Is China Standardisation playing different game as other giants?

posted by Philippe Cousin on Wednesday, October 7th, 2009 at 4:55 am

We are afraid today about important economy using standards as barriers to trade or as imposing views on other parts of the world. But is that different behaviour than other large countries did in the past or still do?

Photo: sHzaam!

It is worth reminding that US developed and promoted ADSL standards as an ANSI standards and using this technology for their local market where the network was not too much “digitalized” as compared to EU which pushed for symmetrical ISDN technology. At the end ADSL was a worldwide standard and killed ISDN.

What is strange in people’s mind, they understand that Japanese or US companies are everywhere with IPR and not mentally ready for the same approach from Chinese companies but at the end, China will use same business tools and tricks. This approach is “WTO compatible”, much more long term and strategic.

Therefore I am personally thinking that Chinese government will not go for local protectionist and not go for too many Chinese standards. China wants to play same game at worldwide level and why not promoting Chinese IPR into global standards.

For instance, Chinese discontent with the forced reliance on foreign audio-video IPR led to the development of the AVS standard. First developed in 2002, AVS is based entirely on IPR owned by China. It was set as a national standard in 2005 in order to reduce license payments to foreign companies (see factsheet).

This is the most predominant example of the Chinese ambition to export its standards onto the international market. The implications are that even if the large domestic market is used for initial deployment and strengthening standards, the end goal is certainly not to isolate the country by making it dependent on unique standards.

The main issue remains for the Chinese government to find a proper and fine-tune balance between all parameters and this is not an easy task.

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recent DISCUSSION

• Baisheng An says:

  It is scary to note that you have done awfully good researches on China. In an OECD presentation, I said I personally did not agree with too much support and intervention by governments (Chinese government in that context) since for the long run open for foreign investment and maintaining a competitive market environment are of vital importance. My idea might be more market orientated and less friendly to government support though I believe chinese government needs to intervene for specific cases such as the highly controversial WAPI. My idea might have surprised the OECD officials attending that presentation. They may want to support more government intervention than I do? What I want to tell by telling this story is that China is paying much attention to the long term development based on fair competition and market mechanism and that intervention may not be as prominent as your have imagined. Intervention may more of a trade issue to balance intervention by other governments or monopolistic situation in world market but not part of long term sustainable development policy. Even the Chinese government wants to intervene, it have to make it smart intervention. Otherwise, it will die within China.
• Mattias Ganslandt says:

  Philippe, I agree. There is no reason to believe that Chinese innovations will not increase in importance in the ICT sector. Given the dynamic and decentralized nature of innovation in particularly the software industry, where private VC and SMEs are quite important, I would argue that further institutional change is probably needed before the Chinese economy can realize its full long term potential. In the meantime, Europe and the US has everything to win from including and involving China in as many rule-based global systems as possible, such as WTO, WIPO and international standardization bodies, formal and informal.
• Philippe Cousin says:

  I like your answers and agree globally with them. I like the good summary of presenting the complexity and conflict as presented by Niklas and Kennedysiu. All arguments are corrects and my view is that other players either companies or countries where in same position and use to play same game. May be as stated by Mattias in (i) , government is (more) active in China but company such as Huawei became number 1 in may fields with business logic on their own and provide major influence in China too. Following IEEE power , role of NIST, US massive support in some field, I am still not convince other countries are not doing the same. Standardisation is to support innovation and therefore very connected to business and strategic elements. EU in 9 billions € to be injected in FP7 ICT R&D programme made clear on the importance of standardisation quite mandatory to be adressed by all R&D projects. Concerning Mattias (ii) item , I have the feeling that good business is again a matter of proper receipe of paying external/foreign IPR and creating its own value and eventually IPR. Chinese might have less worldwide IPR in ICT products and I don’t see why this would not change. At that end , you all are right and demonstrate the complexity and the variety of approaches of the standardisation process more in the hand of the market stake holders as a market driven process.
• Niklas Lindblom says:

  One interesting aspect is that Chinese policy makers seem to be in somewhat of a conflicting position. On the one hand, they want to keep foreign technology out of China in order to build up a momentum in their indigenous innovations. On the other, they need (as kennedysiu points out) industry allies outside of China to be able to “launch” their technology globally. Since they are aiming for a leading position on the international scene China has to find the right balance which allows them to develop strong standards and test them domestically, and at the same time avoid alienating foreign companies as not to be shut out of the global community.
• kennedysiu says:

  China’s standards strategy has two elements: promoting the adoption of complete Chinese standards and having Chinese contribute elements to collective standards efforts. Most of the attention has focused on the first, e.g., TD-SCDMA, WAPI, AVS, IGRS, etc. In fact, Chinese companies, particularly in telecom, have been much more successful in contributing small elements to broader efforts. One of the best examples is Huawei’s contributions to 3GPP. Regardless of which approach, the reasons for success are similar: when the Chinese push a highly distinctive standard with little support from suppliers or downstream sectors, they more often than not fail. Success comes most often when they offer incremental standards for which they can find industry allies outside China. Hence, while there are a variety of cases where it looks like Chinese pursue mercantilist strategies — which do share some characteristics with efforts others have already mentioned — that approach is least likely to succeed. If China has shown anything over the past 30 years, it is that they learn from their mistakes, and Chinese are being “socialized” through failure and success to play the game in a more open way with greater possibilities for win-win outcomes.
• Niklas Lindblom says:

  Philippe, Your input makes a valuable point. Western governments have also used certain “tricks” in order to support their own “indigenous innovation” and still show varying degrees of involvement in private matters. So the problem seems to be that the behavior of Chinese authorities for some reason chocks the rest of the world. I believe that what is hard to handle is the outspokenness of Chinese policies; such direct government involvement is rarely seen in Western countries. But considering that the behavior of Chinese authorities may not be not too different from what Western governments have done, why are China’s actions so much more hurtful? Considering all government initiatives and incentives, it seems as if no innovation or development is possible without the governments “blessing”. This is in my opinion the part that is hardest to accept.
  Further, I don’t doubt that the Chinese have the ambition to export its indigenous standards and other technologies, anything else would just not make any sense. But the matter at hand is by what means they are positioning themselves. The sheer size of the domestic market provides a valuable starting ground for deployment and development of standards, making them competitive with globally adopted ones. But exclusion of foreign technology should not be acceptable in order to prop up domestic firms (neither is it ok when Western governments set up barriers).
  Considering the amounts spent on R&D projects in China, and the scope of the collaborative projects; is it not very much likely that China will become a major international player in the field of technology even without these exclusive actions?
• Mattias Ganslandt says:

  Philippe, While I agree with your general point that one should be careful not to exaggerate the Chinese interest in using ICT standards strategically, I would still like to stress a few points: (i) the general political involvement in high-tech industries in general and high-tech research in particular appears to be significantly greater in China than in Europe and the US, (ii) the reluctance to pay for foreign IP – whether included or not in standards – is well document and the development of national standards can be seen as a strategic measure to reduce the transfer o rent to foreign innovators, (iii) the fact that Europe and US sometimes pursue strategic industrial policies and other strategic policies that are unilaterally tempting but detrimental for global efficiency is not a good argument for China to do the same. /Mattias