GBA Brief

With Huawei hamstrung, what happens to 5G in China?

China’s government is about to grant the first commercial licences for 5G services. But will it even be able to roll out the new network? The GBA has a solid claim as ground zero in the battleground for the next-generation standard.

“It’s a race that we will win,” Donald Trump promised in a briefing on the rollout of 5G networks earlier this year. Such is the anticipated impact of the new standard that it is forging another front in superpower rivalry.  

Hence the headlines this week that China’s three phone operators are about to get the green light to sell 5G services on a large scale, after obtaining the required permits from the Ministry of Industry and Information Technology.

The ministry said that the licences are going to be issued “soon” to China Mobile, China Unicom and China Telecom – which had 4G subscribers of more than 1.2 billion between them as of the end of April. 

Regulators say that would keep China on schedule to achieve the first genuinely large-scale commercialisation of 5G networks by the end of next year.

The GBA is at the forefront of the 5G revolution, not just as home to ZTE and Huawei (the main manufacturers of the new standard’s networking equipment) but also as one of its main test markets (there were already more than 14,000 base stations installed in Guangzhou and Shenzhen by the end of last year). 

The region will also be a priority focus for the Chinese telcos because its wealthier consumers are more likely to pay the higher prices for 5G services.

Of course it doesn’t matter how quickly the licences are awarded if the network can’t be rolled out as planned. And that is what was being discussed this week, particularly how Washington’s blacklisting of Huawei could fracture China’s 5G future.

Huawei is now being denied access to key American components. For example, telecoms networks are run from mobile masts, which rely on logic chips called field-programmable gate arrays made by American companies such as Xilinx. Without these parts, Huawei’s production lines will be paralysed. 

If Huawei can’t deliver, some of the orders may be directed towards its peers ZTE and Datang. But that kind of solution also looks precarious. A similar ban brought ZTE to its knees last year and the Shenzhen giant only survived after Trump relented, calling a halt in what he described as a personal favour to Xi Jinping, the Chinese president.

A second option is that the Chinese telcos turn to international suppliers like Ericsson and Nokia to build the new networks. That seems unlikely too, given the way that the 5G race is being framed as matter of national importance. The Chinese simply won’t want to be dependent on foreign firms for the backbone of such crucial technology.

In the meantime, analysts are speculating that Huawei will survive on stockpiles of key components that it has been compiling for almost a year. It is reported to have nine to 12 months of 5G base station inventory, for instance. It’s fair to assume that these precious reserves are going to be allocated to roll outs in top-tier locations like Beijing, Shanghai and – of course – the GBA.

But that’s hardly a long-term solution and Huawei has few fallbacks once the inventories run out, because China is said to be at least a decade behind in designing the higher-end chips used in switches and routers.

Policymakers will argue that’s all the more reason to beef up investment in the GBA’s high-end industrial zones and research parks, making China self-sufficient.