As published in Fierce Electronics, March 24, 2020.
We have come a long way in a short time since COVID-19 emerged from Wuhan, China late last year. The virus has stealthily yet rapidly evolved from a provincial epidemic to a pandemic that is suffocating the largest and the smallest of economies around the globe.
Early on, and even now, the prevailing hypothesis, at least in the United States, has been that global supply chains for anything from face masks to smartphones will shift away from China as companies around the world reassess the risk of having their supply chains so heavily dependent on China. Especially in light of the U.S.-China Trade War and the U.S. war on Huawei and China’s tech industry that dominated the headlines before Covid-19 stole the spotlight, this notion might have made sense. Things are different now.
Recently, China experienced five consecutive days of no new COVID-19 cases. As of March 19, about 70,000 of the 81,000 have fully recovered with about 7,200 cases still active, according to China’s National Health Commission. At the same time, the United States’ COVID-19 story is only in its first chapter after a long prologue during which the virus could spread unfettered for weeks. Test kit snafus by the CDC and delayed testing have put the United States in a reactive mode that is progressively suffocating the economy, prompting the Fed to expend its last remaining monetary bullets.
The epidemic is also driving the U.S. government to rally around what might be a $2 trillion stimulus/disaster relief package to shore up the U.S. economy during the White House’s “15 days to slow the virus” campaign. But the spotty and fragmented lockdowns across the country could be instituted for weeks or months by policy or public fear of a persistently “invisible enemy.”
So, where does that leave us with the global technology supply chain that has been so squarely rooted in China for the last couple of decades? Don’t expect much to change. If anything, China has demonstrated a very important trait that is critical for any supply chain partner—resiliency and the ability to quickly recover from a catastrophic event such as a pandemic by “killing the curve.” By the numbers, China has managed to rein in their COVID-19 outbreak by acquiring control of the virus spread within a month of instituting their draconian containment and mitigation regime.
Being the first country to grapple with and ultimately tame COVID-19, China has placed its economy in pole position for a controlled restart and recovery with work at large industrial and state-owned enterprises reaching up to 90%, according to China’s Ministry of Industry and Information Technology. This comes after the country experienced significant economic contraction in January and February.
While a dramatic fall in global demand over the next few months will present a challenging headwind for economic growth as China’s major trade partners are paralyzed by the COVID-19 pandemic, China is estimated to post positive growth for the year with economists predicting GDP growth in the 2 percent range, a significant drop from the 6.1 percent growth that China enjoyed in 2019.
But with the worst of the pandemic over for China, it is quickly moving to fill the leadership gap left open by the United States which is now coping with what appears to be a massive spread of the COVID-19 virus across all 50 states, with about 52,000 known cases as of this writing with over 660 deaths. China is now actively going to market with best practices, lessons learned, resources and equipment to aid other countries in their fight against the pandemic.
Many of these countries just happen to be along the New Silk Road and are important trade allies and partners in China’s Belt and Road initiative which was adopted by the UN Security Council as Resolution 2344. China has offered or is currently providing support to EU markets such as Italy, Greece, Germany, Spain and France which have been recent battlegrounds in Washington’s war on Huawei. Each of these countries has pushed back on pressure from the United States to ban Huawei equipment from their telecommunications networks.
China’s ability to garner favors among the United States’ NATO allies is accelerating the realization of the Health Silk Road which was proposed by China to the World Health Organization (WHO) with a Memorandum of Understanding signed in 2017. This project, which is closely associated with China’s Belt and Road Initiative, has aimed to establish economic cooperation between countries along the New Silk Road for, among many things, the prevention and control of communicable disease-related epidemics.
As the current pandemic crisis provides China with an opportunity to execute on and live test many aspects of the Health Silk Road objectives over the next few months, the country is poised to galvanize its position as the world’s manufacturing center for electronics and other goods and as a trusted and reliable trade partner for Belt and Road members. As China ramps up its industries, it will be, for a time, the most scalable manufacturing base for the world as economies across the world are shackled by the pandemic but need resources to fight the spread of the deadly COVID-19 virus.
On the all-important 5G front, a stabilized China and its telecom operators will likely be able to continue their drive toward evolving their infrastructure toward the next generation network while cash-strapped European and U.S. operators will face significant challenges to sustain their 5G and edge cloud investments as consumer and enterprise spending collapse over the next two quarters or more. Unless the United States and the EU can gain control of the pandemic in their respective countries before deep economic damage is incurred, China will likely pull ahead in the race for 5G supremacy this year.
While this prognostication of a post-COVID-19 future may not sit well with many, one thing is glaringly obvious—the United States and its traditional allies are not faring well and have demonstrated that they are ill-prepared to handle a catastrophic natural disaster such as the current virus pandemic. They are not in control and appear to have limited ability to avert the protracted suffocation of their economies that accompanies the stringent containment and mitigation regimes needed to “flatten the curve.”
For the United States and its technology industry, much will depend on how the U.S. government deals with the pandemic. The stakes could not be higher to get it right. But all signs point to China attaining a new reputation of resiliency as a global nexus of manufacturing for technology and other products that it has earned by controlling the virus and killing the curve.
For more insights on neXt Curve’s 5G Evolution & IoT End Markets and our Semiconductor End Markets research themes contact us for a detailed briefing with one of our analysts. Follow our site to get updates and notifications of our research and our 2020 research agenda.
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Managing Director, neXt Curve
March 24, 2020
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