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Does China's route to infrastructure control run through Iceland's data centers?

Huawei investors or spies? When Chinese delegations arrive at your door, there must be a reason.
Written by Charlie Osborne, Contributing Writer
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Two Chinese men appeared on the tarmac at Keflavík International Airport, Iceland's major transport link to the US, Europe, and beyond.

Both claimed to be employees of Huawei, one of the largest Chinese technology companies in existence. They were in the country to visit a data center or two, with investment opportunities from Huawei a possibility.

Met by Etix Everywhere Borealis Chief Business Officer Arni Jensen, the tale started off innocently enough, before descending into what may have been something more akin to data-gathering and spying than prospecting.

One of the men said he was a Huawei board member and that the company's "old man" himself had visited Iceland the previous year, eventually concluding that the country was of interest when it came to data centers.

After spending the day with Jensen, the pair vanished, and nine months on, the executive says he reached out to Huawei -- only to find that neither of the men was on the firm's payroll, they never had been, and neither did they exist on social media.

The reason for the visit is open for debate and the truth never revealed itself, but this story does highlight what may become an investor's future battleground in the lava fields and fjords of Iceland.

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Iceland, with its snowstorm-prone climate, daylight hours that swing between 24 hours of light or darkness depending on the time of year, and a population of roughly 450,000, would not necessarily seem like a place where Chinese business interests would naturally flourish.

The sparsely populated country, located between the US and Europe, has recently seen a surge of popularity in tourism in part thanks to deals launched by airlines attempting to secure trade from those whose final destination is the US.

However, it is the country's capacity and usage of renewable energy that has seen Iceland's prospects as a host for data centers rise -- as well as its potentially positive economic future following a disastrous banking system collapse in 2008.

Data center operators, including Etix Everywhere Borealis and Verne Global, have access to renewable energy supplies provided by geothermal and hydroelectric plants, alongside a slowly increasing supply of wind power.

A tour of Iceland's data centers

What makes Iceland unique is that the country is subject to a very narrow range of temperatures year-round, and on average visitors can expect the temperature to be four degrees Celsius.

The data center industry has grown at a rate of over 100% CAGR in the past three years (.PDF), in comparison to roughly 10% worldwide. Much of this growth can be laid at the feet of low operating costs in comparison to countries with warmer temperatures during the year.

Iceland's unique climate contributes to an estimated power reduction of 33% in order to keep your average data center cool all year-round.

Added to an abundance of sustainable, cheap energy, and you can see why businesses are exploring the country for their data storage and processing needs.

Iceland is also now connected to the US and Europe through an array of low-latency, high-bandwidth submarine fiber cables, with a new cable to the UK also being considered for future construction.

China appears to have a sustained economic interest in what Iceland has to offer and has taken an approach to investment which Jensen deems "brutally pragmatic." 

The key? Infrastructure ownership and control.

"They [the Chinese] think extremely long-term, and they understand the power of being a billion-plus population," Jensen said. "Most economies are commerce-based, theirs is infrastructure-based. So it makes sense to them to go outside of China."

Data centers provide the backbone and infrastructure for many applications and enterprise systems in use today.

China is heavily investing in Icelandic data centers and other businesses, and within the past five to seven years, the executive says that "everyone of note" -- including NGOs, government departments, sports clubs, and businesses of value, has received a Chinese delegation on their doorstep.

Chinese interest is not only being shown through face-to-face visits, however.

Zhijie Zheng, vice president of China Development Bank has signed a memorandum of understanding (MoU) with Jón Ásbergsson, managing director of Promote Iceland, to promote investment opportunities for Chinese companies in Iceland.

In 2017, the Financial Times reported that China has invested over $20 billion in overseas ports, including those related to maritime routes between China and Europe, and this includes two ports in Iceland.

China's Polar Research Institute has funded a center in the country to study the Northern Lights, and you can find Chinese researchers in the Arctic Council, working across Nordic countries with other nationals in the name of scientific research.

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In remarks made in May at an Arctic Council Ministerial Meeting, US Secretary of State Mike Pompeo mentioned China's participation as a "concern," given the country's increased footprint in the council and past environmental record.

It may be that Pompeo is correct when it comes to increasing influence, but participation in the Arctic Council is only one facet of a wider approach to countries in the north, as suggested by David Auerswald for War On the Rocks:

"On the one hand, China is taking pains to be a cooperative participant in Arctic Council working groups and Arctic scientific research. On the other hand, it appears to be engaged in predatory behavior for unilateral advantage."

China introduced its Arctic Policy in 2018. The pledge calls China a "near-Arctic State" and says that the country's interest in the region extends to climate change, the environment, scientific research, utilization of shipping routes, resource exploration and exploitation, security, and global governance.

While there is no specific mention of data, the flow of information underpins many of our industries today. The policy states:

"The utilization of sea routes and exploration and development of the resources in the Arctic may have a huge impact on the energy strategy and economic development of China, which is a major trading nation and energy consumer in the world.

China's capital, technology, market, knowledge, and experience is expected to play a major role in expanding the network of shipping routes in the Arctic and facilitating the economic and social progress of the coastal States along the routes. China has shared interests with Arctic States and a shared future with the rest of the world in the Arctic."

According to USNI, the country is following the "Polar silk road" in its quest to control infrastructure across the West. The report estimates that Chinese investment makes up 6% of GDP in Iceland, alongside 12% of GDP in Greenland.

In other words, invest in countries that could do with a boost to the economy in the name of growth, have business interests in data centers, communication cables, and transport hubs, and this could set China up in the long-term to become a colossal economic superpower not only on the domestic level but worldwide.

The financial backing of the country cannot be underestimated. However, it has not been a smooth ride for every would-be Chinese investor, says Jensen, citing the cultural differences between the Chinese and the Icelandic. When it comes to land grabs, for example, the Chinese often fail.

Trade routes, cables, research, energy, and new business opportunities all contribute to the bigger picture of why China is showing interest in the Arctic region. However, the creation of a data "silk road" in Finland, involving Beijing and Finnish authorities keen to construct a new transatlantic cable, also gives rise to questions concerning China's intentions when it comes to the future of finance.

Sea cables are able to provide low-latency data transfers, a key requirement for financial institutions and many enterprise firms today.

It is estimated that 97% of global communications and $10 trillion in daily financial transactions are transmitted via cable rather than satellite, and as Etix Everywhere Borealis continues to expand its data center portfolio -- the latest addition being a data center in Blönduós -- the increased popularity of blockchain technology, facilitated by data centers, is also of interest.

The blockchain, also known as distributed ledger technology, has been touted not only as a way to facilitate the trade of cryptocurrency but also as a potential future backbone for traditional, fiat currency exchanges.

The benefit of the blockchain lies in the storage of transaction records and their immutability, and if traditional financial systems move away from Swift to blockchain setups, low-latency cables, data centers, and hosting in locations accessible from both the US and Europe are attractive prospects and will be necessary to support the weight of future banks and financial institutions.

China likely recognizes this, too, and could be making a long-term play now to have a hand in the control of the IT infrastructure required in the future by banks through investing in countries such as Iceland today.

China's sight is on the long-term, and the country is unlikely to be deterred in its quest for further economic supremacy.

"They have a lot of incentives to maintain their economic growth, and they understand infrastructure," Jensen added. "The guy who owns the infrastructure, at the end of the day, wins."

Disclaimer: The visit to Iceland was sponsored by Etix Everywhere Borealis. 


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