China Trades With U.S. Ally Japan as 5G War Gathers Speed

The U.S. banned use of Huawei Technologies’ 5G gear to slow down China’s dominance in the arena, and yesterday the FCC designated Huawei and ZTE as national security threats. Meanwhile, U.S. ally Japan is trying to avoid conflict with both countries, while purchasing 500,000+ Huawei 5G base stations at a cost of $150 billion to install throughout the country by the end of 2020. Japanese companies such as Murata Manufacturing also purvey 5G components to global tech companies, including those in China. Murata Manufacturing chair Tsuneo Murata noted that 5G is “a very promising market for our parts.”

The Wall Street Journal reports that, “the question is how long Japan, whose territory is protected by U.S. forces, and other U.S. allies such as Germany and South Korea can keep up the business.” Asia Society Policy Institute vice president Wendy Cutler noted that, “when the U.S. first went forward with export controls, its regulations mostly affected U.S. companies.”

“But over the past year, the U.S. has started to recognize that companies like Huawei are still getting all of this technology,” she said, adding that the “drumbeat of export controls” could be applied to U.S. allies.

In May, the Trump administration “said it would impose export restrictions designed to cut off Huawei from overseas suppliers, largely targeting Taiwan Semiconductor Manufacturing Co.’s sale of semiconductors to Huawei’s HiSilicon unit.”

China is one of the “few healthy sources of profit for Japanese companies suffering from the impact of the coronavirus.” According to Jefferies analyst Sho Fukuhara, “many Japanese parts suppliers have embedded themselves in the Chinese supply chain for years and steadily make money … [while] Chinese companies still rely on Japanese suppliers that also do business in the U.S.”

“With the U.S. not wanting Chinese goods and China not wanting U.S. goods, that leaves Japan to benefit from both sides,” he added. Murata, for example, makes a multilayer ceramic capacitor; about 15,000 of them are required for the typical 5G base station. The company saw a 50 percent increase in sales in Q1 2020, compared to a year earlier.

At Anritsu, a Japanese company that makes 5G test equipment, senior vice president Takeshi Shima reported that, “for us, demand from China has been increasing as China’s smartphone suppliers sell products to a larger and larger global audience.”

Last November, Huawei chair Liang Hua stated that, in 2019, the company would likely purchase about $10 billion in parts from Japan, which allows it to avoid U.S. components. The Center for a New American Security issued a report mandated by Congress that stated, “the U.S. should expand curbs on sales to Huawei’s 5G systems to cover sales by foreign companies.”

Related:
China’s Huawei and ZTE Officially Designated ‘National Security Threats’ by the FCC, CNBC, 7/1/20