This article is co-authored by Anne Layne-Farrar and Vanessa Yanhua Zhang (bio Here)
In the past decade, Chinese companies have aggressively invested in R&D as a path toward meaningful participation in domestic and international standard setting. These efforts are aligned with broader Chinese ambitions to transform the domestic industry structure from “made-in-China” to “innovated-in-China”. This transformation will leverage China’s influence in the global economy community via the nation’s intellectual property rights (IPR) and standardisation strategy, which is part of its overall industrial policy.
It is clear that IPR plays an important role in China’s industrial policy and economic development strategy. With heavy investment in R&D and a phenomenal rate of Chinese patent filings, IPR is a key input into global standards and an important pre-requisite for equal acceptance at the standard setting table. However, until IPR enforcement becomes more reliable in China, domestic innovators will not reap the rewards of “innovated-in-China” in terms of domestic implementation – which given the size of the Chinese market is a huge loss. While the Western world has been skeptical of China’s seriousness when it comes to IPR enforcement, when viewed through Chinese interests increased participation in standard setting could be the catalyst the Western world has been waiting for to get China to honor global IPR.
Obviously, government is an important strategic player in China’s standard setting policy. China is not the only government to intercede in standard setting; many European efforts have a government influence too (e.g., European mobile telecom spurred by government mandate, which dictated a single standard). Nevertheless, China has tended toward a heavier hand than other jurisdictions. As the Chinese government is learning, though, such an aggressive approach can backfire, as was the case with WAPI, the locally grown encryption standard. In late 2003, China attempted to dictate the use of WAPI for all wireless networking equipment to be sold in China, but only a dozen or so Chinese firms were authorized to incorporate the proprietary WAPI technology into products. Not surprisingly, foreign-based firms balked at disclosing sensitive company data to Chinese firms for use in what was essentially a black-box technology. The dispute escalated to a government-to-government confrontation and China quickly backed down in early 2004.
With the WAPI experience fresh in its mind and with a taste for greater influence on the world stage, increased participation in standard setting could help to lead China to moderated government positions and improved international cooperation. A less draconian stance is in the country’s interests as well, greater reliance on market mechanisms rather than government intervention is the stated goal for industrial policy in China.
Given the size of China’s market, it is obviously a major playing field for multinational organizations. The more that large global firms have a presence in China, the more likely it is that local Chinese firms interact with them and thus enter the global industrial ecosystem. As many scholars have already observed, many Chinese firms may actually be more interested in the standards established by global technology leaders than those set by the Chinese state. Naturally, market-driven solutions may be more attractive to industry, even those based in China, than top-down solutions suggested by government. Implementing and participating in global standards further pulls Chinese industry into the world economic system. Thus, increased participation in standard setting could lead to a greater alignment of domestic and foreign industry needs (recognizing that all nations have domestic interests).
As a final observation, note that there is a subtle relationship between China’s standard setting efforts and its new Anti-Monopoly Law (AML). The AML and the provision rules issued by antitrust enforcement agencies all cover anti-competitive behaviors involving technology standards. To be successful, therefore, China’s standardisation policy will need to be aligned with the AML and the provision rules. Since the antitrust enforcement agencies could not play their roles independently – due to China’s bureaucratic structure – they will likely need to cooperate with the regulators of standardisation policy to better implement the AML.
