Beyond the Mainland: Chinese Telecommunications Expansion

By Fonow, Robert C. | Defense Horizons, July 2003 | Go to article overview

Beyond the Mainland: Chinese Telecommunications Expansion


Fonow, Robert C., Defense Horizons


Overview

In most countries, expansion of the telecommunications network beyond national borders has followed diplomatic and business expansion. On this basis, an informed practitioner might be expecting the Chinese telecommunications system to spread beyond its borders sometime in the later part of this decade. However, Chinese authorities have been quick to act upon a series of unexpected opportunities for acquiring international telecommunications assets. This article discusses the international security implications of Chinese telecommunications expansion.

Since the telecommunications collapse of 2001, Chinese buyers have purchased several large telecommunications networks in Asia previously owned by U.S. investors. Among these are:

* PSINet, which was one of the early developers of the Internet. Hong Kong assets were purchased by CITIC, a company reported to have close relations with the People's Liberation Army.

* Level 3, which was sold to a joint venture including Pacific Century CyberWorks, a company run by Richard Li, the son of Hong Kong billionaire Li Ka Shing--both of whom maintain close contacts with central government authorities in Beijing.

* Asia Global Crossing assets, which was purchased by China Netcom, the newly renamed northern division of the incumbent carrier China Telecom.

* Global Crossing, Inc., which claims its own Asian assets in a highly publicized pending deal including a direct investment by Hutchinson Whampoa and Singapore Telemedia. Hutchinson eventually backed out, leaving Singapore Telemedia as the sole potential owner. But, as this paper argues, the deal still facilitates China's expanding network capability and influence.

These assets, previously paid for by American investors at a cost of up to $20 billion, were bought for an average cost of as little as 3 cents on the dollar, representing a huge loss of American capital value. (1) Each company had extensive networks covering several Asian countries with large capacity circuits and direct connectivity into the United States.

It is unlikely that such a broad-based move into international telecommunications was simply a fortuitous consequence of China's transition to a free market economy. Several interesting questions arise. First, to what extent was the Beijing leadership behind this acquisition spree (even though most of the action took place in Hong Kong)? Second, and perhaps more importantly, how will this purchase of assets by national Chinese network services providers enable Chinese interests to control the telecommunications domain in Asia, and how this will impact U.S.-China relations in the areas of military competition and foreign policy? And, third, how will an expanding international telecommunications capability affect internal political and economic developments in China?

Background and Context

In terms of telecommunications, the world is moving beyond the traditional state system in which governments controlled their network assets. The new model, still developing, is an environment of transregional technical empires. Yet, most networks that describe themselves as global still depend for their core revenues, and hence their capability for international effectiveness, on national and regional economies. In a very real sense, networks mirror the national power aspirations, diplomatic influence, and technical capability of their dominant economy. (2)

International telecommunications networks operate on two aspirational levels. First, they follow national economic predominance. If China's economy continues to develop along recent growth rates, its power and influence will be facilitated and strengthened by ownership of telecommunications networks in its geographic region. Secondly, beyond the region, the network will develop according to the perceptions of core economy strength. Therefore, if America is economically preponderant in the arc of business that includes Frankfurt, London, New York, Hong Kong, and Singapore, the United States will find it easier to influence the telecom policies of Indonesia, Thailand, and other countries with small but financially attractive groups of network customers that U.

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