China Sees a New Way To Steer Tech Market:Touting Own Standards 2004-04-23 The Wall Street Journal Excerpt: 1.　Shanghai's Fudan University is providing key technology to the EPC effort, but Chinese policy makers envision a bigger role for China. A working group set up by the government is in talks with two dozen multinationals to define an RFID standard for China, with a pilot project in the works to test globally available technologies by tracking inventory from Chinese factories to warehouses in the U.S. and Europe, and then cherry-picking parts of different technologies to cobble together a made-for-China standard. Edward Zeng, a member of the working group who runs Beijing-based business-to-business trading company Sparkice Inc., says he believes that eventually, several countries, including China, the U.S. and Japan, could emerge with their own local standards that would be able to talk to each other. "China is the new economic co-driver and manufacturing center of the world," Mr. Zeng says. "We're not setting the global standard, but we'll at least become a co-setter of global RFID standards."... Standard  What  Who  Foreign Involvement WI-fi Encryption  Compulsory security standard to be applied to all wi-fi products sold in China,originally effective June 1 but now shelved indefinitely  Xidian University Iwncomm and other Chinese institutions and companies  Minimal RFID  Made-for-China standard to govern radio-frequency identification-tagging technology that would be compatible with global standards  Sparkice, government-sponsored working committee  In talks with multinationals to test "best of breed" technologies AVS  Compression technology standard that offers an alternative to the global MPEG-4 standard  Eighty-odd companies and institutions, led by Chinese Academy of Sciences computing-technology institute  Microsoft, IBM, Intel, Sony, Panasonic, Nokia, among others, contributed know-how 3G  China's third-generation mobile standard that is vying with standards set by Europe and U.S. Qualcomm  Chinese Academy of Telecommunications Technology  Siemens tamed up with Chinese researchers to develop TD-SCDMA technology EVD  An enhanced video disc standard that China is promoting as a next-generation DVD system  E-World Technology  New York's On2 Technologies provided a chip central to the standard  2.　Other parts of China's bureaucracy are taking a more open and flexible approach in setting standards. In 2003, China was poised to introduce its own national product-code system, but decided to shelve implementation when it found out from the Internet and through foreign partners about the RFID technology, which was more sophisticated than, and possibly incompatible with, its planned system. Beijing's decision to return to the drawing board wasn't popular in many circles in China, with conservatives arguing that China should push ahead with its own system and others saying it should simply adopt the international standard. Mr. Zeng, the China RFID group member, says he personally lobbied three government ministers to take a middle road. "We could become nationalistic and self-centered and isolate ourselves, or we could...become an RFID colony," he says. "I said we should have compatibility with the international standard while having our national intellectual property." Mr. Zeng's office is a testament to his philosophy. Hanging on one wall are three diagrams identifying existing and potential leaders in both RFID software and hardware around the world. Pointing to one featuring colorful concentric circles labeled with the logos of international companies, he says he updates it each week, "so we know which companies are driving the stuff and which companies could be players because they have useful technology."... Full Text: XIAN, China -- In 2001, a group of researchers in this ancient city quietly embarked on a project to better protect wireless Internet systems from potential hackers. Their effort was little-noticed by the outside world, but it received a surprising amount of attention at home: Jiang Zemin, then China Communist Party chief, personally visited Xian to inspect the equipment being developed by the research team. In July 2003, high-ranking officials flocked to a news conference held by the researchers in an exclusive state guesthouse in Beijing to unveil their home-grown data-protection process. State television played up the news, and several months later, authorities ordered all Chinese and foreign vendors of Wi-Fi, or wireless fidelity, products in China to conform to the new standard by this June. Intel Corp. said it could be forced to stop selling some computer chips in China because it couldn't meet the deadline. Nokia Corp. said it also wouldn't sell a new phone model because it used Wi-Fi technology incompatible with the new Chinese standard. For China, the development marked a watershed. Even while Beijing has cited security concerns as the reason for enforcing its own wireless-encryption standard, it, in fact, represents the first volley in an ambitious, new stratagem: As China becomes an increasingly important player in global trade and diplomacy, it is also pushing its own technical standards on a wide range of fronts, affecting products from third-generation wireless phones to compression technology to inventory-tracking tags to Internet-related software. Facing anger from companies like Intel and Nokia and pressure from the U.S. government, China agreed on Wednesday to indefinitely shelve the home-grown encryption standard. But it said it would continue to work with international bodies to set global standards, and some policy makers in China suggest the country could present the encryption standard to one such body with the aim of pushing it as the global standard. Unsettling Message The dispute over the encryption standard shows how China, propelled by nationalist pride and a desire to decrease reliance on foreign technology and level the playing field with foreign rivals, is shaking up the global standards game. And its push to set its own technical standards is sending an unsettling message to U.S. companies: In a world moving toward globalization of production and trade, the rules are sometimes set elsewhere. The European Union now affects corporate strategies as it sets rules on everything from genetically engineered crops to antitrust issues. China's new assertiveness is of special concern because the nation is both the world's factory floor and the world's biggest market. China is saying, "If you want access to my market, you have to use my standards," says Chen Yuping, a director at the Ministry of Information Industry's research institute in Beijing. Adds Fang Xingdong, a high-tech consultant: China's huge market "is ours, but we've been passive, not proactive. To negotiate with the other side, we need our own cards to play. Standards are China's cards." China is a latecomer to the standards game. Traditionally, it has held relatively few patents of its own, and so often has had to pay high royalties to use components and software developed by others. Having its own standards can strengthen China's hand when negotiating royalties or technology transfers. The strategy also allows China to claim early ownership of an emerging technology and gives domestic industries a head start over foreign rivals in the marketplace. The ramifications of China's standards strategy ultimately could sweep across many industries and affect companies around the world. Some foreign companies fear that other countries could follow China's lead and try and set their own standards, slowing global high-tech development. "It could definitely have a snowball effect," says Frank Ferro, director of Agere Systems Inc., a U.S.-based maker of chips used in communication equipment. "There are lots of industries where China's market is leading, like cellphones and DVDs," says Anne Stevenson-Yang, head of the Beijing office of the U.S. Information Technology Office, a Washington-based industry group. "It's natural for Chinese companies to emerge as leaders in setting standards in those areas. But you want to do it through inducement, not dictate, or you'll cut off your companies from export markets, international customers and collaboration in technology." Bigger Role Desired China's growing importance as market and manufacturing base is driving its efforts to influence global standards for radio frequency identification tagging, or RFID, which is a more upscale version of bar codes. The promising new technology transfers small bundles of information embedded in products to special wireless readers. The technology is being adopted by companies like Wal-Mart Stores Inc. to track inventory. China's efforts to develop its own RFID standard are taking place alongside similar efforts by global players, including the Electronic Product Code group, which is owned by EPCglobal, a joint venture of Europe's EAN International Inc. and the Uniform Code Council of the U.S., manager of the bar-code system. TECHNICAL COMPETITION China hopes to influence world standards for digital technology. Among the areas it is targeting: ? Rfid: Made-for-China standard to govern radio frequency identification tagging technology that would be compatible with global standards. ? Avs: Digital-compression technology standard that offers an alternative to the global MPEG-4 standard. ? 3G: A third-generation cellphone that is vying with standards set by Europe and Qualcomm of the U.S. ? Evd: An enhanced video-disc standard that China is promoting as a next-generation DVD system. Shanghai's Fudan University is providing key technology to the EPC effort, but Chinese policy makers envision a bigger role for China. A working group set up by the government is in talks with two dozen multinationals to define an RFID standard for China, with a pilot project in the works to test globally available technologies by tracking inventory from Chinese factories to warehouses in the U.S. and Europe, and then cherry-picking parts of different technologies to cobble together a made-for-China standard. Edward Zeng, a member of the working group who runs Beijing-based business-to-business trading company Sparkice Inc., says he believes that eventually, several countries, including China, the U.S. and Japan, could emerge with their own local standards that would be able to talk to each other. "China is the new economic co-driver and manufacturing center of the world," Mr. Zeng says. "We're not setting the global standard, but we'll at least become a co-setter of global RFID standards." China hopes to sell another home-grown standard, for video-compression technology, to the rest of the world, touting a superior technology and simple licensing system. Currently, the world's most widely used compression technology -- which turns audio and visual signals into digital ones and is crucial for Internet data-streaming and high-definition digital television -- is MPEG-2, although the Los Angeles-based MPEG working group has rolled out a newer version, MPEG-4, that hasn't seen widespread adoption by broadcasters because of its onerous licensing terms. 'A More Urgent Matter' Gao Wen saw an opportunity for China. The urbane computer scientist with a penchant for designer polo shirts has led China's delegation to MPEG forums since 1997. He spoke up at a monthly brainstorming session of scientists at a mountain hotel outside Beijing in March 2002. The billed topic was how China could promote the media-streaming industry by strengthening copyright protection. But Mr. Gao argued that "we have a more urgent matter to talk about: China needs to have its own [compression] standard." Recalls Mr. Gao: "We felt that we could do this because the market is so big and the manufacturers are all here." Mr. Gao says the Chinese standard, created with the help of multinationals like Microsoft Corp., Cisco Systems Inc. and Nokia, is not only technically superior to MPEG-4, but also offers a better licensing deal. Manufacturers that want to license MPEG-4 must negotiate fees separately with each patent holder, a potential problem for China's mostly smaller manufacturers, which lack the financial resources and personnel to undertake such negotiations. The Chinese standard, Audio Video Coding Standard, or AVS, in contrast, offers "one-stop shopping," with licensors required to deal with one licensing body, Mr. Gao says. To help jump-start the industry in China, he says, the group plans to initially charge a royalty fee of just one yuan, or about 12 U.S. cents. Beijing's standards ambitions don't necessarily mean bad news for foreign companies. Many are eager to partner with China since such alliances can benefit both sides: China can grab onto new technology to advance itself, just as Japan and South Korea have done in the past, while foreign companies gain access into China's huge market. Nokia, for one, is already working with China to develop a standard for the next-generation Internet, which will have a much bigger capacity for IP addresses than the current generation Internet, among other qualities. "Nokia would like to help China develop any global standards," says Ma Jian, a manager at Nokia's research center in China. The push to influence global standards has opened up an internal debate in China with strong nationalistic and national security overtones. For many Chinese, the issue has become one of nationalist pride, not technical merit. "Why should we comply with those standards made by Americans?" argued one online poster during a recent bulletin-board discussion about the wireless encryption standard. "In their eyes, American domination is the most reasonable standard." At a meeting in Xian last fall between the Xian standards group and global players including Intel and Cisco, one Chinese executive charged the U.S. side with being "hegemonist," recalls an attendee. According to policy makers and industry executives, China is drafting a number of other compulsory standards in the name of security, including for routers, digital switches and other Internet related hardware and software. Mr. Chen of the Ministry of Information Industry says the aim is to deter hackers and address other security concerns. But some foreign companies worry that security concerns could provide a cover for trade barriers. "We hope national-security issues will be dealt with in narrow, confined ways," says Jim Gradoville, head of the American Chamber of Commerce in Beijing. Other parts of China's bureaucracy are taking a more open and flexible approach in setting standards. In 2003, China was poised to introduce its own national product-code system, but decided to shelve implementation when it found out from the Internet and through foreign partners about the RFID technology, which was more sophisticated than, and possibly incompatible with, its planned system. Beijing's decision to return to the drawing board wasn't popular in many circles in China, with conservatives arguing that China should push ahead with its own system and others saying it should simply adopt the international standard. Mr. Zeng, the China RFID group member, says he personally lobbied three government ministers to take a middle road. "We could become nationalistic and self-centered and isolate ourselves, or we could...become an RFID colony," he says. "I said we should have compatibility with the international standard while having our national intellectual property." Mr. Zeng's office is a testament to his philosophy. Hanging on one wall are three diagrams identifying existing and potential leaders in both RFID software and hardware around the world. Pointing to one featuring colorful concentric circles labeled with the logos of international companies, he says he updates it each week, "so we know which companies are driving the stuff and which companies could be players because they have useful technology." Surprising Backlash The Xian group that created the wireless encryption standard appears to have fallen into the conservative camp. But neither it nor Chinese policy makers expected the backlash that its work generated. Since the 1990s, Li Jiandong, head of Xidian University's communications engineering school in Xian, had been researching Wi-Fi technology on Xidian's placid, leafy campus. In 2001, as the technology was taking on wider commercial applications around the world and after a high-profile hacker case in Japan cast doubt on Wi-Fi security, Mr. Li and executives at a Xidian-invested technology company, China Iwncomm Co., saw an opportunity. "They felt the time was mature to bring together a lot of research organizations to put together an [encryption] standard," recalls a Xian group member. Their timing was fortuitous. Chinese policy makers were just reaching a consensus that their efforts to swap market access for foreign technology wasn't working, and that they needed a new strategy to secure foreign know-how. Meanwhile, Chinese manufacturers of DVD players were embroiled in a widening spat for failure to pay royalties to foreign patent holders that culminated in January 2002 with the seizure of thousands of Chinese-made DVD players by European customs agents. The Chinese companies eventually agreed to pay royalties, but the incident, and the high amounts the companies were asked to pay, drove home to Beijing the crucial role that standards play in global trade. The Xian group quickly won the go-ahead from the Ministry of Information Industry to design a new wireless encryption standard. Located in central China far from the eastern coast, where most foreign companies are concentrated, the Xian group is believed by some foreign industry executives to have ties to China's military and security apparatus. Xidian is a former military-run university, and like many companies in Xian, Iwncomm sells equipment to the military. Its general manager, Cao Jun, declined at a recent news conference to provide any details on his education or previous job experience. A main backer of the Xian group has been the State Encryption Management Commission, a conservative interagency group whose members include the state security arms of the government. People close to the group, which later grew to include institutions from other parts of the country, say it was open to foreign input on how to draft the standard and that it issued several public updates on its progress, including to visiting Intel executives, but that foreign companies showed little interest. Intel executives declined to comment, but other U.S. industry executives disagree. They say their efforts to learn more about the standard in mid-2003 met with obfuscation from the Xian group and regulators. China declined to make the encryption codes public, making it impossible for foreign companies to ascertain whether the version is better or worse than ones used elsewhere in the world. Both Agere, the U.S. chip maker, and Texas Instruments Inc. say the parts of the Chinese system that have been made public aren't as secure as the existing one. More worrisome was China's requirement that foreign vendors cooperate with two dozen Chinese companies to obtain the encryption technology, potentially forcing the foreign companies to share technology and business secrets with Chinese rivals. China's 11th-hour decision to indefinitely shelve the controversial encryption standard took even industry insiders by surprise. The about-face, announced in Washington on Wednesday by visiting Vice Premier Wu Yi, a widely respected former trade minister, was a decision made but top leaders, say people familiar with the situation. It appears at least in part based on the realization that the Xian group's approach is out of step with international practices, in which industry groups coalesce around certain standards and then apply to international bodies for approval. "The thinking was that China needs to consider its national character, but also how it could work more happily with the international community," says the Ministry of Information Industry's Mr. Chen. He predicts China will try and get the wireless encryption standard accepted as a global standard through the IEEE, a global Wi-Fi standards body. Even before the announcement, some policy makers and Chinese companies were grumbling about the Xian group's approach. "To ensure our own interests, perhaps we didn't do thorough negotiations with the international community," allowed Zhang Weihua, an official of the National Institute of Standardization, China's main standards research group. In some ways, the process underscores the bumpy learning process that China is undergoing as it seeks to take a more active role in defining global standards. "This isn't the last you'll ever hear of this debate" over whether China should use standards as a power game or work more closely with international bodies, says USITO's Ms. Stevenson-Yang. On the tree-lined Xidian University campus where it all began, the debate continues. "If we just adopt other people's standards, we're just giving them money and turning into a follower," says Liu Shuaihong, a 28-year-old graduate student in electronics. "Why should we always follow other countries' standards when we can design our own?" -- Qiu Haixu and Cui Rong in Beijing contributed to this article. User Agreement / Privacy Policy / Contact Sparkice Tel:+8610 6506 9666 Fax:+8610 65057158 Copyright 1999-2004 Sparkice Inc.All Rights Reserved
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