China Is Winning the Trillion-Dollar 5G War

(Bloomberg Opinion) — China is building tens of thousands of 5G base stations every week. Whether it wins technological dominance or not, domestic supply chains may be revived and allow the country to maintain – and advance — its position as the factory floor of the world, even as Covid-19 forces a rethink in how globalization is done. 

By the end with this year, China will have more than half a million of those towers returning to a goal of 5 million, a quick climb from around 200,000 already used, enabling faster communication for hundreds of millions of smartphone users. By comparison, South Korea has a nearly 10% penetration rate for 5G usage, the highest globally. The much-smaller country had 115,000 such stations operating as of April.

The towers are part of a raft of projects that the State Council announced the other day to boost industrial innovation under the “New Infrastructure” campaign aimed at furthering “the deep integration of the Internet of Things” and the real economy. With an purpose of spending $1.4 trillion by 2025, the aggressive buildup toward a more automated industrial landscape will give China a renewed advantage where it already dominates: manufacturing. 

The coronavirus turn off factories and industrial sectors, triggering a rethink of supply chains – from China. What analysts are calling “peak” globalization and the rise of factory automation could shift production to higher-cost countries in North America and Southeast Asia. It will take a little while, but the global reliance on China can come down, the thinking goes. Still, with trade ravaged by Covid-19, other countries and telecom operators will struggle to match China’s spending.For China, there’s an opportunity to clear the way to forcefully implement its industrial policy agenda, without interference from criticism over subsidies and unfair competition. The so-called Central Comprehensively Deepening Reforms Commission, headed by President Xi Jinping, has approved a three-year plan to give state-owned enterprises yet more sway in the economy.

Beijing’s ambitious programs continue to be in the construction phase. Macro base stations are the nuts and bolts of building out 5G networks, and will exceed their 4G predecessors by very nearly 1.5 times. Capital expenditure could peak at $30 billion this year, in accordance with Goldman Sachs Group Inc. analysts, up from $5 billion a year ago. Beijing wants more local governments and companies to get involved. Each station costs around 500,000 yuan ($71,361) and has an extended value chain that includes electrical components, semiconductors, antenna units and circuit boards. The multitude of organizations spawned by the project are all adding to China’s push to get ahead. 

For the industrial complex, the onset of 5G will enable greater connectivity between machines and far more data transfer and collection. Fifth-generation technology is anticipated to have a large impact through increasingly efficient and automated factory equipment, and tracking the movement of inventory and progress of production lines and assets. Manufacturing is expected to account fully for almost 40% of 5G-enabled industry output, according to  Bernstein Research analysts.

From sensors and data clouds, to chips and collaborative robots and computer-controlled machinery, an entire universe of little-known Chinese companies is coming to the fore. Memory chip maker Gigadevice Semiconductor (Beijing) Inc. has ridden the trend, as has Yonyou Network Technology Co., China’s version of Salesforce.com Inc. For many of these companies, government subsidies certainly are a significant section of earnings, as my colleague Shuli Ren has noted. Stock prices have surged in recent months for firms like Shennan Circuits Co., which makes printed circuit boards, and Maxscend Microelectronics Co., a manufacturer of radio frequency chips. Some are seeing their market capitalization values balloon by vast amounts of dollars as Beijing has upped the ante on new infrastructure.  

To make sure, it isn’t hard to assume a hinterland speckled with ghost towers and base stations in coming years as China’s propensity to overbuild beyond any reasonable capacity kicks in. The past shows that questions of quality will arise when too many sub-par manufacturers appear, incentivized by the state’s largesse. Nonetheless, this is the technology of the not-so-distant future, and building up the basic infrastructure isn’t misguided.  

As Covid-19 absorbs the world’s attention, Beijing’s steady focus on implementing this industrial policy could make China the manufacturer of parts that most countries will need – soon. In other words, it will all over again become the factory floor, mastering the production of all things 5G.

This column does not of necessity reflect the opinion of the editorial board or Bloomberg LP and its owners.

Anjani Trivedi is just a Bloomberg Opinion columnist covering industrial organizations in Asia. She previously worked for the Wall Street Journal.

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