China is investing heavily in promoting full 5G coverage. Will Japanese chip manufacturers make a fortune?-EEWORLD

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The U.S. government is tightening restrictions to make it harder for American companies to help China roll out superfast cellular networks. But companies from its ally Japan are driving and profiting from China's leap forward. Japanese companies make no secret of the fact that this is a very promising market for Japanese parts.

The Wall Street Journal pointed out today that despite the United States' restrictions on exports to China, its ally Japan is still supplying 5G components to China.

According to the report, China plans to spend $150 billion to deploy more than 500,000 base stations across the country to achieve nationwide coverage of fifth-generation cellular network (5G) services by the end of this year, and these base stations generally use equipment from domestic leader Huawei Technologies Co., Ltd. "The Chinese government is actively promoting the popularization of 5G. This is a very promising market for our parts," said Tsuneo Murata, chairman of electronic component maker Murata Manufacturing.

According to the report, supplying components and materials to global technology companies is a survival business for Japan as the halo of most of its consumer electronics brands has faded.

Wendy Cutler, a former senior U.S. trade negotiator who now works at the Asia Society, said: "When the U.S. initially pushed for export controls, its regulations mainly affected U.S. companies. But over the past year, the U.S. has begun to realize that companies like Huawei are still getting all this technology." Cutler said the "drumbeat of export controls" could soon be transmitted to U.S. allies. She said: "If you look at these statements as a whole, it's clear where things are going."

The Trump administration announced in May that it would impose export restrictions aimed at cutting off Huawei from overseas suppliers; the restrictions mainly target Taiwan Semiconductor Manufacturing Co., Ltd.'s sales of semiconductor products to HiSilicon, a subsidiary of Huawei.

For now, the Chinese market remains one of the few sources of healthy profits for Japanese companies hit by the coronavirus pandemic. Anritsu Co.'s operating profit rose 75% year-on-year in the last fiscal quarter, thanks to strong 5G-related demand in China and across Asia. Anritsu makes instruments that measure whether 5G equipment such as base stations are operating properly. "For us, demand from China is growing as Chinese smartphone suppliers sell to more and more global consumers," said Takeshi Shima, senior vice president of Anritsu.

Although the Chinese government has been promoting a "buy domestic products" policy aimed at strengthening domestic manufacturing, many Japanese parts suppliers have been embedded in the Chinese supply chain for many years and have steadily profited from it.

Sho Fukuhara, an analyst at Jefferies, said Chinese companies still rely on some Japanese suppliers that also do business in the U.S. “The U.S. doesn’t want Chinese products, and China doesn’t want U.S. products, which benefits Japan on both sides,” he said.

According to Murata, capacitor orders for the January-March quarter increased nearly 50% year-on-year, thanks to demand for 5G equipment.

Many of these less visible but crucial parts go to Huawei, China's largest smartphone and 5G equipment maker. Huawei Chairman Liang Hua said in November that the company's parts purchases from Japan in 2019 are expected to reach about $10 billion. He said that through such purchases, Huawei can now deliver core products to customers in a timely manner without relying on American parts.

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