Hong Kong has grown into a top connectivity hub in the APAC region and an aggregation point for many major submarine cable systems. Although these are not easy to simply lift and shift due to geopolitical risks, there soon will likely be more route diversity for new submarine cable systems. That could decentralize the historical aggregation points of Singapore and Hong Kong, thereby create a more resilient Internet infrastructure ecosystem that will help decrease bottlenecks and reliance on a select few markets.
Like many leading markets around the world, Hong Kong has taken a significant turn to the hyper-scale side of the game. The composition of the market, however, is slated to change over time as the emerging political environment in Hong Kong—driven by the new security law—begins to have an impact. A number of the leading hyperscale platforms are based in the US, so geopolitical tensions inevitably will influence decision-making, particularly around sensitive areas like data sovereignty and privacy. Nothing out of the ordinary is about to happen today. Hyperscale builds will continue and existing deployments are staying put. An entire ecosystem of connectivity—traversing key landing points and exchanges—is not going to be easily lifted and shifted and Hong Kong will retain its long-term strategic importance.
Western hyperscalers are likely to maintain current data center deployments in Hong Kong, while executing pipeline expansions that have been in the works pre-pandemic. We likely will see a slowdown of Western hyperscalers leasing more data center capacity in the near term, as the value proposition of Hong Kong is increasingly less ideal. Hong Kong in itself is not a large enough domestic market to warrant more sizable deployments from Western hyperscale cloud platforms. Most large US tech companies, like Amazon, Microsoft and Apple, already have established partnerships in mainland China with local operating partners, which include 21Vianet, Chindata and Beijing Sinnet.
Hyperscale cloud platforms are already decentralizing their cloud platforms into more localized, in-country deployments and will be increasingly less reliant on a single hub to serve multiple countries. Hong Kong and Singapore are great examples of initial APAC hubs that the hyperscalers chose to centralize their cloud infrastructure around during the early days of cloud adoption in APAC. That is changing with new cloud regions being established across emerging APAC markets like India, Indonesia, South Korea, Malaysia and Taiwan.