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In recent months, the media has frequently broadcasted news regarding 5G developments, often dropping important names such as Nokia, Ericsson and Huawei. With mounting tensions between various Western countries and Chinese company Huawei being cast under the spotlight, we are able to deduce that the race in 5G development is likely to boil down to two dominant parties – China and the West. But who will emerge as the ultimate winner? In this article, we analyze the key differences between Chinese 5G and Western 5G, so you can get a better idea of the frontrunners in this competitive race.
1. Government Support
The most obvious point of divergence between Chinese and Western 5G lies in the relationship between the government and 5G companies. While Chinese 5G companies such as Huawei are heavily subsidized by the Chinese government (though listed as ‘private’), Western 5G companies are generally private companies that operate independently of the government. In China, the government has formally made 5G development a national agenda in its post-pandemic economic recovery scheme announced in March 2020. Identifying 5G development to be one of the country’s top priorities in its next-generation development, the Chinese government has vowed to support 5G companies in building a robust 5G ecosystem and deploying the technology into the consumer market seamlessly. Meanwhile, Western companies like Finland’s Nokia and Sweden’s Ericsson operate in accordance with the free market without such backing from the government. However, the Wall Street Journal recently reported the possibility of a plan devised by the White House of the United States (US) to blunt the dominance of Huawei, involving the consolidation of several major American tech companies to develop 5G architecture and infrastructure together. This centralized intervention coming directly from the administration signifies the American government’s urgency to acquire a strong footing in the 5G race, so as not to lose out to the incumbent Chinese frontrunner, Huawei.
The difference in the relationships that these 5G companies have with the government will likely prove to be extremely crucial in the next stage of 5G deployment, given that many economies will or are currently suffering a recession due to the coronavirus pandemic. In America’s capitalist free market, for instance, the federal government cannot demand private companies to scale back or ramp up their 5G development at any given time, or urge companies to align their business operations with national interests. Similarly, companies whose operations were badly hit by the pandemic are left to fend for themselves post-pandemic, having to rely on their own resources to get back on track. By contrast, the Chinese government is able to wield its centralized power and instruct Chinese companies like Huawei on the ways they should go about 5G developments in accordance with the government’s best interest. If companies oblige, they will likely receive the government’s generous support and funding. This motivates seemingly “private” companies like Huawei to align themselves with the government’s interests. As such, it is likely that Chinese 5G companies will be able to tap into the government’s resources and enjoy a smooth post-pandemic recovery going forward, unlike Western competitors.
The Chinese 5G system is also argued to be more affordable than its Western competitors’. According to TechCrunch, the Western telecom market is a largely fragmented one, comprising 105 mobile operators in Europe and four in America. This intense competition has driven the price of 5G infrastructure and equipment up, prompting Western companies to import basic 5G equipment from Chinese companies like Huawei. Meanwhile, Huawei remains the dominant 5G provider in China, hence it is not subject to similar competition. Furthermore, as mentioned earlier, Huawei is able to tap into subsidies provided by the state, enabling it to underprice its competitors.
If Huawei does indeed provide cheaper 5G systems, it will be difficult for Western countries to sever ties with Huawei completely, as cost is an extremely crucial factor in the ever-competitive 5G race, and keeping costs low remains a priority for Chinese and Western firms alike. Although Huawei has received backlash from many Western countries, including the US and the United Kingdom (UK), it remains important for these countries to weigh the literal costs and benefits of doing so. By eliminating all of the Huawei components that are already in pre-existing 5G systems, Western 5G companies risk incurring enormous costs. However, in an interview with TechCrunch, Dr. Janka Oertel of the European Council on Foreign Relations acknowledged that the price debate is largely “hypothetical” at this current point in time, and that it is difficult to argue with certainty that Huawei’s 5G is cheaper than that of Western companies such as Ericsson or Nokia. According to her, “[n]o one has the numbers because these are all contracts between private companies”. Her main concern remains that while Huawei might seem more affordable now, the Chinese company might start raising prices aggressively if it is able to drive competitors out and dominate the international 5G market.
Dubbed the world’s manufacturing superpower, it is unsurprising that Chinese 5G will be heavily directed towards the manufacturing sector. The “5G + Industrial Internet” plan proposed by the government in 2019 illustrates the various ways in which the mmWave spectrum can enable manufacturers to realize the full potential of interconnected devices and autonomous processes, by leveraging on the benefits brought about by 5G, including high-capacity and low-latency wireless connectivity. The main areas of improvement identified in the plan include the implementation of industrial applications such as remote-control systems, industrial robotics, remote analysis and monitoring, as well as autonomous factory transport. Together, these enhancements can help to improve safety and efficiency on the factory floor.
Based on a joint report by GSMA and TMG, the manufacturing and utilities vertical is predicted to be the biggest mmWave 5G contributor to China’s GDP in 2034, making up 62 per cent of the total. This trend is similar to that of Germany, South Korea and Japan, where the manufacturing and utilities sector are expected to contribute the largest proportion of national GDP attributable to mmWave 5G. Meanwhile, in the US and UK, the professional and financial services vertical is set to be the largest mmWave 5G contributor to China’s GDP in 2034. These numbers highlight a divergence between the Chinese approach and that of several major Western competitors in terms of priorities in 5G technology deployment.
With Huawei’s unrivalled breakthrough in 5G, China has actively tried to ramp up its international presence by venturing into global markets using 5G. Huawei has gradually gained dominance on the global stage, prompting retaliation from many Western competitors and governments. The US, for instance, has banned local companies from using Huawei networking equipment since 2012. In May 2019, Huawei was also added to the US Department of Commerce’s Bureau of Industry and Security Entity List following an executive order from US President Donald Trump. Just this year, the Trump administration extended the order until 2021. Many other countries have since followed suit, with the UK also banning Huawei from July 2020, according to Cnet.
Western companies have also begun ramping up their efforts in beefing up their own 5G infrastructure and networks, while remaining cautious in sourcing for local substitutes for Huawei products that will not increase their costs significantly. This is such that they are able to provide local consumers with strong alternatives and reduce their reliance on Chinese 5G. Hence, it seems like despite Huawei’s active efforts to globalize, the tremendous pushback it faces from the international community might hinder its progress over the following years. Yet, even in the face of these obstacles, the company has continued to push boundaries internationally, showing that it is likely to remain competitive in the 5G market for a long time to come.
Ultimately, it remains likely that no one country would possess all of the world’s crucial 5G technologies. As ambassador Zhang Ming, head of the Chinese Mission to the EU, said in December 2019, “5G technology is the collaborative outcome of the international community.” Both China and the West have been actively trying to one-up each other in the 5G race. In the process, they might have overlooked the possibility that it would be mutually beneficial to complement and support one another instead to achieve win-win outcomes.