DALIAN, China -- China's campaign to build up fifth-generation wireless infrastructure has lost steam as manufacturers here run out of U.S.-made components, forcing suppliers to make further inroads into the American and European markets instead.
China makes up more than 60% of the global 5G market, and parts production there closely keeps pace with base installation in the country. Output of base station parts fell 53% on the year in the January-August period, and has shrank for 11 straight months for which data is available, according to China's National Bureau of Statistics.
The slowdown is largely attributed to a ban on U.S. companies from selling products to Huawei Technologies and other Chinese companies, resulting in a shortage of crucial components in the country. The effect is also spreading to suppliers in Japan and elsewhere that rely heavily on the Chinese 5G market.
"Demand for parts that prevent network disruptions is down," said Murata Manufacturing Chairman Tsuneo Murata.
"Several of our deals with China's Huawei Technologies have been discontinued since the summer of 2020," said another communications parts maker.
With China-related demand drying up, some suppliers, many of which are Japanese, are now shifting their focus to the U.S. and Europe.
Sumitomo Electric Industries will double its research and development staff in these markets by March to meet client requests there quickly. It also began operating a factory in the U.S. in September that produces chips used in 5G base stations.
China now accounts for about 90% of Sumitomo Electric's overseas revenue from base station components. The Osaka-based company aims to increase the U.S. and European share to about 50% from the current 10% in five years.
Nippon Electric Glass will launch a sales team dedicated to the U.S. and European markets as early as 2022. It currently sells about 90% of its optic fiber parts to Chinese factories, and wants to make further inroads in other markets.
Meanwhile, Huawei and other Chinese players have ramped up in-house production of components. But it will likely take years for demand in China to recover, predicts Antoine Bonnabel at French research company Yole Developpement.
Still, the Chinese government plans to aggressively invest in sixth-generation wireless technology. The push toward in-house production could mean lost business opportunities in the future for Japanese suppliers.
"The Chinese side will not accept a stance of shifting to the U.S. and Europe whenever the need arises," said University of Tokyo professor Tomoo Marukawa, an expert on Chinese industry. "They will need to adopt new strategies to deal with decoupled supply chains in the U.S. and China, like ensuring that procurement and production can be completed within China."