# Exclusive: U.S. funding tapped for Pacific undersea cable after China rebuffed
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2021-09-03
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: FSM to Construct Pacific Undersea Cable with U.S. Funding
Meta Description: FSM to tap U.S. funding for undersea comms cable project after rejecting Chinese proposal. Improve Pacific communications while addressing security concerns.
URL: https://financedigest.com/exclusive-u-s-funding-tapped-for-pacific-undersea-cable-after-china-rebuffedhtml

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By Jonathan Barrett

SYDNEY (Reuters) – The Federated States of Micronesia will tap a U.S. funding facility to construct a Pacific undersea communications cable, two sources told Reuters, after rejecting a Chinese company-led proposal that was deemed a [security threat](https://www.financedigest.com/russian-threat-to-baltic-security-rising-estonian-intelligence-report.html "Russian threat to Baltic security rising – Estonian intelligence report") by U.S. officials.

The United States has taken great interest in several [plans in recent years](https://www.financedigest.com/3-factors-to-plan-for-in-2017-a-year-like-none-other.html "3 Factors to Plan for in 2017, A Year Like None Other") to lay optic fibre cables across the Pacific, projects that would bring vastly improved communications to island nations.

The undersea cables have far greater data capacity than satellites, [leading Washington to raise concerns https://www.reuters.com/article/us-china-pacific-exclusive-idUKKBN28R0L2 that the involvement of Chinese firms would compromise regional](https://www.financedigest.com/adnami-welcomes-svenja-damzog-as-publisher-director-dach-to-lead-continued-expansion-in-the-region.html "Adnami welcomes Svenja Damzog as Publisher Director DACH to lead continued expansion in the region") security. Beijing has consistently denied any intent to use cable infrastructure for spying.

Two [sources with knowledge of the plans](https://www.financedigest.com/exclusive-germany-prepares-crisis-plan-for-abrupt-end-to-russian-gas-sources.html "Exclusive-Germany prepares crisis plan for abrupt end to Russian gas – sources") said FSM would use U.S. funds to construct a line between two of its four states, Kosrae to Pohnpei, replicating part of a route proposed under a previous $72.6 [million project](https://www.financedigest.com/sse-to-invest-122-million-in-scottish-pumped-hydro-project.html "SSE to invest 2 million in Scottish pumped hydro project") backed by the World Bank and Asian Development Bank.

Reuters reported in June that project, which also encompassed Nauru and Kiribati, was scuppered https://www.reuters.com/article/us-china-pacific-exclusive-idAFKCN2DU06W after Washington raised concerns the [contract would be awarded](https://www.financedigest.com/keysource-awarded-major-contract-to-design-nationwide-network-of-data-centres-throughout-china.html "KEYSOURCE AWARDED MAJOR CONTRACT TO DESIGN  NATIONWIDE NETWORK OF DATA CENTRES THROUGHOUT CHINA") to Huawei Marine, now called HMN Technologies and majority owned by Shanghai-listed Hengtong Optic-Electric Co Ltd. .

One source told Reuters that FSM would draw around $14 million from the American [Rescue Plan](https://www.financedigest.com/uniper-rescue-plan-takes-shape-with-price-rises-possible.html "Uniper rescue plan takes shape, with price rises possible"), a U.S. facility created by President Joe Biden to distribute funds both at home and abroad to combat the [health and economic impacts](https://www.financedigest.com/the-impact-of-debt-on-your-health-and-what-you-can-do-about-it.html "The Impact of Debt On Your Health, And What You Can Do About It") of the COVID-19 pandemic.

FSM said it was committed to [providing fibre connectivity](https://www.financedigest.com/thomson-reuters-builds-out-its-award-winning-connected-risk-platform-with-risk-management-solution-providing-a-personalized-enterprise-wide-view-of-risk.html "Thomson reuters builds out its award-winning connected risk platform with risk management solution providing a personalized enterprise-wide view of risk") to the State of Kosrae, and onward connectivity to Kiribati and Nauru. It did not respond directly to questions about U.S. funding.

The U.S. [State Department declined to comment](https://www.financedigest.com/state-street-comments-on-french-general-election-results.html "State Street Comments on French General Election Results").

The United States and FSM have a long geopolitical relationship, enshrined in the Compact of Free Association, a decades-old agreement between the United States and its former Pacific trust territories. Under that agreement, Washington is responsible for the island nation’s defence.

The second source said the U.S. funded cable would likely connect to the HANTRU-1 undersea cable, a line primarily used by the U.S. government that connects to the U.S. Pacific territory of Guam.

Both sources spoke on condition of anonymity as they were not authorised to speak publicly.

The World [Bank said in a statement it was working](https://www.financedigest.com/working-with-banks-essential-tips-for-fintechstartups.html "Working with banks – essential tips for fintechstartups") with FSM and Kiribati to map out their next steps after the original tender for the larger project concluded with no contract awarded.

PACIFIC POLITICS

Undersea cables represent one of the newest and most sensitive fronts in the rivalry between China and the U.S. in the strategic waters of the Pacific.

While FSM has close ties to the United States, it also has long-standing diplomatic and trade relations with China.

Prominent U.S. lawmakers have [warned that Chinese](https://www.financedigest.com/chinese-fret-over-elderly-as-who-warns-of-holiday-covid-surge.html "Chinese fret over elderly as WHO warns of holiday COVID surge") companies could undermine competitive tenders by offering state-subsidised bids Reuters previously reported.

The U.S. Commerce Department [publicly lists Huawei Marine on its so-called “Entity List” – known as a blacklist – which restricts the sale](https://www.financedigest.com/the-gibraltar-blockchain-exchange-announces-public-token-sale-event-to-create-world-leading-licensing-and-regulation-standards-in-the-industry.html "The Gibraltar Blockchain Exchange Announces Public Token Sale Event To Create World Leading Licensing and Regulation Standards In The Industry") of U.S. goods and [technology to the company](https://www.financedigest.com/improving-company-culture-through-technology.html "Improving Company Culture Through Technology"). The Department told Reuters that Huawei’s new owner, HMN Tech, would also be captured under these restrictions.

[China has strongly refuted the allegations](https://www.financedigest.com/china-lodges-representations-over-alleged-harassment-at-manchester-consulate.html "China lodges representations over alleged harassment at Manchester consulate"). [China’s Foreign Ministry said in a statement to Reuters that Chinese companies had a good record](https://www.financedigest.com/china-records-worlds-first-human-death-from-h3n8-bird-flu-who.html "China records world’s first human death from H3N8 bird flu -WHO") in cybersecurity.

The so-called [security threat](https://www.financedigest.com/industry-not-ready-for-robot-hack-threat-warns-cyber-security-expert.html "Industry NOT READY for robot hack threat, warns cyber security expert") \[alleged\] by the U.S. is totally groundless, and has ulterior motives,” the statement said. Who the [‘hacker empire’ really is – engaging in spying and stealing](https://www.financedigest.com/easy-steal-blame-management-not-hackers-cyber-events-lead-losses.html "Too easy to steal: blame management, not hackers, when cyber events lead to losses.") secrets – is plain to the world.

Australia, a strong regional ally to the United States, has ramped up its presence in the Pacific through the creation of a A$2 billion ($1.48 billion) [infrastructure financing facility that island nations](https://www.financedigest.com/hiding-in-plain-sight-finance-as-critical-national-infrastructure.html "Hiding in plain sight – Finance as Critical National Infrastructure") can potentially access for cable projects.

Nauru has been negotiating plans https://www.reuters.com/world/asia-pacific/exclusive-pacific-island-turns-australia-undersea-cable-after-spurning-china-2021-06-24 to tap into the Australian-backed Coral Sea Cable system, via Solomon Islands, sources told Reuters in June.

($1 = 1.3510 [Australian dollars)](https://www.financedigest.com/asian-stocks-make-7-month-highs-australian-dollar-gains-on-hot-inflation.html "Asian stocks make 7-month highs, Australian dollar gains on hot inflation")

(Reporting by Jonathan Barrett; additional reporting by Beijing bureau; editing by Jane Wardell)


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