Will President Trump pay China for Huawei’s 5G patents?

Do you remember when Japan was accused of stealing the West’s intellectual property, instead of developing its own? And then it was Taiwan. And then China.

These nations grew rich on the back of Western R&D spending, which was then stolen by Asian manufacturers with access to cheap labour. It amounted to an economy run on forgery.

At least, that’s how the narrative goes.

But it didn’t hold up really well. Because those nations eventually became cutting-edge tech developers too.

And now China has pulled a fast one on the world over 5G – the technology that could be integrated in everything from your shoe to your flying pizza delivery in coming years.

You see, China’s firms, such as Huawei, own a lot of 5G intellectual property. Which means that the rest of the world will have to pay to use it, even if Huawei doesn’t manufacture our 5G infrastructure.

“Even if they hire some other company to build the 5G infrastructure, they still have to pay the Chinese company because of the intellectual contribution to develop the technology,” explained Deepak Syal, director of tech firm GreyB Services Pte on Bloomberg.

It’d be amusing to see Western nations violate IP laws in the way China has for years. But it’s also unlikely. Although, with Trump and the trade war, you never know.

The point is that 5G’s rollout will be connected to China in some way or another, regardless of what Trump and Boris Johnson decide. The Chinese will get their pound of flesh, if they can.

Not that this need effect the investment case for UK speculators. In fact, it’s the hardware which our tech stock analysts focused on in their endeavour to help readers position themselves for the 5G boom.

You can find out which company makes the crucial piece of the 5G puzzle right here.

But there’s a broader theme at work. A crucial one for the tech investor. Because it’s not just 5G. It’s about tech and innovation itself.

If China transitions to a tech developing economy in coming years, just when we pick a trade war fight, what does that mean for tech investors here in the UK?

If tech innovations come from Chinese companies, how will you position yourself, let alone profit? Can you even do so?

But before we get to that, I’d like to examine the nature of the change going on. Because a warning signal just went off about that change. And it suggests our China fears might be unfounded.

I consider what I’m about to reveal to be one of the most reliable macroeconomic indicators there is. It signals the direction of long-term change in the economic order of the world. The wealth of nations, you might say.

What is the indicator?

It’s all about the language that gets taught at state schools in Australia.

Yes, I know. But bear with me…

I’m talking about the favoured language that Aussie education ministers launch curriculums for, to prepare future generations of Shanes and Sheilas for the global economy, whether they like it or not.

When I arrived in Australia as a teenager, I had a choice between studying German or Japanese. My sister didn’t get a choice – she had to do both for a while.

At the time, I couldn’t think of anything less relevant to me than studying Japanese. In fact, at the time, I couldn’t think of anything less relevant to anyone than studying Japanese.

The Japanese economy had been in a 20-year doldrums. Its demographics spelled further doom. And alternative languages all offered more promise. They might actually be useful…

Sure enough, about seventeen years later, I married a Japanese girl. And there are now four Japanese people living in my house… but that’s another story.

Of course, at the time the education policy to study Japanese in Aussie schools launched, the Japan-Australia relationship was booming. Trade with Japan surged. Japanese property buyers flooded Australia, let alone tourists.

But by the time school children who had studied Japanese their whole lives graduated, the Japan boom had turned into a bust. The Japanese property buyers stayed home. And long-suffering classroom hours became a big waste.

Which is why the Aussie education departments changed tack, eventually. China would be the booming economy of the future, they decided. And the country was already Australia’s top trading partner.

And so Mandarin Chinese became the mandated language to learn at school. I can only imagine what the Japanese language teachers thought of this, but that’s another story.

And the change is now complete in the state of Victoria. The Sydney Morning Herald reports that “Mandarin now most popular foreign language in Victorian state schools”. It’s less popular here in the UK, because of our ties to Europe, but there’s still a boom on here too. Mandarin is growing fast.

Today, I’m suggesting that this is an indicator of trouble for China’s economy. By the time Australia’s education departments are on to a trend, it’s bound to be over.

Then again, the school-language-indicator of impending decline works based on the delay in education policy as well as growing up too. So, by the time kids who have studied Mandarin graduate and hit the work force, the school-language-indicator predicts a bust in China.

I know that’s not a narrow timeframe. Still, it suggests that the China boom won’t last. Tech investors need not move to Shanghai anytime soon.

Before you scoff at the very idea of this indicator, consider some other similarities to Japan. The Chinese working age population has fallen for seven straight years now. By 2050, the country will lose about 200 million working age people – one and a half times the population of Japan!

If I’m right and China’s short-lived tech boom is on struggle street already, UK tech investors may not have to rethink their portfolios quite so much…

Either way, having a stake in 5G as it booms is an integral part of any tech portfolio. The real question is how.

Do you buy Huawei? Or this little company that holds the secret to making 5G function in every device that will connect to the network some day?

Nick Hubble
Editor, Southbank Investment Research

Category: Technology

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