China plans $500 mln subsea internet cable to rival U.S.-backed project

China Mobile

06/04/2023 15:03

(Adds Chinese foreign ministry comment in paragraphs 7, 20 and
21)
    By Joe Brock
       SINGAPORE, April 6 (Reuters) - Chinese state-owned
telecom firms are developing a $500 million undersea fiber-optic
internet cable network that would link Asia, the Middle East and
Europe to rival a similar U.S.-backed project, four people
involved in the deal told Reuters. The plan is a sign that an
intensifying tech war between Beijing and Washington risks
tearing the fabric of the internet.
    China's three main carriers – China Telecommunications
Corporation (China Telecom), China Mobile Limited and China
United Network Communications Group Co Ltd(China Unicom) – are
mapping out one of the world’s most advanced and far-reaching
subsea cable networks, according to the four people, who have
direct knowledge of the plan.
    Known as EMA (Europe-Middle East-Asia), the proposed cable
would link Hong Kong to China’s island province of Hainan,
before snaking its way to Singapore, Pakistan, Saudi Arabia,
Egypt and France, the four people said. They asked not to be
named because they were not allowed to discuss potential trade
secrets.
    The cable, which would cost approximately $500 million to
complete, would be manufactured and laid by China’s HMN
Technologies Co Ltd, a fast-growing cable firm whose predecessor
company was majority-owned by Chinese telecom giant Huawei
Technologies Co Ltd, the people said.
    They said HMN Tech, which is majority-owned by
Shanghai-listed Hengtong Optic-Electric Co Ltd, would receive
subsidies from the Chinese state to build the cable.
    China Mobile, China Telecom, China Unicom, HMN Tech, and
Hengtong did not respond to requests for comment.
    The Chinese foreign ministry said in a statement to Reuters
that it "has always encouraged Chinese enterprises to carry out
foreign investment and cooperation" without commenting directly
on the EMA cable project.
    News of the planned cable comes in the wake of a Reuters
report last month that revealed how the U.S. government,
concerned about Beijing eavesdropping on internet data, has
successfully thwarted a number of Chinese undersea cable
projects abroad over the past four years. Washington has also
blocked licenses for planned private subsea cables that would
have connected the United States with the Chinese territory of
Hong Kong, including projects led by Google LLC, Meta Platforms,
Inc and Amazon.com Inc.
    Undersea cables carry more than 95% of all international
internet traffic. These high-speed conduits for decades have
been owned by groups of telecom and tech companies that pool
their resources to build these vast networks so that data can
move seamlessly around the world.
    But these cables, which are vulnerable to spying and
sabotage, have become weapons of influence in an escalating
competition between the United States and China. The superpowers
are battling to dominate the advanced technologies that could
determine economic and military supremacy in the decades ahead.
    The China-led EMA project is intended to directly rival
another cable currently being constructed by U.S. firm SubCom
LLC, called SeaMeWe-6 (Southeast Asia-Middle East-Western
Europe-6), which will also connect Singapore to France, via
Pakistan, Saudi Arabia, Egypt, and half a dozen other countries
along the route.
    The consortium on the SeaMeWe-6 cable – which originally had
included China Mobile, China Telecom, China Unicom and telecom
carriers from several other nations – initially picked HMN Tech
to build that cable. But a successful U.S. government pressure
campaign flipped the contract to SubCom last year, Reuters
reported in March.
    The U.S. blitz included giving millions of dollars in
training grants to foreign telecom firms in return for them
choosing SubCom over HMN Tech. The U.S. Commerce Department also
slapped sanctions on HMN Tech in December 2021, alleging the
company intended to acquire American technology to help
modernize China’s People’s Liberation Army. That move undermined
the project's viability by making it impossible for owners of an
HMN-built cable to sell bandwidth to U.S. tech firms, usually
their biggest customers.
    China Telecom and China Mobile pulled out of the project
after SubCom won the contract last year and, along with China
Unicom, began planning the EMA cable, the four people involved
said. The three state-owned Chinese telecom firms are expected
to own more than half of the new network, but they are also
striking deals with foreign partners, the people said.
    The Chinese carriers this year signed separate memoranda of
understanding with four telecoms, the people said: France’s
Orange SA, Pakistan Telecommunication Company Ltd (PTCL),
Telecom Egypt and Zain Saudi Arabia, a unit of the Kuwaiti firm
Mobile Telecommunications Company K.S.C.P.
    The Chinese companies have also held talks with Singapore
Telecommunications Limited, a state-controlled firm commonly
known as Singtel, while other countries in Asia, Africa and the
Middle East are being approached to join the consortium as well,
the people involved said.
    Orange declined to comment. Singtel, PTCL, Telecom Egypt and
Zain did not respond to requests for comment.
    American cable firm SubCom declined to comment on the rival
cable. The Department of Justice, which oversees an interagency
task force to safeguard U.S. telecommunication networks from
espionage and cyberattacks, declined to comment about the EMA
cable.
    A State Department spokesperson said the U.S. supports a
free, open and secure internet. Countries should prioritize
security and privacy by “fully excluding untrustworthy vendors”
from wireless networks, terrestrial and undersea cables,
satellites, cloud services and data centers, the spokesperson
said, without mentioning HMN Tech or China. The State Department
did not respond to questions about whether it would mount a
campaign to persuade foreign telecoms not to participate in the
EMA cable project.
    The Chinese foreign ministry said in its statement that it
was opposed to the United States' "violation of established
international rules" around submarine cable cooperation.
        "The U.S. should stop fabricating and spreading rumours
about so-called 'data surveillance activities' and stop
slandering and smearing Chinese companies," the statement said.
  
    
    DIVIDING THE WORLD
    Large undersea cable projects typically take at least three
years to move from conception to delivery. The Chinese firms are
hoping to finalize contracts by the end of the year and have the
EMA cable online by the end of 2025, the people involved said.
    The cable would give China strategic gains in its tussle
with the United States, one of the people involved in the deal
told Reuters.
    Firstly, it would create a super-fast new connection between
Hong Kong, China and much of the rest of the world, something
Washington wants to avoid. Secondly, it gives China’s
state-backed telecom carriers greater reach and protection in
the event they are excluded from U.S.-backed cables in the
future.
    “It’s like each side is arming itself with bandwidth,” one
telecom executive working on the deal said.
    The construction of parallel U.S.- and Chinese-backed cables
between Asia and Europe is unprecedented, the four people
involved in the project said. It is an early sign that global
internet infrastructure, including cables, data centers and
mobile phone networks, could become divided over the next
decade, two security analysts told Reuters.
    Countries could also be forced to choose between using
Chinese-approved internet equipment or U.S.-backed networks,
entrenching divisions across the world and making tools that
fuel the global economy, like online banking and
global-positioning satellite systems, slower and less reliable,
said Timothy Heath, a defense researcher at the RAND
Corporation, a U.S.-based think tank.
    “It seems we are headed down a road where there will be a
U.S.-led internet and a Chinese-led internet ecosystem,” Heath
told Reuters. “The more the U.S. and Chinese disengage from each
other in the information technology domain, the more difficult
it becomes to carry out global commerce and basic functions.”
    Antonia Hmaidi, an analyst at the Berlin-based Mercator
Institute for China Studies, said the internet works so well
because no matter where data needs to travel, it can zip along
multiple different routes in the time it takes to read this
word.
    Hmaidi said if data has to follow routes that are approved
in Washington and Beijing, then it will become easier for the
United States and China to manipulate and spy on that data;
internet users will suffer a degradation of service; and it will
become more difficult to interact or do business with people
around the world.
    “Then suddenly the whole fabric of the internet doesn't work
as it was intended,” Hmaidi said.
    The tit-for-tat battle over internet hardware mirrors the
conflict taking place over social media apps and search engines
created by U.S. and Chinese firms.
    The United States and its allies have banned the use of
Chinese-owned short video app TikTok from government-owned
devices due to national security concerns. Numerous countries
have raised fears about the Chinese government gaining access to
the data that TikTok collects on its users around the world.
    China, meanwhile, already restricts what websites its
citizens can see and blocks the apps and networks of many
Western technology giants, including Google, YouTube, Facebook
and Twitter.

 (Reporting by Joe Brock
Additional reporting by Brenda Goh in Shanghai; Ryan Woo and
Michel Rose in Beijing; Ariba Shahid in Karachi; Aziz El
Yaakoubi in Riyadh and Silvia Aloisi in Paris
Editing by Marla Dickerson)
 ((Joe.Brock@thomsonreuters.com;))