In the shift to 5G, China tackles challenges

In the technological shift to 5G, more is at stake than the faster mobile phones expected from this fifth-generation wireless network. The new network can unlock the potential of artificial intelligence (AI) and other technologies.

As a result, leaders in both China and the United States have touted the importance of 5G technology. For China, 5G research and development activity began as early as 2013, predating their 4G launch. China labeled 5G a “strategic emerging industry” in 2016 in its 13th Five-Year Plan, underpinning broader plans to develop new Internet frameworks, cybersecurity systems, and AI, among others.

In the US, 5G has long been part of the generation-upgrade strategy for technology and telecom companies, but it has become a matter of national significance under the Trump administration. President Donald Trump has described American leadership in 5G as “imperative,” and US Chief Technology Officer Michael Kratsios has cited “protecting the American homeland” as a key goal for 5G1. The effective ban the US placed on the Chinese telecom firm Huawei’s communications equipment underscores the strategic importance of 5G for the US.

In light of these government-issued directives from both China and the US, it would be easy to characterize 5G as a modern-day space race motivated by national security concerns and bragging rights. While there is some truth to this, what may be underappreciated is the potential for 5G to address a variety of long-term economic and societal needs, particularly in China.

Besides trade, key challenges facing China

Regardless of how the current trade issue unfolds, China faces some critical challenges. Chief among them:

  • Aging population. Partly a consequence of the one child policy, China has a growing elderly population and a stagnant working-age population. By 2050, a third of China’s population is forecasted to be over the age of 60. With a pension system already heavily reliant on central government subsidies, China must find more efficient solutions to address basic needs such as medical care and retirement living.

  • Unequal access to quality resources. Whether for education, healthcare, or social security, significant disparities exist in accessing key resources, particularly between urban and rural areas. With the aging population, China’s shortage of healthcare providers will only become more acute. Furthermore, as economic growth becomes increasingly dependent on higher value-addition rather than sheer manpower, China must strive to broaden access to quality education and raise workforce skill levels.

  • Corruption. The People’s Daily’s annual online poll asks Chinese citizens to highlight the social, political, and economic issues that matter most. In this year’s poll, anti-corruption ranked first. While President Xi Jinping has publicly tackled government and corporate corruption, other forms persist such as defective vaccines provided to children in recent years. With much work ahead to drive continued growth and improve living standards, government leaders cannot afford to lose people’s confidence in the system.

Solutions groundwork in 5G?

Although these problems are serious, they are not insurmountable, and 5G (and eventually 6G) may provide a foundation for developing potential solutions. With low latency and data transfer speeds 100 times faster than 4G, we can imagine many obstacles being overcome. With fewer limitations in geographic distances, 5G could allow doctors to perform surgeries remotely and top teachers to give lessons in a virtual classroom setting. Robot home aides, equipped with AI, could help look after the elderly. Digital payments and transactions could become the norm, improving transparency and possibly deterring corrupt activity such as graft and money laundering. Supply chain information could also become more transparent and data intensive, which may help enhance product safety and oversight.

5G potentially transformative

Whether any of these ideas comes to fruition is pure speculation at this point. Nonetheless, the potentially transformative power of 5G technology is too important for China to take a wait-and-see approach. As a result, we expect China to continue promoting the development of the 5G ecosystem for years to come.

From an investment perspective, we see exciting opportunities for selective companies to benefit from this growth. With 5G speeds and more interconnected devices, we believe that data will continue to proliferate, and this data will need to be stored, processed, analyzed, and transmitted with greater frequency. Semiconductor chips that can handle these tasks efficiently, at low cost, and with low power consumption will enjoy strong demand, in our view. Leading Internet platforms with strong user engagement are also poised to leverage this data richness to provide enhanced solutions and utility to consumers.

Still, 5G is not a panacea. Despite its promise, 5G is not likely to substantially alter China’s growth trajectory in the near term. Implementation of structural reforms and sound policy remains essential to accompany the country’s investment in 5G. Although China faces some daunting challenges, we continue to foresee the economy muddling through, and we remain optimistic about the growth prospects we see in technology and consumption.

5G: Remarkable speed with even more remarkable potential

How long to download a two-hour film?
Remarkable speed with even more remarkable potential chart

Source: URtech.ca (Up and Running Technologies).


1.“America Will Win the Global Race to 5G,” Michael Kratsios, Oct. 25, 2018.

The views expressed represent the investment team’s assessment of the market environment as of January 2020, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice.

IMPORTANT RISK CONSIDERATIONS

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Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility and lower trading volume.

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