much bandwidth that they decided about a decade ago that it would make sense to cut out the middleman and own some infrastructure directly.

Excerpts from Stu Woo, Facebook Backs Underwater Cable Projects to Boost Internet Connectivity, WSJ, Aug. 17, 2021

The Nuclear Option: Chopping off Hong Kong from the Dollar System

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China and America have begun the fraught business of disentangling their financial systems. Chinese firms with shares listed in New York have rushed to float in Hong Kong, too, after the White House signalled they are not welcome on Wall Street….But now Hong Kong itself, the world’s third-biggest international financial centre, has become a geopolitical flashpoint. Its unique role as the conduit between global capital markets and China’s inward-looking financial system means that both sides must tread carefully.

On May 28, 2020 China said it would enact a new national-security law for Hong Kong, undermining the formulation of “one country, two systems” in place since 1997, under which the territory is supposed to be governed until 2047. In response, America has said it may downgrade the legal privileges it grants Hong Kong, which treat it as autonomous from China. 

Hong Kong’s place in the world depends on having the rule of law, a trusted reputation and seamless access to Western financial markets. Other Chinese cities have big stock exchanges: shares listed in Shanghai and Shenzhen are together worth a lot more than those in Hong Kong. But neither has fair courts, an independent central bank, free movement of capital or a mix of Western and Chinese firms. These foundations are the basis for $9.7trn of cross-border financial claims, such as loans, that are booked in the territory. Hong Kong is also where mainland Chinese firms and banks go to deal in the dollar, the world’s dominant currency. Some $10trn of dollar transactions flowed through Hong Kong’s bank-to-bank payments system last year.

Until recently, conventional wisdom held that Hong Kong’s position would be assured for 20-30 years, because it would take that long for China either to upgrade its markets to Western standards or to become so powerful that it could impose mainland practices, and the yuan, on the rest of the world. But the trade war, a year of street protests and China’s iron-fisted response to them raise new questions about Hong Kong’s durability. Bullying from Beijing erodes the sense that it is autonomous. And there is an outside chance that America could impose sanctions or other restrictions that would stop some Hong Kong officials, firms or banks from using dollars….. America’s might bring into question whether money parked in Hong Kong is still fully fungible with money in the global financial system. If these worries spread, they could destabilise Hong Kong and cause a financial shock in China and well beyond it.

The good news is that so far there is no sign of capital flight. Hong Kong’s vast deposit base has been stable in recent weeks, say its bankers. Investors are reassured by its $440bn or so mountain of foreign reserves and a long record of capable financial management. The rush of Chinese listings will bring in new cash and drum up business in the city….Nonetheless, for China the prudent policy is to try to speed up the development of the mainland’s financial capabilities so that it is less exposed to potential American punishment…Italso means another big push to boost the global role of the yuan and reduce China’s dependence on the dollar…

Excerpts from Hong Kong: Conduit’s End, Economist, June 6, 2020

Strangling China with Hong Kong: the Politics of Fear

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The U.S. determination  that Hong Kong is no longer autonomous from mainland China, under the Hong Kong Policy Act of 1992, will have significant implications for the city’s exporters and businesses.  Sensitive U.S. technologies could no longer be imported into Hong Kong, and the city’s exports might be hit with the same tariffs levied on Chinese trade.

But the act doesn’t cover the far more extensive role Hong Kong plays as China’s main point of access to global finance.  As of 2019, mainland Chinese banks held 8,816 trillion Hong Kong dollars ($1.137 trillion) in assets in the semiautonomous city, an amount that has risen 373% in the last decade…. China’s banks do much of their international business, mostly conducted in U.S. dollars, from Hong Kong. With Shanghai inside China’s walled garden of capital controls, there is no obvious replacement.

While the U.S. doesn’t directly control Hong Kong’s status as a financial center, Washington has demonstrated its extensive reach over the dollar system, with penalties against Korean, French and Lebanese financiers for dealing with sanctioned parties. The U.S. recently threatened Iraq’s access to the New York Federal Reserve, demonstrating a growing willingness to use financial infrastructure as a tool of foreign policy.  Even though the U.S. can’t legislate Hong Kong’s ability to support Chinese banks out of existence, the role of an international funding hub is greatly reduced if your counterparties are too fearful to do business with you.

Putting the ability of Chinese banks to conduct dollar-denominated activities at risk would be deleterious to China’s ability to operate financially overseas, posing a challenge for the largely dollar-denominated Belt and Road global infrastructure initiative. It would also put the more financially fragile parts of the country, like its debt-laden property developers, under strain.  China’s hope to develop yuan into an influential currency also centers on Hong Kong’s remaining a viable global financial center—more than 70% of international trade in the yuan is done in the city.

Excerpts from Mike Bird, How the US Could Really Hurt China, WSJ, May 290, 2020

A Nasty Divorce: US-China Internet Cables

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United States officials granted Google permission to turn on a high-speed internet link to Taiwan but not to the Chinese territory of Hong Kong, citing national-security concerns in a ruling that underscores fraying ties between Washington and Beijing.“There is a significant risk that the grant of a direct cable connection between the United States and Hong Kong would “pose an unacceptable risk to the national security and law enforcement interests of the United States,” the U.S. Department of Justice said in its decision, which was backed by the departments of Homeland Security and Defense. The agencies instead urged the Federal Communications Commission to grant Google owner Alphabet  permission to start using the portion of its 8,000-mile underwater Pacific Light cable that connects California to Taiwan. .

The decision threatens to end Hong Kong’s dominance as a top destination for U.S. internet cables and puts at risk several ongoing projects, including a Facebook backed fiber-optic line linking Los Angeles to Hong Kong and a Google-backed project linking Hong Kong to the U.S. territory of Guam.

Washington is turning to the self-ruling island of Taiwan, which the U.S. supports with arms sales and unofficial political ties despite Beijing’s claims that it is part of China. U.S. officials are also considering alternatives such as Indonesia, Philippines, Thailand, and Vietnam.

Google and Facebook originally teamed up to build Pacific Light to Hong Kong in 2016, continuing the Silicon Valley giants’ long-term strategy to take more control of the network pipes that connect their data centers. The web companies and their Chinese investment partners kept building the cable even as U.S. authorities withheld the regulatory approvals they needed to start using it.

Major international data projects are subject to review by Team Telecom, a coalition of federal agencies with national-security oversight. The panel has taken a hard line against China in recent years. Team Telecom in 2018 recommended for the first time the denial of a Chinese application—that of China Mobile —to provide telecom services through U.S. networks, citing national-security and law-enforcement concerns.

President Trump on April 4 2020 signed an executive order that puts the attorney general in charge of overseeing Team Telecom and gives the panel direct authority to review existing licenses to provide such services, including those issued earlier to Chinese state-owned operators China Telecom and China Unicom.

Excerpts from Drew FitzGerald and Kate O’Keeffe, U.S. Allows Google Internet Project to Advance Only if Hong Kong Is Cut Out, WSJ, Apr. 9, 2020