Hong Kong’s Position as a Data Centre Hub in Asia

Hong Kong has continued to experience significant investment in data centres in 2020, and has historically been at the forefront of data centre development and cloud readiness in Asia. In this article, Pádraig Walsh from the Technology practice group of Tanner De Witt reviews the landscape for data centres in Hong Kong.

Hong Kong’s strengths as a data centre hub

Hong Kong’s position as a regional data center hub in Asia is well-established. Here are some reasons why:

• The telecom infrastructure in Hong Kong is among the best in Asia. There are 11 submarine optical fibre cable systems (providing about 90 terabits per second in capacity), 20 overland optical fibre cable systems and 11 satellite systems.
 

• Hong Kong is one of the safest cities in Asia for data centre sites, being far from zones with risk of natural disasters.
 

• Broadband quality and download speed is among the highest in Asia.
 

• There is a concentration of multi-national corporations in Hong Kong. It is also a major global financial services centre. This attracts significant data flows.
 

• Hong Kong ranks highly for the ease of doing business and has a comparatively low tax environment.
 

• There is continuous access to and availability of electricity and water. The price of electricity is competitive.
 

• The Hong Kong government has a favourable policy supporting the data centre industry. This includes a dedicated unit focused on data centre development[1], a favourable land supply policy to facilitate new data centre development, and favourable policies to support the redevelopment of existing industrial buildings as data centres.

As of June 2020, total data centre stock in Hong Kong amounted to 7.9 million sq ft[2]. The supply will continue to increase according to government estimates.

Challenges ahead

Currently, Hong Kong is maintaining its strong position as a regional data centre location. Some potential challenges lie ahead.

Power supply[3]: The existing 11kV power supply network may not meet the power demand of hyperscale data centres, which require a minimum of 20MVA + 20MVA. Power companies need up to four years to provide this level of power supply. This creates an apparent gap of up to two years between the target commencement date of hyperscale data centre operations and delivery of power supply. Additional government measures will be needed to support increasing the power supply capacity and shortening power delivery timelines to ensure the infrastructure is in place for future data centre growth.

Freedom of information: Geopolitical tensions and domestic issues have given rise to a perception that the level of freedom for information and data may be less in future than in the past. Concern has been expressed about the impact of the recently introduced National Security Law. This has already had an adverse impact on businesses in the media sector. It remains to be seen whether the impact will be limited just to the media sector. Early indications are that, for most businesses, the National Security Law will be treated as an additional, but not mission critical, regulation to be aware of. Time will tell.

Privacy: Hong Kong has traditionally been a leader in Asia in respect of privacy and personal data protection. When the Personal Data (Privacy) Ordinance first took effect in 1996, Hong Kong was one of the first Asian jurisdictions to have a comprehensive personal data protection law. Now, there is a sense that Hong Kong may be lagging, not leading, data regulation trends. While retaining its overall first ranking, Hong Kong dropped from first to fifth in privacy rankings in the recent Asian Cloud Readiness Index[4]. The commentary referred to recent major data breaches, and a perceived delay in enacting the promised legislative enhancements.

Reasons for optimism

There are reasons for optimism though. The closer integration of the Hong Kong economy with mainland China and the Greater Bay area in particular offers considerable potential. This will lead to an increase in data flow between Hong Kong and the Greater Bay area[5]. There are calls for pilot projects to facilitate open data flow within the Greater Bay area, with Hong Kong as the hub[6]. This could see Hong Kong taking a leading role facilitating data flow within the Greater Bay area, and in the long term establishing itself as a data hub for data flow from mainland China. Initiatives such as this would start with less sensitive data for trade and commerce, regulatory compliance, and non-commercial research.

There are signs of convergence between laws for personal data protection between Hong Kong and the rest of China. The Chinese authorities have recently published a draft Personal Data Protection Law[7], which draws inspiration from the EU’s General Data Protection Regulation. This could lead to a common adequacy standard that could allow personal data transfers between Hong Kong and the rest of China, or to the classification of those data transfers as a domestic transfer. This would lead to the prospect of even more data flow, and more support the development of Hong Kong as a data centre hub.

Closing thoughts

Demand for data centre services will grow significantly in the future. Data centres are a core integral requirement for the facilitation of 5G network capabilities, cloud computing, big data analytics and artificial intelligence. Worldwide public cloud revenue will grow 17% to US$266.4 billion in 2020 and 56% to US$354.6 billion by 2022. In Hong Kong, the data centre market was worth US$883 million in 2018 and is projected to grow at a five-year compound annual growth rate of 14% to reach US$1.7 billion by 2023[8].

Data has to move for data to make money. Data flow is critical for the IT industry. Hong Kong has traditionally been at the forefront of data center activity within Asia. That’s likely to continue, but in a different shape and form. The flow will not stop, but the direction of flow might be different. We, at Tanner De Witt, are ready to help.

Pádraig Walsh

If you would like to discuss any of the matters raised in this article, please contact:

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[1] See this link

[2] See Cushman & Wakefield Data Centre Update Hong Kong, Autumn 2020, on this link

[3] See: “Hong Kong remains a popular choice for date centre investments in 2020” by Allan Tan on this link.

[4] See: Cloud Readiness Index 2020, Asia Cloud Computing Association on this link.

[5] The Greater Bay area comprises two special administrative regions of Hong Kong and Macao, and the nine municipalities of Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen and Zhaoqing in Guangdong Province, China. See this link

[6] See: Legal Research Project: Proposal for Hong Kong to be a Data Center Hub for the Greater Bay Area and China (2019) on this link

[7] See: IAPP, A look at China’s draft of Personal Data Protection Law, on this link

[8] See LC Paper No. CB(1)644/19-20(01) for the Legislative Council Panel on Information Technology and Broadcasting, Update on Data Centre Development in Hong Kong, available on this link

Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.