China Is Winning the Trillion-Dollar 5G War – Yahoo! Voices

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

By the end of this year, China will have more thanhalf a million of these towers on its way to agoal of 5 million, a fast climbfrom around 200,000 already in use,enablingfaster communicationfor hundreds of millions of smartphone users. Bycomparison, South Koreahas a nearly 10% penetration rate for 5G usage, the highest globally. The much-smaller countryhad 115,000 such stations operatingas of April.

The towers arepart of a raftof projects that the State Council announced last week to boost industrial innovation underthe New Infrastructure campaignaimed at furthering the deep integration of the Internet of Things and the real economy. With an aim of spending $1.4 trillion by 2025, the aggressive buildup towarda more automated industrial landscapewill give China a renewedadvantagewhere it already dominates: manufacturing.

The coronavirus shut down factories and industrial sectors,triggering a rethink of supply chains away from China. What analysts arecalling peak globalization and the rise of factory automation could shift production to higher-cost countries inNorth America and Southeast Asia. It will take a while, but the global dependence on China will come down, the thinking goes. Still, with trade ravaged by Covid-19, other countries and telecom operators will struggle to match Chinas spending.For China,theres an opportunity toclear the way toforcefully implementits industrial policy agenda, without interference from criticism oversubsidies and unfair competition. The so-calledCentral Comprehensively Deepening Reforms Commission, headed by President Xi Jinping, has approved a three-year planto givestate-owned enterprises yet more sway in the economy.

Beijings ambitious programs are still in the construction phase. Macro base stations are the nuts and bolts of building out 5G networks, and will exceed their 4G predecessorsby almost 1.5 times. Capital expenditure could peak at $30 billion this year, according to Goldman Sachs Group Inc. analysts, up from $5 billion last year.Beijing wants more local governments and companies to getinvolved.Each station costs around 500,000 yuan ($71,361) and has a long value chain that includes electrical components, semiconductors, antennaunits and circuit boards. The vast number of companies spawned by the project are all contributing to Chinas push to get ahead.

For the industrial complex, the onset of 5G will enable greater connectivity between machines and much moredata transfer and collection. Fifth-generation technology is expected to have a big impactthrough increasinglyefficient and automated factory equipment, and tracking the movement of inventory and progress of production lines and assets. Manufacturingis expected to account for almost 40% of 5G-enabled industry output, according toBernsteinResearch analysts.

From sensors and data clouds, to chips and collaborative robots and computer-controlled machinery, a whole 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., Chinas version of Salesforce.com Inc. For some of these companies, government subsidies are a significant part of earnings,as my colleague Shuli Ren has noted. Stock prices have surged in recent monthsfor firmslike Shennan Circuits Co., whichmakes printed circuit boards, and Maxscend Microelectronics Co., a manufacturer ofradio frequency chips.Someareseeing their market capitalization values balloon by billions of dollars asBeijing has upped the ante on new infrastructure.

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To be sure, it isnt hard to imagine a hinterland speckled with ghost towers and base stations in coming years as China's propensity to overbuild beyond any reasonable capacitykicks in. The past shows that questions ofquality will arise whentoo many sub-par manufacturers crop up, incentivized bythe states largesse. Nonetheless, thisis the technology of the not-so-distantfuture, and building up thebasic infrastructure isnt misguided.

As Covid-19 absorbs the worlds attention, Beijings steadyfocus on implementing this industrial policy may make Chinathe manufacturer of parts that most countries will need soon. In other words, it will yet again become the factory floor, masteringthe production of all things 5G.

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

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

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China Is Winning the Trillion-Dollar 5G War - Yahoo! Voices