The Data Center Industry in Hong Kong and Greater China

Alex Tam, Equinix Managing Director for Greater China, recently appeared on Radio Television Hong Kong Radio 1’s Finance New Concept program, where he talked about the history of data centers, recent developments and the future of the industry in the region.

Below are selected excerpts from the interview that were translated into English.

A recording of the interview is also available in Cantonese (mp3 audio file).

Q: Many companies have been building their own data centers in Hong Kong over the last few years, why is that?

Data centers have been around since the advent of computers, although companies used to just put their servers at the back of their office. As information technologies advanced, more space was needed for more machines, so companies started building dedicated data centers. In fact, companies have been building data centers in Hong Kong for years. The main reason why the industry has attracted more attention in the last few years is because the Hong Kong Government has started promoting the industry as an area of growth.

Q: What are Hong Kong’s advantages that enabled it to attract so many data centers?

Data centers need stable and adequate electricity supply as well as good backup power, and the power supply in Hong Kong is excellent. It rarely encounters minor electrical disturbances, let alone large-scale blackouts.

Another advantage is Hong Kong’s telecommunication infrastructure. Hong Kong is the hub of many cables and satellite links. Additionally, Hong Kong’s close proximity to China allows it to link up with China’s much better than other competing countries. This makes Hong Kong the perfect stepping-stone for multi-national corporations looking to enter the China market.

Data centers store a large volume of sensitive information, such as financial transactions and trade secrets, so security is very important. On top of good security, Hong Kong offers excellent macro conditions and political stability for a low risk business environment. Additionally, Hong Kong rarely suffers from major natural disasters like earthquakes, flooding or severe typhoons. All these factors make Hong Kong a very attractive location for building data centers.

Q: So where in Hong Kong can we find data centers?

Most of the data centers in Hong Kong are located in traditional industrial areas like Tsuen Wan, Kwai Chung, Quarry Bay, Chai Wan and Kowloon Bay. There are also several new projects under development in Tseung Kwan O also.

Data centers are usually located in industrial areas because we need buildings with high floor-loading capacity as well as high ceilings to support our equipment, and industrial buildings would suit our needs perfectly. Another reason is the power infrastructure in industrial areas is more robust, this is important because our equipment consumes huge amounts of electricity.

Q: Many of the traditional industrial areas, such as Kowloon Bay, are being redeveloped, is this why data centers are moving to new areas like Tseung Kwan O?

It has been getting more and more difficult to find suitable locations fairly close to the city center as some of the traditional industrial areas like Quarry Bay and Kowloon Bay are being redeveloped into commercial districts. Because Tseung Kwan O has been chosen as the site for HKEx and several other companies’ new data centers, it has received a lot of media attention, but it’s by no mean the only option. For example, Equinix has data centers in Kwai Chung and Tsuen Wan, where only relatively minor redevelopments are expected in the coming decade.

Q: There are many vacant industrial buildings in Hong Kong, can they be converted into data centers?

Yes. In fact, that has been the direction of Hong Kong government’s policies in the last few years. These vacant industrial buildings are a large pool of land reserve. By encouraging multi-national companies to set up regional data centers in Hong Kong, not only does Hong Kong benefits from the inflow of capital and expertise, it will also boost employment and facilitate the development of IT talents.

Q: How are data center customers charged? Usually, how long would the contract term be?

The contract term for smaller scale applications is usually 2 to 3 years. For larger scale applications or clients seeking business continuity, the contract terms would usually be 5 or even 10 years. Some clients do not need full-fledged service when they start, and would like to expand their service package step-by-step to match their business growth. For example, many cloud service providers are still in the development stage, and their needs for data center will grow as their business develops. We can fulfill their requirements and allow the service to expand accordingly. Contracts can be extended, and our clients do not need to commit to a high setup costs initially.

The fee would depend on the customer’s requirements, usually it would be calculated based on the number of cabinets required to house the customer’s equipment. On top of that, we need to consider their power consumption, which is calculated based on the number and computing power of their servers, we will also factor in their anticipated growth rate.

Q: Singapore also shares many of Hong Kong’s advantages, how would you compare the two cities?

The Singapore government has done a great job in the past few years in promoting data center development. In terms of electricity supply, telecommunication infrastructure, political stability and low natural disaster risk, it is comparable to Hong Kong. Hong Kong’s main advantages over Singapore are its proximity to China and its excellent client system and flow of information.

Although the level of support provided by the Hong Kong government and the Singapore government are comparable, Hong Kong lacks active government supports on land and tax concessions as well as the convenience and supports that the Singapore government provides to foreign enterprises planning to set up operations there. Because the supports provided by the Hong Kong government are more passive and low-profile, players in the industry often do not realize what are available.

Q: What is the outlook of the data center industry in China?

It is still in its infancy stage. Communication network is still a heavily regulated industry in China, and telecommunications is not as developed as in Hong Kong. Furthermore, electricity supply in remote areas is not stable, so multi-national corporations are only building data centers in major cities like Beijing, Shanghai and Guangzhou. Equinix currently operates a data centers in Shanghai to meet our clients’ needs.

Q: As technologies progress, where do you see the data center industry in 5 to 10 years?

Some data centers built in the early days, which weren’t planned carefully, are a little outdated now. Their power supply and air-conditioning systems just aren’t able to cope with the new generations of machines, which consume two or three times more power than some of the older machines. But Equinix has been forward-looking when we built our data centers, which can be expanded to meet future demands.

Industry wide, some of the older data centers will be phased out and replaced by new ones. But I expect the total number of data centers will continue to increase. Unless information technologies stop advancing, I see strong growth in the industry.