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.S. network services companies might find as interesting commercial targets. In the same way, if China succeeds in becoming the Asia economic hegemon, it will find it easier to bend regulatory authorities to its requirements in the Middle East and Europe--imitating the models of the United States Trade Representative, Department of Commerce, and Federal Communications Commission (FCC), which work on behalf of the U.S. Government in promoting policies advantageous to American companies.

Historically, the term telecommunications means the international voice network, the Public Switched Telephone Network (PSTN). But the definition of telecommunications is expanding by the introduction of convergence technologies to incorporate data communications, including the Internet and cable television (CATV) networks. All major modern networks typically can carry voice, data, and video over a unified broadband architecture and infrastructure.

The Chinese telecommunications system parallels this development, but, unlike other developing countries, has an international political component. This is based on the underlying assumption that there is a relationship between overseas Chinese (huaqiao) investment in China and diplomatic and commercial support from Beijing for huaqiao interests in environments that are sometimes hostile.

China increasingly sees itself as responsible for its regional diaspora, in particular the emigration caused by 20th-century revolutionary spasms, and the benefits that derive from offering diplomatic security to a very wealthy ethnic clientele. Thus, the combined capabilities of transnational Chinese interests contribute to Chinese economic power in a way that is something more than mere economic interest. China's control of its own regional and eventually global telecommunications assets furthers its diplomatic and internal development agenda.

This implies that Chinese business and cultural hegemony in Asia is growing and that the extension of Chinese-owned network assets is a part of the process since telecommunications development is a function of national capabilities. Previously, the major international telecommunications services companies were predominantly American, including AT&T, Worldcom, Sprint, and Infonet, initially following the expansion of U.S. multinational corporate development from the middle 1970s. However, in the last 5 years, AT&T's international expansion has been weakened by its association with British Telecom in Concert; Worldcom's by its financial and reporting problems; and Sprint's by its unhappy joint venture with Deutsche Telekom and France Telecom in Global One. British Telecom and Cable & Wireless until recently had pretensions of developing their own global networks but have retired in most part to their national markets. Only Infonet and Equant (which is owned by France Telecom) remain intact according to their original business plans. So by serendipity more than planning, Chinese telecommunications have been presented with, by any measure, a once-in-a-generation opportunity that they would be foolish to pass by. This strengthens Chinese capabilities while weakening U.S. technological and commercial capability. Moreover, on any scale of national and international telecommunications investments, Chinese companies and their proxies got these assets for free.

Telecommunications expansion has always been a synergism of technology development and the internationalization and then globalization of finance, manufacture, and services provision. Beginning with the Cold War, U.S. military interests in …

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Publication information: Article title: Beyond the Mainland: Chinese Telecommunications Expansion. Contributors: Fonow, Robert C. - Author. Journal title: Defense Horizons. Issue: 29-30 Publication date: July 2003. Page number: 1. © 2001 National Defense University. COPYRIGHT 2003 Gale Group.

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