After the establishment of the mobile telephony infrastructures in Europe and the US during the 1990ies, the Asian mobile markets, especially China moved into the focus of industry and policy. The policy makers in China were well aware on the one hand that the large Chinese market was able to serve as a base for the establishment of a mobile telecommunication standard as a tool for supporting the development of the national industry. On the other hand, they also perceived that the technological capacity of Chinese firms ten years ago was not sufficient advanced yet to elaborate a China-specific mobile standard that might eventually be competitive at international markets. However it is not clear that there was a rational and concerted policy process across the Chinese government with regards to telecommunications: one would argue that telecommunications policy and industry policy were operating rather separately.
In order to build the national mobile networks, the state-owned operators bought systems almost exclusively from foreign suppliers, bypassing local firms. With the opening up of Chinese markets upon joining the WTO in 2003, these foreign firms, such as Siemens, Alcatel and Ericsson, invested significantly in Chinese development and manufacturing. Arguably the joint venture policy (rather than complete ownership) enabled a degree of technology transfer and learning from these firms to local business.
Operators in China built networks using a range of 2G standards on the US model, partly under pressure from the US, again related to entry to the WTO. However in the move to 3G, a policy of supporting ‘Chinese’ standards TD-SCDMA, as an alterative to the UMTS and CDMA2000 gradually gained attraction across the Chinese government, linking industry, telecoms and security policy objectives. The relatively low investment in TD-SCDMA over the years meant that the issuing of 3G spectrum licences obliging use of TD-SCDMA would need to be delayed until it was sufficiently developed and tested: a delay which prevented the largest operator, China Mobile, from deploying a UMTS service. The eventual decision to impose the development of 3G based on TD-SCDMA on China Mobile a rather unwelcome decision for that company. In contrast to the European decisions in the 90s to mandate the use of GSM and UMTS, under the new telecoms industry regime introduced in Jan 2009, three operators, two much smaller than China Mobile in terms of existing mobile coverage, will each implement a different standard.
Meanwhile two of the Chinese telecoms vendors Huawei and ZTE made considerable strides in developing technological competence, innovative products and economic manufacturing for the international market for non-TD standards (since they did not supply the Chinese market). Huawei in particular is now one of the dominant global firms in this business, and clearly reached this position without benefiting from the TD-SCDMA policy. However others would argue that the confidence and experience gained by a range of R&D partners in developing TD-SCDMA will stand them in strong stead for future development and in particular, participation in global standards setting processes.
The development so far has shown that Chinese ICT companies are meanwhile able to compete successfully at the international markets even without national support via the establishment of an own Chinese standard. The lessons to be learnt for European companies and policy makers are the following. China has besides rather low labour cost and a high supply of qualified employees with its large market volume for ICT products and services an important strategic asset, which can be used twofold. First, the Chinese market is big enough to establish an own Chinese ICT standards besides standards in Europe and the US. Second, this market is so attractive that foreign technology providers are interested in investing in R&D together with Chinese partners in order to benefit from the future dynamic market development. The history of mobile telephony shows that the second strategy is much more successful for China because there is risk for Chinese policy makers to pick a technology not strong enough in its performance and eventually not accepted at international markets. Furthermore, focus-ing on an idiosyncratic Chinese solution deprives Chinese companies in their competitiveness at global markets, which was the case for the former German telecommunication companies before the opening of the telecommunication sector to competition. Consequently, European companies are forced and – after China’s entry into the WTO – able to establish efficient R&D collaboration structures with Chinese companies in order to appropriate shares of the large and growing Chinese markets, but have to design carefully the related business models in order to generate a positive return of investment.
The results are based on research conducted within the China-EU Information Technology Standards Research Partnership (www.china-eu-standards.org) funded under the European Union 7th Framework Programme.
