From cables to chips

"Nusajaya Tech Park looks like any other construction project. Cranes and building materials sit scattered around this industrial site in Johor, Malaysia, just 15km from the border with Singapore. But appearances are deceptive. Nusajaya is at the heart of an enormous data-centre boom that is taking place in one of the world’s fastest-growing regions. From here you can see the digital war between America and China unfold before your eyes. For America the view isn’t pretty. Even as it builds up its military presence in Asia, it risks falling behind in the digital contest.

The competition is being fought over the control and ownership of the data centres, undersea cables and wiring that form the physical underpinnings of the internet. America has dominated communications infrastructure since the second world war. But its grip has slipped. 

China has become far more technologically autonomous in the past decade, according to a composite index of “digital dependence” that assesses hardware, software and intellectual property, put together by two analysts, Maximilian Mayer and Yen-Chi Lu.

In Johor the two superpowers’ infrastructure sits side by side, in open competition. Down the street from Equinix, an American data-centre host, are the facilities of GDS, a Chinese rival and the “preferred vendor” of Alibaba and Tencent, two Chinese tech giants. Across Asia, superpower affiliation and the degree of overlap vary by country. Among big cloud firms, China controls all of the cloud-computing clusters in Thailand and the Philippines, despite the fact that America views both as “major non-NATO allies”. 

Of a selection of 12 Asian countries, seven have most of their cloud clusters run by Chinese firms. 

At the other end of the spectrum Australia, India and South Korea have largely American-run systems, according to a study in 2023 by Vili Lehdonvirta and colleagues at the Oxford Internet Institute.

China’s firms already have big footprints. Alibaba has data centres in nine Asian countries, for example. And the contest is set to intensify. Over 500 mid-sized to large data centres have been launched in Asia since 2021, and another 270 could come online next year. Spending on the servers that populate them will rise by 39% this year, forecasts Gartner, a consultancy. Mobile-data traffic in Asia is expected to quadruple by 2030, according to GSMA, a trade body. New computational needs for AI applications have further stoked data-centre demand.

Commercial imperatives cannot be easily divorced from security. China’s planning ministry views data as a “factor of production” alongside land, labour and capital. Early internet evangelists thought data would flow freely through a decentralised network. 

Instead there are four choke points: “internet exchange points” (IXPs), which let internet firms cut costs by routing traffic down the hallway rather than across the world; data centres; undersea fibre-optic cables; and telecoms firms. 

All are vulnerable to espionage. Tapping undersea cables has been a trick of spooks since the cold war. Landing stations are hubs for data interception. Back doors can be installed in infrastructure. America’s government has warned that Chinese presence at IXPs creates “the capability to misroute traffic and, in so doing, access and/or manipulate that traffic”. Even if the data flowing through IXPs are encrypted, some experts think metadata could be exposed.

Doubts over supposedly secure data centres in Asia are swirling. In 2019 Papua New Guinea found that a Chinese-subsidised data centre in Port Moresby used “openly broken” encryption methods that exposed government data to interception. 

Governments can compel their tech firms to fork over data. 

As Abraham Newman and Henry Farrell show in their book “Underground Empire”, American intelligence has forced cloud firms and companies such as AT&T to surveil allies and enemies.

 China does the same. No sharp distinction exists between Chinese tech firms, the state and the Chinese Communist Party. Chinese law gives the state broad authority to make companies turn over data. This power is not absolute: Alibaba and Tencent have refused government requests for customer data before. But where there are data of interest, China expects to be told.

Live wire

American and some regional officials worry that in a crisis China might shut off data centres or telecom services. Short of that, China could combine cyber-espionage with its legions of state-linked hackers to harass countries that anger it. According to a former American cyber-security official, this is easier to do if networks do not have to be reverse-engineered from afar.

Chinese firms’ high market share partly reflects an overt Chinese government plan. Its Digital Silk Road strategy, an offshoot of the Belt and Road Initiative, combines infrastructure rollout with an attempt to reshape data governance. 

But Chinese companies are also good value, offering cut-price cloud services that compete at the technological frontier. Since 2023 Alibaba Cloud has slashed its prices three times. Huawei, a telecoms-equipment firm, has become known for its aggressive tactics to poach customers.

As well as wires and servers, China’s values are being built into Asia’s digital boom. 

China has promoted “data sovereignty” at home and abroad, while increasing its heft at global technical standard-setting bodies. Control-obsessed governments like Vietnam’s have taken inspiration from China’s stringent data-localisation laws, which require data created in China to physically reside there while curtailing outbound transfers. These laws have wrenched Chinese data out of the hands of American companies such as Apple and Tesla. Put together, argue Emily De La Bruyère and Nathan Picarsic, two researchers, China’s strategy amounts to a drive for “asymmetric dominance”, seeding its data infrastructure in other countries while guarding against outside interference.

American efforts to curb Chinese digital influence have notched up some successes. American restrictions on high-tech chips are probably holding back China’s AI data-centre ambitions. Authorities have blocked several transpacific cable projects from landing in Hong Kong, re-routing them through friendlier places like the Philippines. In 2022, brandishing grants and sanctions threats, America ousted HMN Tech, a Huawei spin-off, from running a cable network linking South-East Asia to Europe. Direct American-Chinese cable links have fallen away; only one has been built in the past 15 years, notes Richard Sun of OMS Group, a cable-builder.

Some American allies have pivoted against China’s digital build-out. Japan and Australia have cracked down on Chinese firms, citing risks to their sovereignty. They have banned Huawei and ZTE 5G infrastructure. In September, Japan and Australia launched a joint programme to build digital infrastructure in Pacific Island nations; the prime minister of Tuvalu, Taiwan’s strongest supporter in the Pacific, told Nikkei Asia, a newspaper, that he was worried about Chinese cyber pressure.

India has gone further, banning hundreds of Chinese apps and probing several Chinese firms, including Alibaba and Xiaomi, a phonemaker. Alibaba Cloud closed down its data centres in India and Australia this year. Some American officials want to create a new kind of digital trade pact in Asia that offers access to AI and cyber-security technologies and standards, in return for assurances on keeping some Chinese technologies out.

Until then many countries are hedging their bets. 

Warnings about the risks of Chinese digital infrastructure fall on deaf ears: China may spy, but so does everyone else—America most of all. 

“Everything is a risk,” replies a Malaysian official, asked about using Huawei’s kit. That attitude may prove a mistake. Weaker countries look particularly exposed. Chinese hackers have penetrated governments from Vietnam to Indonesia, and broken into telecoms to spy on Uyghur travellers in Malaysia and Thailand. In the Philippines, where at least one big telecom network runs on Huawei 5G, the cyber-defence bureau is woefully underfunded. As Asia’s digital build-out accelerates, countries’ allegiance is being baked into their cables and data centres whether they realise it or not." [1]

1.  From cables to chips. The Economist; London Vol. 453, Iss. 9418,  (Oct 12, 2024): 44, 45.