China's fifth generation wireless infrastructure campaign loses momentum

DALIAN, China - China's campaign to build up fifth-generation wireless infrastructure has lost steam as manufacturers run out of U.S. manufactured components, forcing suppliers to make further inroads into the American and European markets instead.

China makes up more than 60% of the global 5 G market and parts production there closely keeps pace with base installation in the country. Output of base station parts fell 53% on the year in January-August period and has shrunk for 11 straight months for which data is available according to China National Bureau of Statistics.

The slowdown is largely attributed to the ban on U.S. companies from selling products to Huawei Technologies and other Chinese companies, resulting in a shortage of crucial components in the country. The effect is also spreading to suppliers in Japan and elsewhere that rely heavily on the Chinese 5 G market.

Demand for parts that prevent network disruptions is down, said Murata Manufacturing Chairman Tsuneo Murata.

Several of our transactions with China's Huawei Technologies have been discontinued since the summer of 2020, said another communications parts maker.

With the decline of China-related demand, some suppliers, many of which are Japanese, are now shifting their focus to the U.S. and Europe.

Sumitomo Electric Industries will double its research and development staff in these markets by March to satisfy the client demands there quickly. It also started operating a factory in September in the U.S. that produces chips used for 5 G base stations.

China now accounts for about 90% of Sumitomo Electric's overseas revenue from base station components. The Osaka-based company aims to increase the U.S. and European share to about 50% from the current 10% in five years.

Nippon Electric Glass will launch a sales team dedicated to the European and U.S. markets as early as 2022. It currently sells about 90% of its optic fiber parts to Chinese factories and wants to make further inroads in other markets.

Besides, Huawei and other Chinese players have ramped up in-house production of components. However, it will likely take years for demand in China to recover, says Yole Developpement, research company Antoine Bonnabel.

Still, Chinese government plans to publicly invest in fifth generation wireless technology. In the future, the push toward in-house production could mean lost business opportunities for Japanese suppliers.

The Chinese side will not accept a stance of shifting to the U.S. and Europe whenever the need arises, said professor Tomoo Marukawa of the University of Tokyo, an expert on Chinese industries. These Chinese companies will need to adopt new strategies for solving decoupled supply chains in the U.S. and China, such as ensuring that procurement and production can be completed within China.