China tries to establish homegrown tech rules
By Dan Gillmor
Mercury News Technology Columnist
Posted on Sun, Dec. 14, 2003
HONG KONG - Early this month, China's government mandated an encryption standard for wireless data communications. It may force U.S. and other Western companies into unwanted joint ventures with Chinese companies if they want to sell computers and other WiFi-equipped technology in the world's most populous nation.
The move drew largely justified howls of outrage from American technology companies, because there were some protectionist aspects to the way Chinese officials handled the new rule. But the standard also should be seen in a context that may, in the long run, be even more important than trade-rule gamesmanship.
Today's vital technology standards are largely controlled by companies and consortia from the developed world. China and other nations effectively pay taxes to American, Japanese and European companies in order to use these standards in a variety of fields including computers, communications and personal technology.
But China, unlike other developing nations that lack its growing clout on the global stage, isn't planning to keep paying these taxes. It's political-economic establishment is absolutely determined to set its own path in the Digital Age.
China isn't just reluctant to pay what amount to taxes to the developed-world owners of global technology standards. With the largest domestic market on the planet, at least potentially, plus an increasingly creative and well-educated workforce, China is creating its own competitive set of standards for its own market, although the global potential is obvious.
After some false starts, for example, China is adopting open-source software in a big way. The government, working with software companies, major universities and even other governments in East Asia, is pouring resources into the Linux operating system and related applications.
The Chinese effort goes far beyond simply replacing the costly Microsoft Windows as the operating system of choice. Other proprietary software, including Microsoft's ubiquitous (at least in the West) Office product, is ripe for replacement.
Another example: In November, China announced it was going to create a video-disk standard to compete with the DVD standard, which is owned by a consortium of home-entertainment manufacturing companies in Japan and the West. Early versions of China's Enhanced Versatile Disc, or EVD, are using some technology from American companies. But Chinese officials say they want homegrown technologies wherever possible.
EVD is much more about the next generation of video recording and playback devices, not the current one. And again, it could save Chinese companies enormous amounts in royalties currently paid to owners of today's standards -- and boost business for Chinese video-machine makers at the same time (not that China's manufacturing sector needs much boosting at the moment).
Fundamental high-tech hardware, including microprocessors, is hardly immune from this trend. China's semiconductor researchers and manufacturers are working on chip designs that, in theory, could reduce or ultimately even eliminate the need to buy Intel's chips.
The ``Dragon Chip' -- a homegrown processor running Linux -- made its debut last year. There hasn't been a lot of news about it since then, and semiconductor companies such as Intel continue to sell and invest widely in China. But Dragon and upcoming processors developed and made in China are plainly aimed at reducing if not ultimately eliminating the reliance on, and the cost of, outside technology.
Another long-running effort at developing homegrown technology is China's next-generation mobile phone standard, known as TD-SCDMA. It is widely viewed as inferior to competing standards and has no traction outside of the country. Even Chinese carriers are hedging their bets with other technologies.
But adopting the technology (co-developed with Datang, a Chinese telecom company, and Siemens, the German equipment maker) has brought benefits anyway to China, says Peter Lovelock, director of MFC Insight, a research firm in Beijing. Lovelock and his colleagues keep especially close tabs on the nation's telecommunications markets.
TD-SCMA was about many things apart from avoiding unnecessary royalties, he says. It helped China learn the ins and outs of global standards-making bodies such as the International Telecommunications Union. It has helped jump-start a variety of related domestic industries, including the manufacture of chip sets for mobile phones, spectrum management and other developments ``across the value chain of the industry,' Lovelock says.
This month's wireless encryption standard stems, in part, from an ongoing failure on the part of the wireless data industry. WiFi has been notoriously insecure, and although the WiFi companies have been working on a solution, China's initiative can't be entirely denounced as unnecessary -- especially in a country that is increasingly relying on wireless data in its communications infrastructure.
I'm betting that global trade rules will overrule at least part of China's gambit on the WiFi encryption standard. But in the meantime, it could give a boost, however unwarranted, to the local industry. Rough tactics, but then again the U.S. hasn't been shy about blatantly illegal protectionist measures, either, when the political circumstances deemed to warrant them.
For the companies that hounded China for years to adhere to Western copyright and patent rules, there must be some painful irony when they observe China's recent evolution. When China was a haven for infringement, at least it was using our standards.
This will be long, long campaign. In the end, we're likely to see several globally accepted standards.
Maybe that will be a bit less efficient in some purist's sense. But it will be competition nonetheless, and customers always do better when there's more choice.
