'Explosive 5G growth' tipped as China targets Industrial Internet

(ATF) Xiao Yaqing, the Minister of Industry and Information Technology, says a comprehensive 5G network will be built during the 14th Five-Year Plan period, which runs till the end of 2025.

Speaking on CCTV, Xiao Yaqing said the integration of various industries, enterprises and other areas will speed up in the future, and more innovative content will be generated. He vowed that China would protect intellectual property rights and promote healthy and orderly development of the Industrial Internet.

The roll-out, which has been hampered by US bans on computer chips to tech giant Huawei, will not only provide more applications, but also more carriers, platforms and integration space for economic development.

This year’s work report the government proposed it would “increase the construction of 5G networks and gigabit optical networks, and enrich application scenarios. The average broadband and dedicated line tariffs for small and medium-sized enterprises will be reduced by another 10%,” it said.

With the development of communications infrastructure and digital China construction, the market expects the boom in the sector to continue to pick up. And 5G is expected to usher in “explosive growth” in mobile phone orders, but there is a short supply of spare parts.

2020 was a year when China’s roll-out of 5G mobile phones began accelerating. The phone companies caused an “order wave”, and companies both upstream and downstream in the industrial chain benefited significantly. But due to tight production capacity, many companies have extended the lead time for orders in hand, while slumping to their lowest output level in recent years.

The mobile phone industry chain has become lively despite some 5G models frequently being out of stock.

Data released by the China Academy of Information and Communications Technology shows that in 2020 the proportion of 5G mobile phone shipments in China rose month by month, from a low of 26% in January to 39% in April, 46% in May, and 61% in June. The proportion rose to 68% in January this year, when shipments reached 27.28 million units, a new monthly high.

The industry believes that with further deployment of 5G base stations and the emergence of more 5G applications, 2021 will be a year when the 5G industry chain will “fully explode”, Guanming Daily said.

Communication stocks perk up

Last year the communications sector was generally in the doldrums. However, the sector has become popular since the Spring Festival.

After the Spring Festival, the GEM index fell 20% overall, but the communications sector bucked the market and rose 9.7%, with the industry’s top five gaining in one fell swoop. Among them, Bangxun Technology surged close to 157%.

Among 116 communications stocks, only 11 fell. And on the Hong Kong stock market, China Mobile, China Telecom and China Unicom have risen by 27.3%, 23.3% and 13.7% respectively since the beginning of the year.

As of March 8, 76 of the stocks in the sector had announced their results and forecasts, with “43 pre-happy and 33 pre-worried.” But 20 of these companies expect net profit growth to exceed 100%.

Opportunities ahoy

Wu Chaoze, director of China Securities Research Institute at China Securities, said 5G and Gigabit optical networks, including the recently very hot cloud computing, are a vital underlying tool for the future of industry digitisation and the Industrial Internet.

In terms of investment opportunities, he was mainly optimistic about two ideas. One is fibre-optic cables brought by 5G and gigabit broadband, including operators tied to “shovel-selling” companies. With continuous investment opportunities, the current valuations of these companies are relatively cheap.

Another idea is to follow these scenarios to find new directions. For example, in the Industrial Internet, he was more optimistic about industrial software, including artificial intelligence-related applications and scenarios. “I think that after 2021, with the gradual implementation of 5G commercialisation, we will see more and more substantial downward implementations,” Wu said.

Song Jiaji, chief analyst of Guosheng Securities Communications Industry, said: “Focusing on the ‘Two Sessions’, in the government work report and committee proposals, we see that communications infrastructure and digital China have become hot spots in the near future. Communication infrastructure mainly emphasizes 5G construction, gigabit optical network and Industrial Internet.”

China has entered a period of large-scale 5G construction over the past two years, and major cities have already got 5G signals. Song believed that 5G construction by the three major operators across the country would further accelerate growth.

Gigabit optical network can be seen as an upgrade of broadband China, and should further enhance the experience of fixed network users.

Industrial Internet is a key link of 5G for business users to promote a digital upgrade of their industry. It will be a core link for communication applications and 5G applications over the next few years.