The shift from assembly point to creative hub that China is trying to engineer within its economy has been accompanied by a growing interest in the technological standards upon which high-tech trade is built. The principal reason is obvious: money. China makes 90% of the world's DVD players but, for every one sold, around US$20 goes to the foreign firm that holds the patent on the technology. Only US$1-2 of the profit remains in China. The story is similar for notebook computers with manufacturers receiving only US$15 out of a US$700 export price.
If China could export goods based on its own technology standards, the money would stay at home. Digital television, mobile communications, wireless networking, video discs, radio frequency identification, audio/video compression - China is focusing on domestic standards right across the board, regardless of what established systems stand in its way.
"They are saying, 'We have a market that is large enough to support our own domestic standards,'" said David Wolf, president of Beijing-based technology, media and telecom consultancy Wolf Group Asia. "The royalties that are paid to use other people's standards are huge and they see it as money that they don't have to spend."
If the swift investments made by the likes of Siemens and Nokia into China's domestic third-generation (3G) mobile telecom standard is anything to go by, access to the country's growing markets is tempting enough to make foreign firms adapt.
Standards equal status
But, as far as China is concerned, it is about more than cash: these standards represent a seat at the technology table alongside the US and Japan. What remains to be seen is how far China is willing to go to get there - will its strategy be positive and inclusive or overly mercantilist and obstructive?
Either way, the country looks set to have a much greater say in the development of global technology.
"The reality is that this was coming all along," said Dr Denis Simon, director of the Levin Institute's Center for Science, Technology & Innovation in China in New York. "Why should we have expected the Chinese to sit idly by?"
China's commitment is certainly borne out by its involvement with the bodies responsible for endorsing global standards. The Standards Administration of China (SAC) currently provides the secretariats of five technical committees and five subcommittees as well as the conveners of 19 working groups for the Geneva-based International Organization for Standardization (ISO).
From the ISO's point of view -- and that of its fellow standards organization, the Institute of Electrical and Electronics Engineers (IEEE) -- China's participation is vital as it represents such a large slice of the world market, in technology experts and consumers.
"China has expressed ambitions to go beyond manufacturing to become an innovator of technology," said Alan Bryden, secretary-general of ISO. "As ISO standards are vehicles for disseminating innovation, then we can expect increased Chinese participation in developing standards for new technologies."
But when it comes to developing its own standards for key sectors, China's track record is not strong.
The country undermines its efforts by failing to win global support for standards due to an unwillingness to share details on how technologies are developed, or by just sitting in the blocks, allowing other countries to move ahead and take both the glory and the profits.
Of the major, commercially lucrative standards under development, only China's high definition DVD technology has actually completed the transition from blueprints to product on the shop shelves (See: EVD: China's answer to the DVD).
The waiting game
The country's 3G mobile telecom standard, TD-SCDMA, is a classic example of the all talk, no action approach. 3G has been around for several years and networks using established international standards WCDMA and CDMA2000, developed by Japan's NTT DoCoMo and US-based Qualcomm respectively, are ready to roll. But China has yet to distribute 3G licenses and it is thought that delays in perfecting TD-SCDMA are behind this.
"We are already five years into 3G as a commercially operable service and now countries are looking beyond the three basic channels," said Dave Carini, co-founder of Beijing-based telecom, media and technology consultancy Maverick China Research.
"It's going to be a while before they have even a single TD-SCDMA network ready to run and show the world that it does work. China is not so much late in coming to the table; they were early but waited too long. Maybe they were just not able to do it as fast as they'd hoped."
Unlike TD-SCDMA, China's wireless networking (WLAN) standard, WAPI, was not slow in pushing itself forward. Introduced in 2003, Beijing said the standard would be compulsory for all WLAN products sold in China, forcing the likes of Intel to team up - and share technology and royalties - with local players. After intense lobbying, and the possibility of WTO action, China agreed to back off.
When WAPI was proposed for global standard status to the ISO, alongside the IEEE's 802.11i standard, the Chinese believed they had the superior technology.
"802.11i is an immature standard - It contains many security loopholes and structural weaknesses," the Broadband Wireless IP Standards Working Group (BWIPS), the body tasked by the Ministry of Information Industry to coordinate WAPI development, told China Economic Review. "WAPI's technological innovation and structural strength make it a far superior security solution."
Burned in the ballot
However, in March of this year the ISO ruled against WAPI. Voters said they were unhappy at the Chinese candidate's refusal to disclose the full technical specifics of WAPI, which has to a large extent been developed behind closed doors.
The Chinese claim that 802.11i prevailed because the IEEE didn't play fair.
"There were numerous ethical and procedural problems which created an unfair situation for WAPI in the whole ballot and after ballot process," BWIPS said. “We have provided a detailed list of those violations. So far, we have not seen any detailed counter arguments against our complaints."
Steve Mills, chair of the IEEE Standards Association Board, insists that the accusations are unfounded.
"Everything we did came under proper review and was done in open session," he said. "We believe there is a lot of good stuff in WAPI. Making WAPI a standard in its own right was not the question for us. The question is always: how do we make the most of the technology we see?"
BWIPS claims that it is "very unlikely" that 802.11i will be accepted as a Chinese national standard. It believes the domestic standard will be pushed forward by the government, citing the establishment of the WAPI Industry Alliance as evidence of this. The 22-member group, intended to represent "a complete industrial chain" includes China's four major telecom operators as well as Lenovo and Huawei.
Tech industry watchers say that China is neglecting to learn from its failure.
Not only must Beijing master the politics of the ISO, it also needs to respond to the principal concern raised by ISO voters about WAPI: that it was built behind a veil of secrecy. Unproven standards, developed outside of the competitive sphere, will inevitably struggle to win global approval.
"Where is China's track record for standards," said Alex Lightman, founder of next generation Internet company Innofone. "China hasn't grasped that competition is necessary for standards to emerge."
Wolf added: "China has not mastered the game of getting an ecosystem in which standards can be developed apart from by compelling it by law. Unless you build an ecosystem from the start you are not going to build the best standards."
Both TD-SCDMA and WAPI have their merits but, as Wolf observes, this is no guarantee of survival.
"We have seen endless cases where a technologically superior product has failed on the market. I just need to say the word Betamax [the Sony-backed videocassette format that was overwhelmed by VHS]."
He thinks it is unlikely China will turn itself into a technological island through the pursuit of domestic standards but, by ignoring the IEEE and going it alone, it will lose the opportunity to sell its domestic standards to the rest of the world.
The ones who would be hit hardest by this shift away from global compliance are the original equipment manufacturers. Politically obliged to pursue standards that have little or no following beyond Chinese borders, they couldn't focus so much on more lucrative export markets for products based on rival standards. Torn between standards and at cross purposes with the government, business would likely suffer.
"If a group of individuals chooses not to participate on a standard, it has an impact," said IEEE 802 Committee Chair Paul Nikolich. "From a manufacturer's perspective, you don't have as large scale."
Stuck in the middle
This appears to be the case for China Mobile, which is keen to adopt WCDMA as its 3G standard and could probably start rolling out handsets within hours of being granted a license. But Wolf believes it will - at the very least - have to set up municipal TD-SCDMA networks in major cities.
As further evidence of dueling standards, Maverick China's Carini points to how Huawei Technologies and ZTE Corporation, the country's premier innovators, have targeted the international market almost at the expense of unproven TD-SCDMA. Despite this insurance strategy, both companies are still paying the price of Beijing's tardiness on 3G.
"The lack of 3G has prevented them from getting major contracts," said Carini. "Hebei province is bigger than most European markets. If you can win a contract like that then maybe it's easier to break into the European and North American markets."
South Korea has no such problems. A decade ago Seoul decided to throw its backing behind CDMA2000 and invest heavily in providing the foundations on which 3G could be built. As a result, the likes of Samsung have prospered and are now looking beyond 3G.
"South Korea is now far ahead of the US for mobile phones," said Carini. "It shows that if you take someone else's standard and roll with it, things do work out."
Operating in a world of competing domestic and international standards, Chinese manufacturers will have to maintain a careful balance between their commercial needs and Beijing's requirements.
But Dr Leonard Liu, founder of Chinese software outsourcing firm Augmentum and a veteran of IBM and Acer, is not worried. "The Chinese will not be constrained by standards. Anything they can make money on, they will do."
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