nbr special report - united...

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No. 7, May 2004

China’s Post-WTO Technology Policy:Standards, Software, and the Changing

Nature of Techno-Nationalismby Richard P. Suttmeier and Yao Xiangkui

NBR SPECIAL REPORT

THE NATIONAL BUREAU OF ASIAN RESEARCH

Informing and Strengthening Policy in the Asia-Pacific

THE NATIONAL BUREAU OF ASIAN RESEARCH

Published in the United States of America byThe National Bureau of Asian Research4518 University Way NE, Suite 300Seattle, Washington 98105206-632-7370 Phone206-632-7487 [email protected] Emailhttp://www.nbr.org

© 2004 by The National Bureau of Asian Research

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EXECUTIVE SUMMARY

In recent years, through administrative action, legal innovation, andincreased support for research and development, China has been actively de-veloping a new technology policy based on the promotion of its own technicalstandards. These activities impinge upon business decisions and raise ques-tions about China’s commitment to honor its World Trade Organization (WTO)obligations, and are thus attracting increasing attention from foreign businessleaders and government officials. This study reviews the origins and motiva-tions for China’s standards strategy, places it in the context of China’s acces-sion to the WTO, and examines the operation of China’s new standards re-gime, with particular reference to standards for wireless devices and software.We suggest that the standards strategy is best understood in terms of a “neo-techno-nationalism,” in which technological development in support of nationaleconomic and security interests is pursued through leveraging the opportuni-ties presented by globalization for national advantage. Unlike older forms oftechno-nationalism, China’s standards strategy necessarily requires attentionto international norms, cooperation with foreign partners, and a recognition ofthe need for new forms of public-private accommodation.

China’s promotion of its own technical standards grows out of thefailures and accomplishments of its technology policies of the past, and itsevolving position in the international economy. Over the past 25 years China’snational system of innovation has been greatly altered as a result of reforms inits economy, its legal system, and its extensive network of research and devel-opment institutions. By a variety of measures, China’s technological capabili-ties are increasing significantly in ways that, among other things, give it theability to devise technical standards which warrant international attention. Atthe same time, its technology policies of recent decades have not yet madeChina the significant center of technological innovation its leaders hope it willbecome. Meanwhile, China has become an important player in the globaleconomy, and has reaped significant gains—in absolute terms—from global-ization. However, its participation in the global economy is largely defined by its

4 Executive Summary

role in international production networks established by others. These net-works employ technical standards and technological architectures set by themultinational corporations (MNCs), which are able to capture value from theircontrol over standards and intellectual property. Thus, while China’s absolutegains have been significant, it remains more than a little dissatisfied with therelative gains it realizes in comparison with international technology leaders—often seeing itself, for instance, in a “patent trap” that requires it to paysubstantial royalties to others out of the sales of its manufactures.

In anticipation of accession to the WTO, Chinese leaders came to re-alize that the technological challenges ahead would intensify, while at the sametime the more traditional measures of protection for its economy would haveto be sacrificed. WTO accession would also require a significant reorganiza-tion and modernization of its national standards system. In 2001 and 2002 Chinathus began to reform its standards regime with an eye toward building stan-dard setting into its national research and development programs as a priorityobjective. This has now resulted in a system in which policy purposes for thestandards regime—expressed through laws, administrative directives, and policystatements—are increasingly integrated with a research and development(R&D) network characterized by a strong commercial orientation, one involvinga proliferation of high-technology start-up companies linked to government re-search institutes and universities, and a notable expansion of industrial researchexpenditures. While this new fusion of policy with research is intended to op-erate within WTO commitments, in particular the provisions of the Agreementon Technical Barriers to Trade, there is concern in the international commu-nity that the new standards system is functioning in ways which are not con-sistent with the spirit, and in some cases with the letter, of WTO principles.This has been especially true with regard to China’s WLAN Authenticationand Privacy Infrastructure (WAPI) standard for encryption technology usedin wireless devices, a standard whose political profile has risen rapidly sinceit was announced in May 2003.

Software represents a special case of using the standards strategy, inconnection with other policy tools, to enhance the competitive position of Chi-nese companies. As with other countries, China has been dissatisfied with itsheavy dependence on Microsoft Windows as an operating system and onMicrosoft applications software, a dependence which ironically has been ex-acerbated by the widespread pirating of the software. More generally, as il-lustrated by the piracy, China has tended to devalue software in the course of

Suttmeier and Yao 5

its rapid economic growth over the past 25 years, even as the importance itassigned to an increasingly “informatized” economy grew. The industry hasgenerally remained inward-looking, in contrast to India, and has been relativelyweak in terms of the availability of trained manpower, organizational infra-structure and firm size, and output. As a result, it is an industry that becamelargely dominated by foreign companies during the course of the 1990s.

A major shift in policy attention to the domestic software industry be-gan to occur in 2000, and the industry has been receiving significant govern-ment support since then. Policies to support the software industry have alsobeen linked to the broader standards strategy, albeit with the added feature ofusing government procurement to reinforce the efforts to establish standards.The standards work has focused on establishing Linux-based operating sys-tems as alternatives to Windows and developing domestic office automation(OA) products as alternatives to Microsoft Office and other imported appli-cations software. Procurement policy, mandating the use of domestically pro-duced software in government offices, is being used to reinforce these stan-dards initiatives. With government software procurement expected to growsignificantly in coming years in response to e-government programs, the 2008“digital” Olympics in Beijing, and a variety of other government initiatives forthe “informatization” of Chinese society, the “market pull” effects of govern-ment procurement are likely to be substantial. Foreign software firms are un-derstandably unhappy about these directions, even though, by not signing theWTO Government Procurement Agreement, China may not be violating theletter of its WTO obligations. Apart from the government procurement issue,standards issues are also likely to remain a central question for the softwareindustry as the importance of “embedded software” in a whole variety of newdigital devices increases.

The role of standards is assuming a growing policy importance, espe-cially at the intersection of national technology policies and the norms and prac-tices characterizing international trade and investment in the global economy.While it is tempting to attribute China’s standards strategy to a narrow techno-nationalism, sensible policy responses to those strategies require that the com-plex motivations behind the strategies be understood, and that China’s capa-bilities and limitations as a setter of standards be recognized. China’s marketsize and increasingly capable technical community give it unique advantagesfor challenging the established technological architecture found in the interna-tional economy. At the same time, however, our analysis indicates that China

6 Executive Summary

cannot do this alone, that there is substantial foreign participation in the tech-nological development underlying the standards strategy, and that there aremultiple interests at stake in standards development. While the standards agendareflects the realities of Sino-foreign competition, it also reflects the facts thatChina has become a major arena for global competition among MNCs, thatmany Chinese firms may actually have interests in the standards establishedby the global technology leaders rather than in those set by the Chinese state,and that the politics of standards is likely to be characterized by increasinglycomplex and cross-cutting cleavages. In light of the strength of the motiva-tions, the increasing technological capabilities evidenced, and the complex waysin which China fits into the international division of labor, China’s standardsstrategy warrants ongoing attention.

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CHINA’S POST-WTO TECHNOLOGY POLICY:

STANDARDS, SOFTWARE, AND

THE CHANGING NATURE OF

TECHNO-NATIONALISMRichard P. Suttmeier and Yao Xiangkui

“Sanliu de qiye zuo chanpin; erliu de qiye zuo jishu;yiliu de qiye zuo biaozhun”

(Third-class companies make products; second-class companies developtechnology; first-class companies set standards)1

“Are the new standards ‘superior or just gratuitously different?’ asked aWestern consultant in Beijing.... ‘Is this protectionism by another name?’”2

“China Trademarks Astronaut”3

Dr. Richard P. Suttmeier is Professor of Political Science at the University of Oregon,focusing on comparative politics with China and Japan, science and technology issues, and publicpolicy. His recent publications include “Reform, China’s Technical Community, and the Chang-ing Policy Cultures of Science,” coauthored with Cao Cong in the edited volume, Chinese Intel-lectuals Between Market and State. Yao Xiangkui is currently a Ph.D. candidate in Computer andInformation Science at the University of Oregon. He received his M.A. in Political Science fromthe University of Oregon, and studied journalism at the Beijing Broadcasting Institute.

1 This is a popular saying in contemporary Chinese business and government circles, thoughtto have originated with Sony. We are grateful to Peng Yali for calling this to our attention.

2 Kathy Chen, “China Sets Own Wireless Encryption Standard,” Wall Street Journal,December 3, 2003, p. B4.

3 Recent headline, BBC News, December 9, 2003, <http://news.bbc.co.uk/1/hi/world/asia-pacific/3303121.stm>.

8 China’s Post-WTO Technology Policy

Over the past few years, there has been growing interest among Chi-nese technology policy leaders in promoting China’s own technical standards,broadly understood, and in establishing property rights over Chinese technicalachievements. While establishing a trademark for Colonel Yang Liwei and hisShenzhou space mission may not be a technology policy tool that will travelfar, it is symptomatic of a new stance in post-WTO China towards capturingvalue from indigenous innovation through a more aggressive approach to themanagement of intellectual property, and especially toward the establishmentof indigenous standards which reflect accumulated technological capabilities.4

In addition to the attention given to such relatively prominent stan-dards-related cases as third-generation (3G) mobile telephony and the TD-SCDMA (Time Division Synchronous Code Division Multiple Access) stan-dard and efforts to develop an alternative to the Windows operating systemstandard (through the promotion of Linux systems), there are Chinese effortsto develop standards in other areas, including:

• its own microprocessor (the “Dragon Chip”);

• its own successor to DVD’s, the “EVD” (Enhanced Versatile Disc)standard;

• a new digital audio standard (AVS—Audio, Video Coding Standard) forMPEG (Moving Picture Experts Group);

• a Chinese-developed standard, IGRS (Intelligent Grouping and ResourcesSharing) for communicating among digital devices;

• a new Internet protocol (IPV6); and

• radio frequency identification tagging (RFID).

Of particular recent interest, the introduction of a new security stan-dard for wireless devices, the WLAN Authentication and Privacy Infrastruc-ture (WAPI) standard, has received international attention, and as further dis-cussed below, became a major issue in U.S.-China trade relations. Standardsissues have also become prominent in areas ranging from agricultural trade

4 As used here, “standard” refers both to the products of formal standard-setting activities(the “standards” and “technical requirements” which are produced by government standards or-ganizations, by international organizations such as the ISO, IEC, and ITU, or by industrial orprofessional associations) and to the outcome of market exchanges in which certain technolo-gies, protocols, etc. come to be accepted as the de facto standards of an industry.

Suttmeier and Yao 9

(genetically modified organisms and the safety of aquatic products) to the in-troduction of new products to promote the efficient use of water.5

Chinese decision makers have turned their attention to standards aspart of a strategy for meeting new competitive challenges and obligations re-sulting from China’s accession to the WTO. Representatives from the inter-national business community and officials of foreign governments have fol-lowed Chinese approaches to standardization with a growing interest sincethese not only affect business decisions, but also raise questions about the useof a policy tool to unfairly enhance the competitiveness of Chinese industry inways which would be inconsistent with the spirit, if not the letter, of China’sWTO commitments.6

Technical standards, in short, are becoming important issues affectingtrade and investment relations with China and are seen by many foreign ob-servers as the latest manifestation of a troubling Chinese techno-nationalism,i.e., a commitment to use political means to secure technological progress inthe interests of national defense and economic advantage for Chinese industry.This paper explores the logic of a standards-based technology policy and as-sesses the possibilities for conflict and cooperation arising out of such a policy.It begins with the assumption that China’s new interest in standards is driven bya complex set of issues growing out of the successes and failures associatedwith technology policies of the past.

Market Power, Technological Capacity,or National Security?

In the first instance, the new emphasis on standards by the governmentmay be a response to a strong resistance to standardization in Chinese society,one which has worked against Chinese interests in the past. One thinks, forinstance, of Chinese interests in acquiring modern telecommunications tech-nologies in the 1980s and early 1990s, and the incompatibilities which resultedfrom multiple parties pursuing multiple interests in different telecom systems indifferent parts of the country.7 Strong traditions of localism at both provincial

5 Lester Ross, “Regulatory Foundations for Chinese Technological Development: Legal,Financial, Standardization, and Environmental,” paper presented at the Conference on China’sEmerging Technological Trajectory in the Twenty-first Century, Rensselaerville, New York,September 2–7, 2003.

6 See, for instance, United States Trade Representative, 2003 Report to Congress on China’sWTO Compliance, <www.ustr.gov>.

7 Professor Erik Baark of the Hong Kong University of Science and Technology in emailcomments on an earlier draft of this report, December 2003.


and sub-provincial levels, and indeed a tough individualism among Chinese,point to cultural traits supporting resistance to standardization, as do difficultiesin realizing consistent local implementation of national intent in a variety ofpolicy areas. A strengthening of a national standards philosophy, with strongcentral leadership, may thus be a part of a national policy response to addresswhat some might take to be domestic weaknesses impeding the standardizationimperatives of modernity.

The new interest in standards also grows out of the curiously am-biguous position of China in the international economy and the ways in whichits technological levels affect that position. On one hand, the Chinese economyhas grown and benefited significantly as a result of its participation in the in-ternational production networks associated with globalization. China has be-come one of the world’s great export economies and has rapidly moved upthe value chain in producing and exporting higher value-added products. How-ever, in important respects, it has yet to emerge as a significant force for in-novation within production networks and thus continues to be in a subordinateposition vis-à-vis global industry leaders. This leads to an interpretation of itsapproach to standards which focuses on market power in the face of techno-logical weaknesses; China can use the promise of its huge market as an as-set in developing distinctive standards with an expectation that its standardspolicies will be taken seriously by international business organizations in waysthat the policies of other countries would not be.8

On the other hand, Chinese standards policies also seem to be re-lated to perceptions, both inside and outside of China, of a growing Chinesetechnological capability, a measure of which is having confidence in one’sability to set innovative standards which can positively affect one’s inter-national competitiveness. In this interpretation, China shows interest in a stan-dards-based policy because it believes that after 20 years of reforming andnurturing its research and development (R&D) system, it has the ability toset standards. Measures of an increasing technological capability include itslarge contingent of scientists and engineers working in R&D (810,000 in 2002);its expenditure on R&D, which in purchasing power parity (PPP) terms is

8 See Daniel H. Rosen, “Low-Tech Bed, High-Tech Dreams,” China Economic Quarterly,Q4, 2003, pp. 20–40; see also Barry Naughton, “China’s Economic Growth and TechnologyDevelopment: International Linkages and Implications for the U.S.,” testimony presented tothe U.S.-China Economic and Security Review Commission, February 12, 2003.

Suttmeier and Yao 11

now third in the world after the United States and Japan; increasing patentingactivity; and its fifth-place position in producing published papers for the world’sinternational science and engineering journals.9

One consequence of this ambiguous position in the international divi-sion of labor—of having enhanced capabilities for innovation, but not settingthe pace for new technologies—is an ongoing frustration with patenting androyalty payments, i.e., being caught in a “patent trap” set by industry lead-ers.10 Interest in China’s own standard for digital videodiscs, for instance, isnot unrelated to patent disputes with Phillips, Sony, and Pioneer in 2002, whenChinese-made DVD players (90 percent of the world’s DVD players are nowmade in China) were impounded at European ports because the manufactur-ers allegedly had not paid for the patents used. In the legal negotiations whichfollowed in Europe, the patent holders demanded US$20 per machine on equip-ment with a unit sales price of only US$90. While the settlement ultimatelyled to significantly reduced royalty payments, the experience again remindedthe Chinese of the importance of “patents and core technology,” and that “with-out independent intellectual property rights Chinese industry is vulnerable.”11

More recently, one Chinese DVD manufacturer, operating on very thin profitmargins, noted that as much as one-third of the cost of selling a DVD playerin the U.S. market (retailing for US$60) went to royalties to the DVD patentholders and led to complaints that “the more we sell, the more we lose.”12

Unlike other countries offering low-cost manufacturing capabilities to globalproduction networks, however, China already has had ongoing research in sup-port of its own EVD standard for digital video which it is now in the processof introducing.

A final consideration affecting the development of China’s standardspolicies is that of national security. As further discussed below, security con-cerns have shaped Chinese thinking about standards for wireless devices andhave often been mentioned in connection with Chinese dissatisfaction withMicrosoft Windows and its interest in Linux-based systems. Appeals to na-tional security also affect the ways in which WTO provisions concerning

9 Ministry of Science and Technology, China Science and Technology Statistics: Data Book,2003 (cited hereafter as MOST, 2003), Beijing, Ministry of Science and Technology, 2003.

10 Qin Haibo and Cheng Lilong, “Implications of Sino-US Dispute over WLAN Standard,”China Economic Net, February 27, 2004, <www.en.ce.cn/insights/t20040227_357006.shtml>.

11 Cong Cao, “Technological Capability, Standards, Industrial Policy, and the Market: TheThird Generation Mobile Communications in China,” paper prepared for presentation at theConference on Mobiles and Mobility in China, Stockholm School of Economics, May 2002.

12 Anthony Kuhn, “China Spins a New Disc,” Far Eastern Economic Review, February 26,2003, pp. 34–35.


standards are construed and applied. But, as with the “patent trap” concerns,China’s ability to manage the national security issues surrounding standardsdepends on its domestic capacities for research and technological innovation. Itwill be useful, therefore, to begin with an examination of some of the factorsshaping R&D capabilities and the performance of China’s national system ofinnovation.

Trends in Chinese Scientific andTechnological Development

The rise of China as a potential high technology competitor and im-portant participant in the world’s scientific research efforts has seemingly comeas a surprise to many foreign observers, much as Japan’s emergence as atechnological power did in the 1980s. The surprise is often accompanied ei-ther by overestimations or underestimations of China’s actual capabilities, again,rather like foreign reactions to Japan at an earlier date. While there are manyimportant distinctions to be made between the Chinese and Japanese cases,they are similar in that the development of scientific and technological capa-bilities in both countries has long been a goal of political, administrative, andindustrial elites, and both countries have records of policy intent, planning, andresource commitments for meeting that goal which are available to anyonewishing to examine them.

Like Japan’s,13 the Chinese record of elite intention can be traced backto the nineteenth century. In the Chinese case, however, elite aspirations forscientific and technological development were consistently frustrated by civilwar, foreign invasion, and long periods of political instability. With the found-ing of the People’s Republic of China in 1949, there was a new commitmentto technological development, one which led to the rapid expansion of the highereducation system and the building of an extensive network of R&D institu-tions during the 1950s. By the end of that first decade, these efforts wereincreasingly harnessed to strategic weapons programs, but had also been dis-rupted by the radical politics of the late 1950s. By the middle of the 1960s,most efforts at scientific and technological development were sidetracked bythe turmoil of the Cultural Revolution.

13 Richard Samuels, Rich Nation, Strong Army: National Security and Technological Trans-formation in Japan, Ithaca, N.Y.: Cornell University Press, 1994.


It makes a certain amount of sense, therefore, to locate the originsof China’s emergence as a potential technological competitor in the period fol-lowing the Cultural Revolution, more specifically in the policy commitmentsfirst made by Deng Xiaoping at the 1978 National Science Conference andreaffirmed, modified, and strengthened in the 25 years since then. This is notthe place to review all the twists and turns of China’s efforts to get its scien-tific and technological development strategies back on track after 1978,14 butwe can note that these efforts involved major reforms of the system of sev-eral thousand R&D institutions, the revitalization of the higher education sys-tem and the expansion of enrollments in science and engineering fields, thesanctioning of institutional experimentation and innovation leading to the cre-ation of new high-technology enterprises spun off from research institutes anduniversities, and the introduction of a series of national programs for the sup-port of R&D, technology extension services, and technology incubators.

China’s strategies for scientific and technological development also in-volved a series of measures to exploit resources available from the interna-tional environment. These included the sending of large numbers of studentsand scholars abroad for advanced training, the purchase of vast amounts offoreign technology, the development of a foreign investment regime intendedto exploit financial, managerial, and technological assets held by foreign firmsin China, the use of financial and consulting resources available from the WorldBank and other international organizations, and the signing of a large numberof agreements with foreign governments for scientific and technological co-operation. These interactions with the international community afforded nu-merous opportunities for learning, not only about technology, but also aboutpolicies, institutional designs, and managerial practices necessary for overcom-ing the principal defects of its pre-reform innovation system, and which wouldallow China to capture value from its technological progress. These op-portunities were seized by Chinese policymakers and policy analysts, both tobenchmark China’s progress and to graft successful foreign practices on toChinese realities.

By the middle of the 1990s, it was becoming increasingly clear, in termsof financial, institutional, and human resources, that China was approachingthe point where it needed to intensify its domestic capabilities to match its in-creasing reliance on foreign technology, now streaming into China as a result

14 See, for instance, Gu Shulin, China’s Industrial Technology: Market Reform and Organi-zational Change, London and New York: Routledge, 1999; and Richard P. Suttmeier and CongCao, “China Faces the New Industrial Revolution: Research and Innovation Strategies for the21st Century,” Asian Perspective, vol. 23, no. 3 (1999).


of the rapid growth of foreign direct investment (FDI) after 1992. This led toa commitment to increased funding for R&D and education, to shift a muchgreater share of the nation’s R&D to industry (from only 37 percent in 1996to more than 61 percent in 2002), and to devote new attention to the “softer”institutional requisites for successful technological innovation. With the pros-pects of accession to the WTO looming, China’s leaders also understood thatthe presence of foreign commercial interests in China would expand, and newopportunities for technology transfers would increase. At the same time, thedangers of technological dependency would also increase with the risk thatChina’s position as a subordinate player in global production networks con-trolled by multinational corporations (MNCs) would continue.

Thus, China’s attempts to forge a technology policy for the earlytwenty-first century, post-WTO era, builds on two decades of institutional re-form, human resource expansion, and extensive learning from foreign experi-ence, during which rapid economic growth generated the resources that madenew policy directions in research and innovation more manageable. We shouldalso recall that this progress came during the longest period of political stabil-ity China had seen since nineteenth century elites came to realize the impor-tance of scientific and technological development for China’s future. Thus,from these longer perspectives, China’s emergence as a significant factor inthe global high-technology industry and scientific research should not be sur-prising. Active preparations for this role go back 25 years, build on 30 yearsof accomplishments (and failures) before then, and have been conducted duringa period of unprecedented political stability.15

WTO Accession and the Logic ofNeo-Techno-Nationalism

Recognizing that WTO membership would have important implica-tions for the nation’s policies and opportunities for scientific and technologicaldevelopment, Chinese science and technology policy officials have given con-siderable attention to adjusting policy to post-accession realities. If China hadbecome one of the more important manufacturing bases in the global economyeven before entering the WTO, technology policy would need to exploit and

15 For an assessment of the interaction between inherited technological assets developedover these decades and the new influences of the international environment in the reform era,see Gu Shulin and Edward Steinmueller, “Getting Access to the Information Revolution: NationalInnovation System and the Innovative Recombination of Technological Capability in EconomicTransition in China,” unpublished paper prepared for the UN University project on technologi-cal innovation in developing countries, 2002.


protect this position in the international division of labor by enhancing the ca-pacity of Chinese industry for technological innovation, including the applicationof new technologies to traditional industries. However, if China wanted to movebeyond “workshop of the world” status, in keeping with its aspirations to be-come a leader in new knowledge-based industries, it would also require policiesthat would facilitate leapfrogging into leading roles in emerging technologies.

Key elements of a technology strategy have emerged from these con-siderations. For instance, reflecting the substance of a series of meetings inearly 2002 hosted by the Ministry of Science and Technology, science minis-ter Xu Guanhua outlined four critical elements of a policy for the new era.

1. R&D Spending. China would make significant increases in R&Dfunding during the Tenth Plan (2000–2005), with a focus on twelve areas ofstrategically important technology. According to Xu:

The ministry will concentrate on super scale integrated circuits and com-puter software, information security systems, e-administration and e-finance,

functional gene chips and bio chips, electric automobiles, magnetic levita-

tion trains, new medicines and modernization of production of traditional Chi-nese medicines, intensive processing of farm produce, dairy product manu-

facturing, food security, water conservation farming, water pollution control

and the establishment of key technical standards. (emphasis added)16

Significantly, the ratio of China’s gross expenditures on research and devel-opment (GERD) increased from 0.64 percent in 1997 to 1.23 percent in 2002.17

2. Human Resources. China realizes that in the global knowledgeeconomy there is a fierce competition for intellectual talent, and it will there-fore redouble its efforts to repatriate the scientists and engineers lost to thebrain drain.

3. Intellectual Property Rights (IPR). China is obliged under the WTOto strengthen its IPR regime, but it will also pay particular attention to the needto strengthen IPR protection for Chinese innovators, and incorporate a sharperfocus on the management of intellectual property for China’s benefit in na-tional research and development programs.

4. Standards. Finally, and related to IPR, Xu indicated that China willpay much more attention to the development of its own technical standards in

16 Beijing Xinhua in English, in Foreign Broadcast Information Service-China (hereafter, FBISCHI 2002 0109), January 9, 2002, at World News Connection, <http://wnc.fedworld.gov/>.

17 MOST, 2003.


such fields as IT, telecommunications, and biotechnology by building on dis-tinctive features of the Chinese language, the Chinese business and adminis-trative environments as these pertain to e-commerce and e-administration, andthe Chinese biological inheritance and pharmacopeia.18

Even before Xu’s announcements, the importance of standards in thispost-WTO technology policy had been noted on the website of the new Stan-dards Administration of China (SAC) in 2001.19 It indicated that with WTOaccession, the challenges facing Chinese domestic industries from globaliza-tion and foreign competition have increased. With traditional instruments ofindustrial promotion and protection (such as tariffs) now limited by WTO ob-ligations, standards would become an effective means to protect and promotenational industry within the WTO framework. This point was reiterated morerecently by Shu Zhongming, vice director of SAC, who called attention to theneed for ongoing research on, and enforcement of, China’s own technical stan-dards. He noted that the development of technical standards for the high tech-nology industry would be a priority of SAC in 2003, with particular attentiongiven to standards for e-government, information security, and other fields.20

Meanwhile, the Ministry of Science and Technology is supporting a researchproject on China’s standardization strategy—focusing on environmental sci-ence, information technology, agriculture, and manufacturing—due to be com-pleted in 2004.21

The logic of this line of policy thinking becomes clearer if we againconsider China’s place in the international division of labor. While the techno-logical levels of Chinese enterprises have risen markedly since the early 1980s,principally as a result of massive amounts of international technology trans-fer, as well as high levels of foreign investment in Chinese industrial modern-ization and technological development, and in light of the nature of global op-erations of multinational firms invested in the country, China has become con-cerned about becoming excessively dependent on foreign technology at the

18 See “Xu Guanhua on PRC’s S&T Strategies to Cope with WTO,” Beijing ZhongguoXinwen She, translated in FBIS-CHI-2002-0109, January 9, 2002; “Chinese S&T Minister onPlans to Launch Research into 12 Key Technologies,” Beijing Xinhua in English, in FBIS-CHI2002-0109, January 9, 2002; and “China’s S&T Minister Xu Guanhua Says PRC to Introduce ITin Traditional Industries,” Beijing Xinhua Hong Kong Service, January 10, 2000, trans. in FBISCHI-2002-0110.

19 Standards Administration of China (SAC), “Using Standardization to Protect and Pro-mote the Development of China’s National Industry,” SAC website, November 23, 2001, <http://sac.gov.cn/articles/1351.htm>.

20 Chen Zhigang, “China Starts Standardization Strategy: WLAN Standard is the Touch-stone,” China 21st Century Economic Report, December 27, 2003, <http://tech.sina.com.cn/it/t/2003-12-27/1054274244.shtml>.

21 Ibid.


expense of the development of a more advanced national innovation systemof its own. It has also become increasingly concerned about the flow of ben-efits to different participants in the international division of labor and aboutthe relative gains accruing to the standard setters in international productionnetworks. In this sense, China’s interest in developing its own technical stan-dards should be seen as a strategic response to a global economy in whichstandards have become far more important for determining the gains fromglobalization. As Sangbae Kim and Jeffrey Hart have put it, “technologicalcompetition in the global information industries—the leading sector in the con-temporary global political economy—is currently moving beyond competitionover technological innovation per se. The technological winner is now the onewho manages to control de facto market standards while at the same timeprotecting intellectual property rights.”22

Responding to this reality, though, requires deft execution in a globaleconomy where established standards already provide a framework for suc-cessful economic activities. As such, it illustrates many of the dilemmas facedby developing countries seeking to upgrade their position in the internationaldivision of labor through a national innovation strategy.

“Deft execution” of a technology policy under conditions of globaliza-tion thus requires steering between the extremes of a narrow techno-nationalism likely to cause friction and resentment from trading partners and apossible marginalization of one’s own industry, and a techno-globalism insensi-tive to national economic interests. It involves instead moving towards whatAtsushi Yamada has termed “neo-techno-nationalism,” in which one sees both“expanded state commitments” to technological development (in keeping withtechno-nationalist assumptions), but also active public-private partnerships, amore welcoming openness toward foreigners in national technology programs,and greater commitment to international rule-making and policy coordination.The notion of neo-techno-nationalism accommodates these changes in waysthat the more established ideas of techno-nationalism and techno-globalism donot, as seen in Table 1.23

22 Sangbae Kim and Jeffrey A. Hart, “The Global Political Economy of Wintelism: A NewMode of Power and Governance in the Global Computer Industry,” in James M. Rosenau and J.P. Singh, eds., Information Technologies and Global Politics, Albany: State University of NewYork Press, 2002, p. 143

23 Atsushi Yamada, “Neo-Techno-Nationalism: How and Why It Grows,” Columbia Inter-national Affairs Online, March, 2000, <www.ciaonet.org/isa/yaa01>. See also Sylvia Ostry andRichard Nelson, Techno-Nationalism and Techno-Globalism: Conflict and Cooperation, Wash-ington, D.C.: The Brookings Institution, 1995; and Sandro Montresor, “Techno-globalism, Techno-nationalism and Technological Systems: Organizing the Evidence,” Technovation 21, 2001, pp.399–412.


Table 1: The “-isms” Compared

Techno- Techno- Neo-Techno-Nationalism Globalism Nationalism

Policy Goal: National interests Global interests, National interests,Promote whose by preventing by leveraging by leveraginginterests and how? globalization globalization globalization

Who leads Government Global market Private initiativeinnovation? targeting forces and public-private

partnerships

Open/closed toward Closed Open Open under certainforeigners conditions

Prospects for Conflict Cooperation Cooperation andconflict/cooperation conflict

Source: Yamada, see footnote 23.

China has long pursued technological strategies motivated by nation-alism, and elements of techno-nationalism are clearly still evident in contem-porary research, technology, and industrial policies. At the same time, manyof the themes of techno-nationalism from an earlier era have been muted inthe internationalization of the past 20 years, and at least some Chinese lead-ers seem to be genuinely interested in strategies for reconciling techno-nationalism with techno-globalism, as support for joining the WTO would sug-gest.24 Efforts to balance techno-nationalism and techno-globalism in today’sworld involve making global institutions, such as the WTO and internationalstandards bodies such as the International Organization for Standardization(ISO), the International Electrotechnical Commission (IEC), and the Interna-tional Telecommunication Union (ITU) work in one’s favor, and having thecapacities for innovation to turn global technological trends to one’s advan-tage. Nowhere is this clearer than in current interest in “winning technology

24 The current efforts to solicit opinions and suggestions from the international commu-nity on the drafting of China’s Long-Term S&T Development Plan for 2020 is another interest-ing example of the attempt at reconciling techno-globalism and techno-nationalism. As ChengLi has noted, there is a range of elite opinions on the techno-nationalism versus techno-globalismissue. Given the importance of science and technology to the Chinese leadership, the ways inwhich differences of opinion are resolved should have an important effect on Chinese interna-tional orientation. See Cheng Li, China’s Leaders: The New Generation, Lanham: Rowman &Littlefield Publishers, Inc., 2001.


wars” through the control of “architecture,” to paraphrase the title of a 1993Harvard Business Review article by Charles Morris and Charles Ferguson,a war which involves the standards, rules, and protocols which constitutetoday’s technological systems.25

While there is no evidence that Chinese science and technologypolicymakers have read Morris and Ferguson, there is much in the statementsof intent found in China’s post-WTO technology policy that resonates withtheir observation that, “Simply stated, competitive success flows to the com-pany that manages to establish proprietary architectural control over a broad,fast-moving, competitive space.... An architectural controller is a company thatcontrols one or more of the standards by which the entire information pack-age is assembled.”26

Compare this, for instance, with the recent observations of Qin Haiboand Cheng Lilong who complain that foreign industry leaders control the “coretechnologies” and are thus “on the top of the industry chain, while domesticplayers can only earn meager assembling and processing charges. What ismore alarming is that by harnessing their technology standards, foreign ven-dors have carved up the circle of the game and game rules. Thus, homegrownvendors cannot but dance to their tune and stand no chance of excelling.”27

Interest in technological architecture has grown in recent years in re-sponse to the rise of global production networks, new opportunities for modu-larity in manufacturing, and new approaches to the horizontal integration ofproduction, especially in the information and communications industries. AsKim and Hart have observed, interest in the open ICT architecture and theglobal dominance of Windows and Intel (“Wintelism”) have called attention tocritical features of Wintel-based international production networks: the impor-tance of having attendant technologies be compatible with Wintel architec-ture, the positive externalities which redound to the successful first moversonce attendant technologies become linked together in a network form, the

25 As employed with reference to ICT production networks, “architecture” is defined asfollows: “…for each layer of the network there are published standards and interface protocolsthat allow hardware and software products from many vendors to blend seamlessly into the net-work. The standards define how programs and commands will work and how data will movearound the system—the communication protocols and formats that hardware components mustadhere to, the rules for exchanging signals between application software and the operating sys-tem, the processor’s command structure, the allowable font descriptions for a printer, and soforth.” Charles Morris and Charles H. Ferguson, “How Architecture Wins Technology Wars,”Harvard Business Review, March–April 1993, p. 88.

26 Ibid., p. 87.27 Qin and Cheng, “Implications of Sino-US Dispute over WLAN Standard.”


28 “Choosing the right degree of openness and the right amount of intellectual propertyenforcement continues to be one of the most subtle and difficult decisions in the Wintelist world.”Sangbae Kim and Jeffrey A. Hart, “The Global Political Economy of Wintelism: New Modalitiesof Technology and Power,” article prepared for a symposium on Information, Power, and Glo-balization at the annual meeting of the American Political Science Association, Boston, Mass.,September 2, 1998, <www.vii.org/papers/wintlism.htm>. Cited with permission of the author.

29 Ibid.30 Zixiang (Alex) Tan, “Product Cycle, Wintelism, and Cross-national Production Net-

works (CPN) for Developing Countries,” INFO: The Journal of Policy, Regulation and Strategyfor Telecommunications, vol. 4, no. 6 (September 2002).

31 Dan Gillmor, “China Tries to Establish Homegrown Tech Rules,” Mercury News, Decem-ber 14, 2003.

32 Sherman So, “Low-cost Chip Is Made for China,” South China Morning Post, February17, 2004, <www.chinastudygroup.org>.

importance for first movers of protecting intellectual property rights in the in-terest of appropriating profits in the face of a high degree of open standards,28

and the close relationship between the technology and its institutional setting(i.e., its “embeddedness”).29

With reference to the Chinese telecommunications equipment indus-try, Alex Tan has argued that “Wintelism” makes it possible for rising compa-nies in countries like China to participate profitably in the globalized computer,telecommunications, and information industries. At the same time, it is verydifficult for them to redefine the architecture itself, and thus to capture thegains from network externalities which are realized by successful first mov-ers.30 While operating within the architecture established by others can be prof-itable for companies in developing countries, doing so involves costs whichmany find offensive and would like to avoid. As one recent report on China’sstandard-setting aspirations put it: “Today’s vital technology standards arelargely controlled by companies and consortia from the developed world. Chinaand other nations effectively pay taxes to American, Japanese, and Europeancompanies in order to use the standards in a variety of fields including com-puters, communications, and personal technology.”31 These “taxes” can be sub-stantial and can cut deeply into the profit margins of local companies. Onerecent report stated that somewhere between 50 and 70 percent of the manu-facturing costs of a Chinese-made PC go to license fees paid to Microsoftand Intel.32

A consideration of technological architecture thus implies, in principle,at least two ways that a national technology strategy might reconcile the forcesof techno-nationalism and techno-globalism. In one, the “fast follower” mode,the dominant architecture is generally accepted, and attention becomes directedtoward new products and services, offering opportunities for wealth creation,within the spaces provided by the open architecture. In this approach, the


techno-globalism represented by the dominant architecture is not normally chal-lenged, and serves as a type of collective good, infrastructure, or frameworkwithin which a variety of attendant innovative technologies can be developed,produced, and marketed, albeit at a price. A second approach, however, wouldbe to challenge the dominant architecture, attempt to replace it with a newone, and bear the costs of providing the collective good.33

The latter is a higher-risk, and often more costly, undertaking whichis likely to be chosen only by countries (or firms) with substantial resources—deep pockets, large markets which would find a new architecture economi-cally attractive and institutionally or culturally appealing, an innovative researchand development system linked to an economy of proven productivity, and sub-stantial political power to manage such large risks. It might also be undertakenby countries which are dissatisfied with the royalties they must pay to the IPR-controlling first movers, and countries which feel fundamentally uncomfort-able with the configuration of “structural power” or “technological hegemony”enjoyed by architectural controllers,34 or by dissatisfaction with performancefeatures of the dominant architecture.35

In some but not all respects, China fits the profile of a country seekingto move beyond the “fast follower” role it has been playing and challenge thedominant architecture. In spite of the considerable absolute gains China hasrealized from working within the established architecture, the emphasis nowplaced on the development of distinctive Chinese technical standards in its post-WTO technology policy suggests that it is taking tentative steps to initiate sucha challenge in light of its dissatisfaction with the distribution of relative gains.As one observer put it, “China isn’t just reluctant to pay what amounts to taxesto the developed world owners of global technology standards. With the largestdomestic market on the planet, at least potentially, plus an increasingly creativeand well educated workforce, China is creating its own competitive set of stan-dards for its own market, although the global potential is obvious.”36

33 For an interesting discussion comparing Korea’s “fast follower” strategy on 3G tele-phony with China’s approach to redefine the standard and challenge the architecture, see BarryNaughton and Adam Segal, “China in Search of a Workable Model: Technology Development inthe New Millennium,” in William Keller and Richard Samuels, eds., Crisis and Innovation: AsianTechnology after the Millennium, New York: Cambridge University Press, 2003.

34 Kim and Hart, “The Global Political Economy of Wintelism.”35 The current worldwide problems with computer viruses and worms associated with

Microsoft products is cited as one reason for a Japanese initiative at the recent ASEAN meetingto launch a new cooperative project involving China and South Korea, as well as Japan, for thedevelopment of a new operating system for “smart devices.” See Martyn Williams, Infoworld,September 2, 2003, Japan, Korea, China to Break Windows Ties,” <www.infoworld.com/article/03/09/02/HNbreakties_1.html>.

36 Gillmor, “China Tries to Establish Homegrown Tech Rules.”


Clearly, however, such challenges do carry risks. National efforts toestablish distinctive standards can lead to costly failures and technological deadends, and could have high opportunity costs for smaller firms which might beled to forego profitable opportunities within the dominant international archi-tecture in order to follow the national guidance in support of new standards.37

As further discussed below, they can also lead to increasing frictions in theinternational trading system and, by eroding trust among trading partners, beself-defeating.38 Of course, China enjoys an edge as a challenger by virtueof its large population, the market this population represents, and the creativepotential of its scientific and engineering manpower. As discussed recently inone report, “By creating homegrown technical standards, China is trying toincrease the use of Chinese innovations worldwide. And it is using its ownlarge domestic market to help speed up their adoption. By requiring the stan-dards to be used on technical products in China, international companies thatwant access to that market are forced to make products that use them.”39

In a similar vein, Lester Ross has recently observed that market sizeand conditions “where dynamic technological developments threatened toeclipse existing standards” are the factors which encourage Chinesepolicymakers to formulate domestic standards, “....in the expectation that mar-ket size may result in international adoption of the PRC standard. Such stan-dards-based trade policy would favor PRC producers, and encourage tech-nology transfer on favorable terms by foreign technology providers, especiallysecond-tier players, and reduce the PRC’s obligation to pay license fees androyalties to such providers. In other words, the prospect of local standardsbecoming the basis for international standards, or alternatively of an extendedperiod in which local standards prevail in the absence of harmonized interna-tional standards, will reward domestic producers for their technologies andthereby foster innovation.”40

37 Tan, “Product Cycle, Wintelism, and Cross-national Production Networks (CPN) forDeveloping Countries.”

38 See “US IT Group Protests China’s Foreign Software Ban,” Business Standard, August26, 2003.

39 Evan Ramstad, “In Tech, China’s Setting the Standard,” The Wall Street Journal, Sep-tember 10, 2003, p. A22. In a recent conference paper, Maximilian von Zedtwitz has suggestedthat the importance of standards is one of the factors considered when MNCs decide to locateR&D facilities in China. He notes, “Since China is…a sizable and fast developing market insome product categories, the technical standard that is established in China may have a betterchance of becoming a world standard.” Maximilian von Zedtwitz, “Managing Foreign R&D Labo-ratories in China” (unpublished paper). We are grateful to Professor von Zedtwitz for sharingthis paper with us.

40 Ross, “Regulatory Foundations for Chinese Technological Development.”


Standards and the Trading System

The relationship between the establishment of national technical stan-dards and the maintenance of an efficient international trading system is notwithout ambiguity. As economists have long recognized, an effective systemof standards serves the public good by facilitating economic cooperation. Inthis view,

Standards can lower production and usage costs through economies of scale

in production, increase the level of competition by promoting interchange-

ability, compatibility, and coordination, and lower transaction costs by low-ering information and search costs.... standards can also have the effect of

increasing the level and efficiency of international trade. Using standards,

firms can produce goods with internationally recognized weight, size, com-position, quality, and performance characteristics or alternatively specify their

products characteristics on these dimensions....”41

On the other hand, standards can also be used to inhibit trade. A na-tional standards system can negatively affect costs and prices, and thus prod-uct availability, either inadvertently or as a result of intentional policy design.42

It was the latter which became a special concern in the 1970s and 1980s, andled to explicit attention during the Tokyo Round of GATT negotiations. Particu-lar interest was directed at the Japanese standards system and allegations thatit was being used as a technical barrier to trade (TBT).43 Similar concerns arebeing heard about the uses of standards in China in the post-WTO period.

Under the WTO’s Agreement on Technical Barriers to Trade (TBT),which China has joined, formal provisions to discourage using standards asTBT’s have been strengthened, but implementation has been difficult.44 Themain principles to which WTO members are expected to subscribe, contained

41 Donald J. Lecrew, “Japanese Standards: A Barrier to Trade?” in H. Landis Gabel, ed.,Product Standardization and Competitive Strategy, Amsterdam: Elsevier Science Publishing, 1987,pp. 29–46.

42 Ibid.43 As with other countries, the Japanese system had laudatory objectives—to “increase the

efficiency and technological progress of Japanese industry by fostering product compatibility,interchangeability, rationalization, simplification and upgrading of products and processes; qual-ity control; export promotion to the development of a quality image for Japanese products…and;protection of the health and safety of workers and consumers, environmental protection, andconservation of materials and energy.” Ibid., pp. 30–31. Yet, as employed as a tool of industrialpolicy, standards often took the form of a TBT.

44 Only one case has actually been brought—by Peru, against the EU on the issue of sardines.Timothy Weinland, U.S. Department of Commerce, personal communication, December 2003.


in the Code of Good Practice for the Preparation, Adoption, and Applicationof Standards (Annex 3 of the Agreement), include commitments to nationaltreatment, to harmonizing domestic standards (and to the extent possible, do-mestic standards with international standards) and to principles of transpar-ency in the setting of standards.45 More generally, “The (national) standardiz-ing body shall ensure that standards are not prepared, adopted or applied witha view to, or with the effect of, creating unnecessary obstacles to interna-tional trade” (Provision E).

China’s commitment to these principles is being questioned by inter-ested foreign parties, although with regard to harmonization, China claims thatit has become far more active in bringing its standards into conformity withinternational standards and has become more active in the setting of interna-tional standards through the ISO, IEC, and ITU.46 In addition, China has takena number of steps intended to bring itself into the conformity with the otherprinciples. For instance, at the time of WTO accession, China agreed to makeimportant changes in its standards regime, pledging to give up the system ofseparate safety certification standards for domestic and imported products (the“Great Wall” and “CCIB” marks, respectively) in favor of the new unified“CCC” standard. It also agreed to reorganize and merge its standards bu-reaucracy.47

The New Standards Regime

As noted, with accession to the WTO China pledged to reform itsstandards system and has been doing so over the past few years. Thesechanges in the Chinese standards regime are usefully seen against the evolu-tion of standards institutions and the assumptions underlying these institutions.A strong standards system was characteristic of Soviet-inspired centrallyplanned economies of the past on the assumption that standards facilitatedthe application of new knowledge to improve the economy. The relevance ofstandards for market-based international trade, however, was not prominent.

45 Standards issues also come up in a variety of other WTO agreements and contexts, especially inthe Agreement on the Application of Sanitary and Phytosanitary Measures (SPS), in various issuesdealing with trade and environment, and in the Government Procurement Agreement.

46 According to a 2001 report, for instance, China is now a member of more than 100 fullcommittees and 500 technical subcommittees of the ISO, and belongs to 85 technical commit-tees (and 124 subcommittees) of the IEC. It has submitted approximately 40 draft standards toISO and IEC, some of which have been accepted. Of China’s roughly 20,000 national standards,more than 8000 are said to conform to international standards, <www.eastday.com>, October14, 2001, at <www.china.org.cn>.

47 Ann Weeks and Dennis Chan, “Navigating Chinese Standards Regime,” The China Busi-ness Review, May–June 2003, <www.chinabusinessreview.com/0305/weeks.html>.


The pre-1978 Chinese standards system was influenced by this thinking, buthad also been terribly disrupted by the radical politics of the late 1950s andthe Cultural Revolution years when technical expertise, so essential for soundstandard setting, was devalued as a matter of national policy.48

With the initiation of the reform and open-door policies after 1978,the Chinese standardization system faced new challenges to become morescience based, market responsive, and international. China’s participation inthe ISO, the IEC, and the ITU has moved it in these directions but also rein-forces its strong tradition of state-directed economic activity, and biases itsapproach to standards in a direction that favors mandatory standards and theemployment of formal international organizations for the establishment of in-ternational standards. In this sense, the Chinese approach shows a greatersimilarity with European and Japanese traditions than with the U.S. systemwith its preference for voluntary standards generated through market processesand industry cooperation. Cooperation on standards between Europe and China,aided by these similarities in institutional assumptions, has become a matterof concern to some U.S. firms which see it as bestowing advantage to Euro-pean competitors in the Chinese market.

In keeping with its WTO obligations, China established a new minis-terial-level body, the Administration for Quality Supervision Inspection andQuarantine (AQSIQ), by merging the State Administration for Entry-ExitInspection and Quarantine with the State Quality and Technical SupervisionBureau. The new Standards Administration of China (SAC), noted above, wasestablished in 2001 under AQSIQ to develop the Chinese standards agendaand help bring domestic standards into alignment with international standards.It has responsibility for the management and coordination of the 260 technicalcommittees and 422 subcommittees (consisting of 27,800 technical special-ists) used for drafting standards, and oversees the standard-setting activitiesof other central government agencies. A China National Regulatory Commis-sion for Certification and Accreditation has also been established under AQSIQwith responsibility for the administration of the CCC process. In addition, aTechnical Barriers to Trade Inquiry Center has been set up under AQSIQwhich maintains regular contact with the WTO’s TBT office in Geneva, andis intended to be a transparent, ready point of access to companies seekinginformation on Chinese standards.49

48 For an analysis of this socialist standards legacy in China, see Eric Baark, “IndustrialStandardization in the People’s Republic of China,” The China Business Review, March–April1978, pp. 15–23.

49 Weeks and Chen, “Navigating Chinese Standards Regime.”


In their recent review of China’s post-WTO standards regime, Weeksand Chen note that while the above steps can be viewed as positive develop-ments, foreign companies still express a number of concerns about Chinesestandardization practices.50 Some are focused mainly on the use of the CCCmark and relate to the uses of certification to detain ships importing foreigngoods, to certification approval processes that are unreasonably lengthy, tothe use of testing bodies which are not independent and which may have pro-prietary interests in the standards for which they are testing, to duplicativetesting requirements, and to the high cost of certification.

Of greater concern for our purposes here are practices relating tothe setting of technical standards, where Weeks and Chen report that foreigncompanies have concerns that China is not living up to its obligations for trans-parency and national treatment in its standard-setting practices. Foreign firmscomplain about not having advanced notice of plans for new standards andobserve that the process of drafting standards often “remains opaque.” Tothe extent that foreign companies are involved in the drafting of standards,their role is usually that of observer, with the Chinese side being especiallyreluctant to invite foreign participation in high-tech areas. Reportedly, harmo-nization of standard-setting activities is weak, both domestically and with re-gard to efforts to harmonize Chinese and international standards. With refer-ence to the former, standards are being set not only at the national level, butalso at the local government level and within different industrial systems. Ef-forts to bring consistency to these activities have been disappointing, accord-ing to reports. Chinese reports that more than 8000 domestic standards havebeen reconciled with international practices is seen by Weeks and Chen asmisleading.51 They are thus led to observe that in spite of considerable changein the Chinese standards regime, “the changes are as much about installing asystem that bolsters the competitiveness of Chinese products in overseas mar-kets as conforming to international practices.”52

Although SAC has formal authority for establishing standards, otheractors play more significant roles in the actual development of standards andtheir use in technology strategies. Perhaps the most active players have beenthe Ministry of the Information Industry (MII), other central ministries andcommissions with portfolios relating to high technology, and offices of the StateCouncil. These agencies sponsor the technical committees which develop stan-

50 Ibid.51 Ibid. According to Weeks and Chen, only slightly more than 2000 national standards

were identical to international standards, while almost 3800 were not identical.52 Ibid.


dards and coordinate R&D activities in support of this work. The China Elec-tronics Standardization Institute (CESI), discussed further below, plays an es-pecially important role in the IT industry. As an umbrella group overseeing aseries of technical committees, and sponsored by MII, SAC, the InformatizationOffice of the State Council, and the Ministry of Science and Technology(MOST), it has coordinated a number of important MII and MOST-supportedprojects, such as the MOST-sponsored “Research on Key Technical Stan-dards for Chinese Information Processing.”53

We are also seeing a more active role in standard setting from Chi-nese companies and industrial associations, a fact which is likely to make thepolitics of standards more complicated as the number of interested actorsincreases. The growth of industrial associations in China raises the questionof whether these will play a more independent role in standards developmentand lead to changes in institutional assumptions about the role of the state instandard setting. At the moment, the associations have a very intimate anddependent relationship with the government, and in the short run, the growthof such associations is unlikely to diminish the dominant role of the state instandard setting or signal a move towards a more voluntaristic approach tostandards. Over time, though, we may see movement in this direction.

The WAPI Case

The recently issued and controversial security standards for wirelesslocal area networks (WLAN) illustrate the operation of the new standardsdevelopment system and why it is contributing to concerns that China is notliving up to its obligations under the TBT Agreement. According to the USTR,China issued two new mandatory standards for encryption in May 2003 whichwere to go into effect in December 2003, were delayed until June 2004, buthave now been postponed indefinitely as a result of U.S. government and in-dustry protests. The standards apply to both domestically produced and im-ported equipment such as Centrino notebooks and personal digital assistants(PDAs) and other devices which promise to make wireless technologies thefoundation for a multibillion-dollar industry. The WAPI (WLAN Authentica-tion and Privacy Infrastructure) encryption technology, which China is pro-posing as its standard, “differs significantly from the internationally recognized

53 Gao Lin, “Chinese Linux Standardization: An Update,” report delivered at the SecondAsia OSS Symposium, Singapore, November 3–4, 2003, <www.cicc.org.sg/aoss-2/present/china.pdf>.


standard that U.S. companies have adopted for global production.”54 Chinahas provided the algorithms needed for the encryption to 24 Chinese compa-nies, some of which are likely to be competitors with foreign firms. Foreigncompanies wishing to gain access to the technology will have to work throughthese Chinese counterparts. This may entail providing “technical product speci-fications” to potential competitors if they want to market their products in China,and seems to be a clear violation of national treatment under the TBT provi-sions. The new standard is also likely to increase manufacturing costs if itmeans that foreign companies will have to make one type of device for therest of the world and a special one for China.55 Thus, from the U.S. perspec-tive, China is denying national treatment to imported products, it is using “stan-dards that are more trade restrictive than necessary to fulfill a legitimate ob-jective,” and it is adopting a new standard which is not in compliance withaccepted international standards. While this case might be actionable underWTO rules, the United States is not at this time planning to bring the case tothe WTO.56 As noted above, WTO members may not be bound by Annex 3provisions if standards pertain to matters of national security, and some of thearguments heard from China on the WAPI case do invoke national securityconcerns. Representatives of the U.S. IT industry have rejected the nationalsecurity argument, however, and urged the U.S. government to press Chinato abandon or modify its policy on the WAPI standard at bilateral trade talksthat were scheduled for April.57 In response to continuing pressure from in-dustry, the Bush administration then ratcheted up its expressions of concernabout this case to the Chinese government in a letter directed to Vice Pre-miers Wu Yi and Zeng Peiyan signed by Secretary of State Colin Powell, Sec-retary of Commerce Donald Evans, and U.S. Trade Representative RobertZoellick.58 At the April talks, the Chinese side agreed to postpone implemen-tation of the WAPI standard.59

The development of the WAPI standard nicely demonstrates how stan-dards policy builds on and reinforces the trends in the development of China’s

54 The existing 802.11 Wi-Fi standard which is being supported by the IEEE.55 Reuters, “US Has No Plan for WTO Case on China Wi-Fi Rules,” February 19, 2004.56 Ibid.57 Doug Palmer, “Business Urges US Turn Up Heat on China Wi-Fi Rules,” Reuters, Febru-

ary 24, 2004.58 Steve Lohr, “US Pressing China To Yield on Wireless Encryption,” New York Times,

March 4, 2004, p. C9.59 The outcome of the April trade talks indicate that China’s standards strategy also gives

its trade officials new bargaining chips in trade negotiations even if the objective of establishinga new standard has to be delayed for a period. Hence, the Chinese side could give a bit on theWAPI standard in return for concessions from the U.S. side.


national innovation system noted at the outset. The standard, now also en-dorsed by the State Encryption Management Committee, grows out of the ac-tivities of the China Broadband Wireless IP Standard Working Group (BWIPS)organized by MII in 2001. Membership includes the important China Elec-tronics Standardization Institute (CESI), noted above, and over 20 universi-ties, research institutes, and companies.60 Many of the latter owe their exist-ence to the reforms in the science and technology system which prompteduniversities and research institutes to spin-off commercial high technologyfirms. The group leader of BWIPS is one such firm, IWNCOMM Co. Ltd.,started by XiDian (Xian Telecommunications) University, which is also a mem-ber of the working group. A closer look at IWNCOMM indicates that it hasbeen working on the technology since the early 1990s, initially in cooperationwith Japan, that it maintains close relationships with the key national labora-tories61 at XiDian from which it was established, and that it has enjoyed im-portant research support from the “863” Program and from China’s NationalScience Foundation.62

The WAPI case also illustrates some of the subtleties and implica-tions of the new techno-nationalism. Efforts to explain the genesis of policysupporting the WAPI standard have called attention to the national securityinterests in the standard, and the likely involvement of Chinese defense andsecurity agencies in its development. National pride and interest in promotingChinese industry also plays an important role and reinforces the view thatChina is uneasy about the considerable influence which U.S. companies andgovernment agencies have in international standard setting. In this view, “Chi-nese IT enterprises are already in a position to compete for core technology...”and with the Chinese IT industry now ranked third in the world in size, “China

60 The Working Group includes the following members: China Electronics StandardizationInstitute, XiDian University, China IWNCOMM Co., Ltd., Beijing Institute of Post and Tele-communications, Xi’an Jiaotong University, Xi’an Institute of Post and Telecommunications,Hanwang Technologies, Inc., Guilin University of Electronic Technology, Research Center forCommercial Key of China, National Radio Monitoring Center, Huawei, Ltd. Beijing LHWTMicroeletronics, Inc., Legend, Beijing Digipro Information Technology Co. Ltd., ZTE Corpora-tion, Shanghai Sibo Telecom Co., Ltd., GCI Science & Technology Co,.Ltd., Shanghai HammInformation Technology Co., Ltd., TCL Communication Equipment Co., Ltd., and Netac Tech-nology Co., Ltd. See <http://www.chinabwips.org>.

61 Key national laboratories are centers of excellence recognized by the national govern-ment which receive special funding. Many were established with help from the World Bank.

62 In this sense, the history of IWNCOMM’s work in this area illustrates very nicely theingredients in China’s technology development strategy: cooperation with technologically so-phisticated foreign partners, financial support from targeted national R&D programs, and insti-tutional reforms which have released a new entrepreneurship emerging at universities and re-search institutes for the creation of spin-off firms, or “new technology enterprises,” which arehelping to bring research results to the market. See Appendix 1.


has set itself the goal of evolving from a big IT country into an IT power.”63

A third explanation calls attention to the fact that the existing Wi-Fi standardscoming from the international system leave much to be desired and that muchbetter wireless security for consumers and users of wireless products couldbe achieved with a new standard.64

There has been a troubling unilateralism, reminiscent of an oldertechno-nationalism, to the introduction of the WAPI standard that distinguishesit from other high-profile cases of standard setting. One thinks, in particular,of the third-generation mobile telephony case and the introduction of the TD-SCDMA standard. In the latter, the technology was developed in cooperationwith Siemens, and other MNCs have had a role in its unfolding. Significantly,Chinese efforts were brought to the international standards community andthe TD-SCDMA standard was recognized by the ITU. While the Chinese gov-ernment continues active efforts through research support, licensing, and in-vestment guidance to promote TD-SCDMA as a means to support Chinesetelecom firms, it has also been reluctant to select TD-SCDMA as the onlypermissible technology, as is the case with WAPI.65

Further evidence of the complexities is found in reactions from for-eign companies. Most have maintained a united front in opposing the WAPIstandard, and most MNC industry leaders would probably agree with GeorgeScalise, president of the U.S. Semiconductor Industry Association, that “aunique Chinese national standard will slow the development of China’s infor-mation technology industries because it will hamper the ability of Chinese firmsto access the innovations emerging from thousands of companies around theworld.”66 Yet, we should also consider the possibility that some MNCs willfind it in their interest to work with Chinese counterparts on the WAPI mat-ter. Recently, for instance, it was reported that Texas Instruments indicatedits intention to support the WAPI standard, with TI’s general manager for Asia,Mr. Cheng Tianzong, being quoted as observing that it was reasonable for Chinato make its own standards in light of its national security concerns and that,furthermore, Texas Instruments needs the Chinese market and wants to co-operate with Chinese enterprises.67 Although this report has since been de-

63 Qin and Cheng, “Implications of Sino-US Dispute over WLAN Standard.”64 Loring Wirbel, “Deconstructing China’s WAPI,” EETimes, January 12, 2004, <http://

www.eetimes.com/story/OEG20040112S0046>.65 Cao, “Technological Capability, Standards, Industrial Policy, and the Market: The Third

Generation Mobile Communications in China.”66 Cited in Tony Smith, “US Chip Biz Tells China to Ditch Local WLAN Standard,” The

Register, February 25, 2004, <http://www.theregister.co.uk/content/69/35832.html>.67 “Texas Instruments Announces It Will Support Chinese WAPI. Will Come out with Chip

by June,” NetEase, February 6, 2004, <http://tech.163.com/tm/040206_126124.html>.


nied by Texas Instruments,68 it does point to the possibility that foreign firmsmight find a competitive advantage in “breaking ranks” on a matter affectingaccess to what promises to be a very large market. If the WAPI standard isthe most important test case for the new standards-based approach to tech-nology policy, as some might argue, the defection of an important industryleader would lend support to the view that the size of the Chinese marketdoes indeed provide an important asset in China’s attempt to alter the “struc-tural power” relations in the global economy.

Software

As noted previously, one of the more prominent cases of Chinese ef-forts to alter established technological architecture has been the promotion ofa Linux-based operating system as an alternative to Windows. The Chinesesoftware industry is thus another interesting domain for examining the waysin which thinking about standards fits into government policy to encourage thedevelopment of new industries.

Throughout most of the post-1978 reform era, software has been agenerally underappreciated component of high technology industrialization inChina.69 Until the mid-1980s, most software was produced by research insti-tutes to serve highly specific functions with specialized hardware. This “era ofbundled software development” began to give way to an “era of microcom-puter systems” with the gradual appearance of PCs in China in the 1980s andthe need for operating systems and applications that were suitable to Chineseconditions, especially Chinese language requirements.70 It was in this periodthat one first began to see the appearance, from universities and researchinstitutes, of China’s spin-off “new technology enterprises” (Legend, Founder,Stone, etc.) in the IT field, responding to a growing awareness of the impor-tance of software for achieving the indigenization of IT. An “era of IT systems

68 Sharon Hampton, Texas Instruments, personal communication, March 8, 2004.69 As late as the year 2000, expenditures on hardware still accounted for about 90 percent

of Chinese IT spending. “Rethinking China Software Market,” report of the SIIA-USITO TradeMission to China, June–July 2002. Observers of Chinese trading practices have long noted Chi-nese reluctance to pay for something as intangible as software, a fact which certainly contrib-utes to the well-known piracy problems affecting the industry. Over the course of over twentyyears, though, attitudes toward software have clearly changed as part of a changing understand-ing of technology and technological innovation more generally. This change is marked by morevalue being placed on intangible know-how as opposed to the hardware- or machine-embodiedapproach to technology, which characterized much of the earlier reform era.

70 These different “eras” are outlined in Erik Baark, “The Evolution of Chinese SoftwareIndustry,” paper presented at the Conference on China’s Emerging Technological Trajectory inthe 21st Century, Rensselaerville, N.Y. September 2–7, 2003.


diffusion” characterized much of the 1990s as information technology prod-ucts, and especially telecommunications, grew very rapidly. In this period, onesaw both the birth of specialized software firms, and also new software pro-duction coming from the vendors of Information and Communication Technol-ogy (ICT) equipment, such as Huawei.71 The onset of the “era of the Internetand informatization” at the end of the 1990s has led to expectations of rapidgrowth in the software industry, to a significant elevation of the industry in thestate’s policy priorities, and to a much more active export orientation.72

This evolution of the Chinese software industry, at least until this mostrecent phase, has been quite different from India’s, where the growth of theindustry has been export-driven as a result of the outsourcing of services pro-vided by Indian firms to MNC industry leaders. By contrast, the needs of therapidly expanding domestic market, and in particular the need to make ICTmore culturally and linguistically congenial to Chinese users, have been muchmore important in the Chinese case.73

During the era of IT systems diffusion, between 1992 and 2000, thesoftware market grew at an average annual rate of 30 percent. During thisperiod, international companies established themselves as market leaders inChina74 with the result that by 2000, foreign corporations controlled 65 per-cent of the packaged software sales, with only two Chinese firms among thetop ten vendors.75 The continuing strength of foreign software firms in theChinese market is indicated in the following recent report from MII: “Foreignsoftware and software integration still account for 95.3 percent of the Chi-nese market. Microsoft still has a strong advantage on the desktop and serveroperating system market, and foreign products hold commanding positions

71 Ibid.72 Ibid. Reports of Chinese software exports during 2003 indicate a very rapid increase.

Exports from Beijing alone increased almost 49 percent over the previous year to a value ofslightly more than US$72 million, of which 90 percent was from foreign-invested firms. People’sDaily, September 27, 2003, <http://english.peopledaily.com.cn>. The Gartner Group estimatesthat China’s software exports will grow from US$ 850 million in 2002 to US$ 27 billion in2006. Raju Chellam, “China Can Become New Software Superpower,” Business Times, April 18,2003.

73 In 2000, only 6 percent of Chinese software output was for export. See Anna LeeSaxenian, “Government and Guanxi: The Chinese Software Industry in Transition. Global Soft-ware from Emerging Markets: An Engine for Growth?” Centre for New and Emerging Markets,London Business School, 2003, p. 17. See also T. Tschang and Lan Xue, “The Chinese SoftwareIndustry: A Strategy of Creating Products for the Domestic Market,” working paper, Asian De-velopment Bank, 2003.

74 For instance, a Chinese firm, Kingsoft, had roughly 90 percent of the word processingmarket in the early 1990s, but lost most of it to Microsoft after Word was introduced. CNETAsia,August 18, 2003, <http://asia.cnet.com/newstech/applications/0,39001094,39146335,00.htm>.

75 Saxenian, “Government and Guanxi.”


within the markets for high-end server operating systems, database manage-ment systems, and network management software.”76

The software industry is also plagued by significant human resourceproblems. Chinese universities, for instance, do not have well-developed soft-ware training programs. Although there have been approximately 500,000 gradu-ates in computer science over the past ten years, only about one-tenth of thesehave specialized in software development.77 One recent report predicted thatChina would need over 200,000 new programmers between 2004 and 2006,but that Chinese schools are only capable of turning out 20,000.78 Making mat-ters worse, the better graduates of China’s computer science programs oftenseek advanced degrees abroad, and increasingly, are in great demand fromMNCs operating in China. Turnover rates of software engineers among Chi-nese companies are also very high due to fierce competition for their talents.79

With the prospect of further foreign penetration into the software mar-ket looming with WTO accession, the future of the software industry beganto get new Chinese policy attention in 2000 with the promulgation of StateCouncil Document 18, “Notice of Certain Policies to Promote the Softwareand Integrated Circuit Industry Development,” which spelled out a number oftax and other incentives for the industry. This document involved interestingpolicy initiatives in a variety of areas which reflected not only the growingimportance given to software by the government, but more generally an ap-preciation of the changing nature of innovation in a knowledge-based economy.The first part of the policy package dealt with investment and financing andincluded measures to encourage venture capital, fund infrastructure develop-ment projects needed by the industry (including the establishment of ten na-tional software parks), encourage the establishment of a NASDAQ-type boardfor start-up companies, and establish new principles for equity contributionsfor the establishment of new firms, including the offering of intangible assetsas equity to the enterprise. The second part dealt with the tax policies, andprovides for a variety of tax incentives. The third section provided for R&Dsupport and for policies that make cooperative R&D with foreign partners pos-sible. As part of an effort to move software production into the export sector,

76 MII Department Economic Operations, “China Software Industry Development Report,2002,” <http://www.siia.net/divisions/global/MIIsoftwarereport2002.pdf>.

77 <http://www.whsuperich.com.cn/>.78 Ibid. See also Thomas Brizendine, “Software Integration in China,” China Business Re-

view, March–April, 2002, pp. 26–31.79 Saxenian, “Government and Guanxi.”


the fourth section of the policy package addresses export promotion incen-tives, including central government support for expenses incurred by enter-prises in securing ISO 9000 and CMM certification. A fifth part of the pack-age deals with the ongoing accreditation system for software enterprises andidentifies the Ministry of the Information Industry and the State Bureau ofQuality and Supervision as the bodies responsible for national standardizationproducts. The sixth section deals with a series of measures to strengthen IPRprotection in the software industry.80

Further support for the industry was promulgated in 2002 in State CouncilDocument 47, “Program of Action for Promotion of the Software Industry,”which offered more specific objectives for the implementation of Document18. Document 47 identifies a series of targets for the software industry by theyear 2005. These include the objective that the software market should reach avalue of 250 billion yuan (30 billion dollars) by that date, with 60 percent of thevalue coming from domestic firms. It calls for the building of 20 large softwarecompanies with revenue goals of 1 billion yuan, the development of 100 Chi-nese software brands, and that exports from Chinese companies should reachUS$1–2 billion. The number of software professionals should reach 800,000and China should have a 3 percent share of the global software market. Soft-ware research has subsequently been given an important place in the “863”Program. Importantly, a series of government-directed procurement plans—including an ambitious e-government initiative, encouragement of educationalsoftware, and preparations for the 2008 Beijing Olympics (“the digital Olym-pics”)—promise to create a robust “demand pull” policy for the software in-dustry. In addition, China’s policy for the software industry also calls for themerging and integration of smaller firms in order to build up national competi-tors81 to take on the challenges of the multinationals and to make softwarefeatures responsive to Chinese cultural tastes and organizational practices. Asone report put it, “as a result of language, cultural habit, government regulationand the individual demand of customers, foreign companies will face somebarriers in the application of software telecommunications, finance, taxationand e-government.” It goes on to say, however, that “stimulated by the country’s

80 ExperExchange, <http://www.china.org.cn/english/features/investment/36736.htm>, ac-cessed October 29, 2003.

81 In 2002, candidates for national champion status might have been found among the tenfirms who were singled out as the “life and soul” of the software industry. These included Neusoft,Ufsoft, Kingsoft, Newgrand, Powerise, AsiaInfo Technologies, Shandong Langchao Cheeloosoft,CVIC Software Engineering, Tongtech, and TRS. See People’s Daily, March 22, 2002, <http://english.peopledaily.com.cn>.


policy of encouraging merger and acquisition of foreign investment, positiveparticipation of foreign investors in these fields is also expected.”82

China’s use of government procurement as an instrument of technol-ogy policy is a rather recent phenomenon. In 1998 procurement was 3.1 bil-lion yuan, accounting for a mere 0.04 percent of GDP or 0.29 percent of gov-ernment expenditure. However, procurement activities have grown rapidlysince then, reaching 101 billion yuan (roughly US$12 billion) in 2002, amount-ing to 9.64 percent of GDP or 4.58 percent of government spending. AlthoughChina did not sign the WTO Government Procurement Agreement at the timeof accession, it indicated its willingness to do so in the future and pledged inthe meantime to gradually bring its procurement practices into rough harmonywith international practices. The passage of the Government Procurement Lawin 2002 is one important move in this direction; among the reasons for therelatively low level of procurement activity in China in the past had been theabsence of a clear legal framework and weak law-enforcement mechanisms,as well as a lack of universal standards.

At a time when WTO obligations are constraining China’s use of olderinstruments of industrial policy, being formally unconstrained in the procure-ment area provides an attractive tool for the state to pursue its technologicalpriorities, especially in software. Plans to increase government spending, in-cluding plans to promote e-government (e.g., through such efforts as the Gov-ernment Online Project) and the “informatization” (xinxi hua) of society moregenerally (through such programs as “Enterprise Online” and “Family Online”),open a number of opportunities for promoting software development throughprocurement and standard setting for procurement.83 Interestingly, in keepingwith our prior observations, the software component of e-government expendi-tures has only been about 8 percent. This is expected to increase, however, toabout 11 percent, or 5.8 billion yuan (US$699 million) in 2004.84 The overallgovernment software market in 2001 was worth 4 billion yuan, which repre-sented slightly over 14 percent of the software market as a whole. Governmentprocurement accounted for 14 percent of the platform software (operating

82 “Software Industry Pregnant with Opportunities,” tdctrade.com, February 4, 2003, <http://www.tdctrade.com/report/indprof/indprof_030202.htm>.

83 For interesting discussions of e-government in China, see Peter Lovelock and John Ure,“E-government in China,” unpublished paper; Zhang Junhua, “China’s ‘Government Online’ andAttempts to Gain Technical Legitimacy,” Asien: Deutsche Zeitschrift für Politik, Wirtschaft undKultur, no. 80 (July 2001); and Zhang Junhua, “A Critical Review of the Development of Chi-nese E-Government,” Perspectives, vol. 3, no. 7 (2002).

84 China Daily, February 12, 2003.


systems, database systems, etc.), slightly more than 22 percent of the“middleware” software (i.e., programs that connect two or more otherwiseseparate applications), and 13.5 percent of the applications software.85

Software promotion via government procurement has been promotedby the Informatization Office under the State Council, the most dramatic caseof which to date was the State Council’s August 2003 decision to require do-mestically produced software in all government ministries during the next cycleof software upgrades. The decision is intended to help raise the technical levelof the Chinese industry, but it is also expected to help break the hold of MicrosoftWindows operating systems and Microsoft Office on the PC environment byencouraging the adoption of Linux-based operating systems and office applica-tions such as Kingsoft’s WPS Office 2003. The policy, which is intended toraise the percentage of government employees using domestically producedsoftware from 30 percent to 100 percent, is justified as a means to support thedomestic software industry86 and to enhance information security in the face ofwidespread concerns about the level of security offered by Microsoft.

As with other standards initiatives, the procurement tool in the stan-dards strategy is backed by the research system. Again, CESI has an impor-tant role in linking standard setting at the policy level and technology develop-ment at the R&D level in promoting Linux for government software. For in-stance, with guidance from the Ministry of the Information Industry and theStandards Administration of China, CESI initiated a project through itsCLINUX technical working group to establish Linux standards for China. Thework was supported by the Ministry of Science and Technology through the“Research on Key Technical Standards for Chinese Information Processing”noted above (which was designated an “Important Standard Special Project”),and by a project entitled “Chinese Linux and Office Software Related Stan-dards and Specifications” under the “863” Program. Participating in the work-ing group were such software producers and research institutes as Sun WahLinux, Ltd. (a Hong Kong-based software producer), the Software Instituteof the Chinese Academy of Sciences, its spin-off company, Red Flag Linux,

85 China Information World, 2002.86 According to an official with the State Assets Supervision and Administration Commis-

sion, “The domestic software industry is very insulated. There is poor interaction and partner-ship with user companies. The increased use of domestic software will make the Chinese soft-ware industry more open.” CNETAsia, “China blocks foreign software use in gov’t,” CNETAsia,August 18, 2003, <http://asia.cnet.com/newstech/applications/0,39001094,39146335,00.htm>.


and COSIX Linux (an important Chinese Linux developer).87 The goals forthis work included efforts to ensure that interfaces used by local companiesare similar and that they use the same codes for Chinese characters and forbuilding links between operating systems and applications. Recently, theCLINUX working group reported that they had draft standards for a LinuxApplications Program Interface, for Linux desktop and server operating sys-tems, and for a new user interface.88

Understandably, foreign companies were not happy with the StateCouncil’s 2003 decision. In the United States, the Information Technology As-sociation of America (ITAA) reacted strongly to the Chinese decision and ini-tially directed their concerns to both Jin Xiaoming, Minister-Counselor for Sci-ence and Technology at the Chinese Embassy in Washington, and to the sec-retary-general of CIITA in Beijing, Liu Chunlu, arguing that the policy wasprotectionist and that it would be detrimental to software users in governmentwho would be denied access to choices among the best technologies avail-able. The USTR has also flagged this case in its 2003 Report to Congressand indicates that it will continue to press China to change its policy.

This State Council procurement decision is usefully seen in a broadercontext of Linux-related issues and initiatives. First, efforts to shake the domi-nance of the Windows operating system have been underway for a few yearsnow under the banner of the open-source movement. China’s problems withMicrosoft are not unique, as recent reports of dissatisfactions with Microsoftfrom the governments of Germany, Brazil, and elsewhere illustrate. China maybe more intent on launching a viable alternative to Windows than other coun-tries, but as noted below, its chances may be less with the PC operating sys-tem than with software for other devices. Second, it remains to be seen howfully the State Council’s decision will be implemented. Given the existing fa-miliarity with Windows, ready availability of pirated copies, and some recog-nized performance advantages of Microsoft products over the Chinese alter-natives, it seems quite likely that those within government offices will con-tinue to use Microsoft products. As one industry observer noted, only partly

87 Gao, “Chinese Linux Standardization: An Update.” Red Flag is anxious to develop reli-able word processors and spreadsheets. Red Flag sold about 1.3 million copies of its operatingsystem in 2002 mainly to PC manufacturers who bundled it with about 10 percent of the ma-chines sold in China. However, since pirated versions of Windows are so readily available, mostnew buyers quickly install Windows as well. See also Financial Times, August 21, 2003, p. 26, inHOSTINGTECH, October 29, 2003, <www.cicc.org.sg/aoss-2/present/China/china.pdf>.

88 “Zhongguo Linux biaozhun hu zhi yu chu si fen guifan caoan yi wancheng,” <http://tech.sina.com.cn/it/2004-03-04/0156300477.shtml>.


in jest, government bureaucrats are likely to run Microsoft products until theyare subject to supervision and inspection, at which point they will reboot toRed Flag Linux and WPS Office 2003 before returning to Windows modeafter the inspectors leave!89

A more serious issue in the procurement story, perhaps, is the matterof security. As in other countries, Chinese officials and Windows users havebeen concerned about the alleged “back door” security vulnerability of Win-dows, and the possibility that foreign intelligence services could use this fea-ture of the software to gain access to sensitive data. In recent national secu-rity policy discussions in China, much has been made of “information secu-rity” as a critical part of a national defense posture in an age of informationwarfare, which has led to a series of computer security initiatives under theauspices of the defense and public security systems. In the face of this grow-ing concern, Microsoft has included China in its Government Security Pro-gram (GSP) and agreed to cooperate with the Source Code Review Lab ofthe China Information Technology Security Certification Center (CNITSEC)in providing controlled access to CNITSEC and seven other Chinese entities.

Apart from national security considerations, the demonstrated vulner-ability of Windows to computer worms and viruses has become a more seriousconcern over the past year as well, not only in China but among Windows usersthroughout the world. As noted above, these security considerations have ener-gized the efforts to establish a Linux-based alternative, stimulating among otherthings the development of new collaborative work among Chinese, Korean,and Japanese researchers. Another issue growing out of China’s search for analternative to Windows has to do with the international credibility of China’scommitment to the open-source movement. While China seems to be anxiousto work with international collaborators on Linux systems, and to exploit re-sources from within the open-source movement to challenge Microsoft, effortsto establish intellectual property rights over Linux-based systems developed inChina have raised questions as to China’s real intentions.90 In many ways, thestrong profit-seeking commercial drive one sees in the Chinese high-technol-ogy industry, and the more strategic national aspirations to challenge estab-lished architectures and set new standards, as described above, seem to benormatively inconsistent with the open-source movement.

89 Personal communication, Beijing, November 2003. Even Sun Yufang, chairman of RedFlag and active Linux supporter, has Windows—as well as Red Flag Linux—installed on his laptop,Financial Times, August 22, 2003.

90 G. Pierre Goad and Lorien Holland, “China Joins Linux Bandwagon,” Far Eastern Eco-nomic Review, February 24, 2000.


The future of Linux-based systems in China is likely to be stronglyinfluenced by foreign companies who also have an interest in seeing alterna-tives to Microsoft.91 Chinese efforts to promote Linux would be slowed with-out having access to the technology which such firms can bring to new prod-uct development and as a result, we are seeing a variety of strategic partner-ships developing between Chinese and foreign entities. Hewlett-Packard main-tains technical ties with Red Flag Software, and Dell is said to have certifiedRed Flag’s version of Linux for use on some of its PowerEdge servers inChina in response to customer demand.92 Red Flag has also teamed up withOracle on the promise that, in the words of an Oracle promotion:

Oracle is the only company that provides all your enterprise software and

full technical support on Linux. The combination of Oracle and Red Flag

provides Chinese customers with a world-class Linux operating system tai-lored to Chinese requirements with full enterprise support for Oracle 9i fea-

tures including data clustering.... Together, Oracle and Red Flag will enable

customers in China to exploit the cost savings, power, and reliability of Linuxin their most demanding business applications.93

IBM has also been active in China in promoting Linux, including anagreement with Kingsoft for the development of a desktop operating system.More recently, Sun Microsystems and the China Standard Software Company(CSSC) reached agreement in November 2003 to promote the disseminationof Sun’s “Java Desktop System.”94 CSSC is a government-backed consor-tium of 20 Chinese companies chosen to develop a low-cost open-standardsdesktop which can then be widely diffused as part of an effort to close China’sdigital divide.95

As noted above, the Linux future is also closely tied to the future ofembedded software in China, a segment of the industry which is expected togrow very rapidly as China’s demands for a variety of digital devices increases,and where savings on royalties on proprietary software could be substantial. A

91 See for instance, “Global IT Giants Help China Boost Software’s Application,” <http://www.hos t ing tech .com/news /2003 /12 /12 /St_Ni t f_Globa l_ IT_g ian t s_he lp_China_bo_a1211089.0iw.html>, accessed December 20, 2003.

92 Ibid.93 Kevin Walsh, vice president of Internet technology at Oracle, in GRIDtoday, vol. 2, no.

19 (May 12, 2003).94 “All IT Roads Lead to China: Big Four Hope against Hope,” The Inquirer, December 6,

2003, <http://www.inquirerinside.com/?article=13065>.95 Sun Microsystems, “Sun and the China Standard Software Company Partner to Establish

the Java Desktop System as the Foundation for China’s Fast Growing Industry,” Sun News, No-vember 17, 2003, <http://www.sun.com/smi/Press/sunflash/2003-11/sunflash.20031117.3.html>.


number of observers who doubt the effectiveness of the Linux challenge toMicrosoft in the area of desktop systems see a much more robust future in thelarge category of embedded software. The Chinese government has madeR&D on embedded systems a high priority, and Chinese firms are movingquickly into this field. In addition, work on Linux-based embedded systems isan important part of the cooperative activities with parties in Korea and Japan.

The China-Japan-Korea consortium agreement is one that warrantsattention. Again, the incentives for challenging Microsoft are matters of cost,security, and independence. In July 2003 a Consumer Electronics Linux Fo-rum was established by Japanese and Korean companies.96 Subsequently, aJapan-China-Korea Open Source Software (OSS) Promotion Partnership wasestablished with the leading software industry associations of the three coun-tries (the Japanese IT Service Industry Association, the Federation of Ko-rean Information Industries, and the Chinese Software Industry Association—CSIA), which together includes some 1000 companies as members.97 The di-vision of labor calls for China to take the lead in developing PC operating sys-tems based on products such as Red Flag Linux.

It is not entirely clear whether the consortium’s true purpose is to de-velop a Linux-based PC operating system, or whether it is focused more onthe embedded software market associated with advanced digital devices. WithinChina, there is also a difference of opinion as to what the focus should be.Some hold that the way to establish Linux in China is to focus on desktopapplications, while others believe that there is no point in challenging Microsoftin this domain and instead urge that the attention be given to the next genera-tion of digital devices. Some of those who argue in support of the desktopapproach are concerned that if the consortium focuses primarily on embed-ded software, it will mainly serve the corporate interests of the Japanese andKorean consumer electronics giants at China’s expense.98

In addition to the issues associated with the development of a Linuxoperating system, standards have also figure prominently in Chinese effortsto encourage the development of office automation (OA) software. Again,government procurement, combined with R&D support, are critical tools. Forinstance, the Beijing city government in 2001 required all its agencies to up-

96 Peter Clarke, “Eight Firms Form Consumer Electronics Linux Forum,” SemiconductorBusiness News, July 1, 2003, <http://www.eetuk.com/bus/news/OEG20030701S0010>.

97 Martyn Williams, “Major Asian IT Groups to Collaborate on Open Source,” InfoWorld,November 14, 2003, <http://www.infoworld.com/article/03/11/14/HNasianitgroups_1.html>.

98 “Global IT Giants Help China Boost Software’s Application.”


grade to Kingsoft WPS2000 instead of Microsoft Office 2000 in spite of thefact that WPS2000 is believed to be less stable than Microsoft Office, andthat after-sales service and customer support is said to be quite weak. In thefollowing year, the Guangdong provincial government also made a major pur-chase of WPS2002 from Kingsoft.99 Chinese government agencies have alsoused means other than procurement to support domestic office software de-velopers. For example, the Ministry of Education regularly conducts the Na-tional Computer Rank Examination, a test that can lead to certificates ofproficiency in computer science and software applications and which hasbecome an important credential in China. The examination covers applica-tions of office automation (OA) software, but it is up to the Ministry of Edu-cation to determine which products are to be included in the exam. KingsoftWPS was the product of choice. By the end of 2002, about 8 million peoplehad taken the National Computer Rank Examination.100

Two important objectives in the development of standards for OA soft-ware have been to achieve compatibility across platforms (Linux and Win-dows) and the compatibility of files among different OA software applications.Chinese companies, such as Kingsoft, Evermore, and Red Flag have beenworking under a directive from MII, and with guidance from CESI, on stan-dardizing these user interfaces. In 2002 Kingsoft also took the lead in estab-lishing the National Association of Office Software Standardization, the firstsignificant standards initiative coming from an enterprise, as opposed to thegovernment. The association is made up of software companies, research in-stitutes, and universities, and works on OA issues and government researchprojects with an eye towards making recommendations to the government.101

In January 2000 the General Group for National E-government Stan-dardization was established under the supervision of SAC and the InformatizationOffice of the State Council and has now prepared “Tentative Guidelines for E-government Standardization and E-government Standards” for use in govern-ment procurements. Most major domestic OA software producers in China

99 Saxenian, “Government and Guanxi.”100 Kingsoft, “Kingsoft WPS Becomes Part of NCRE,” <http://www.kingsoft.net/c/2003/

03/31/69360.shtml>.101 Dong Jun, “Domestic Software Fights Back against Microsoft with Government Pro-

curement,” Blogchina.com, August 27, 2003, <http://blogchina.com/new/display/12716.html>;Shen Juan, “China National Association of Office Software Standardization Established,” Inter-national Finance, August 11, 2003, <http://tech.sh.sina.com.cn/it/e/2002-08-13/081513832.shtml>; Hu Min, “How Far Can Domestic OA Standardization Partnerships Go?”China Computer Users, June 6, 2002, <http://www.e-works.net.cn/ewkArticles/Category40/Article5696.htm>.


have participated in the drafting of these guidelines, which are based on XMLtechnology, while foreign companies reportedly were not informed of the draft-ing process.102

Conclusion

The story of China’s search for an alternative to Windows, and itsattempt to establish a strong domestic OA industry, illustrates points made inour earlier discussion of a standards-based technology policy more generally,albeit with the slightly different twist occasioned by the use of what promisesto be a powerful procurement tool. As in other industries where we are seeingan appeal to standards, so too in the software industry, China seeks to achievegreater control over a technological future which it now sees as being largely inthe hands of the powerful industry leaders—the architectural controllers—inthe MNC community. However, it faces the problem of wresting that controlback to itself with national firms which generally cannot measure up to globalindustry leaders in either size or technological level. The appeal to new stan-dards is thus an attempt to change some of the rules of the game withoutchanging the game itself. In this, the domestic industry must rely upon thepower of the state for assistance, but it is a power which is of only limitedeffectiveness and which therefore must be used deftly in conjunction with otherresources. These include the special market power China enjoys and the dy-namics of competition among multinational corporations for access to that mar-ket. They also include accumulated domestic technological assets and an in-creasingly vigorous R&D policy. When combined, these give China’s stan-dards-based industrial policy a credibility which would not be found in other“challenger” countries. The Linux case, for instance, highlights opportunitiesfor China to alter the “balance of structural power” in the international politicaleconomy by challenging the architectural leader. By taking advantage of op-portunities offered by the open-source movement, which has made Linux bothtechnically advanced and accessible, by teaming up with technologically so-phisticated MNCs, and by taking advantage of the size of the Chinese market,China could emerge as a leader in the Linux-based challenge to Windows incommercial markets.

We have seen that in Chinese appeals to standards as a tool of in-dustrial policy there is a mix of techno-nationalism and techno-globalism, which

102 Hou Jiyong, “Government Procurement Standards Come Out at the End of the YearReshaping Software Market,” China 21st-century Economy Report, August 24, 2003, <http://tech.tom.com//1121/1858/2003824-56611.html>.


makes the crafting of a response to this style of policy a special challenge.Except for the denial of national treatment in the WAPI case, where Chinadoes indeed seem to be at odds with WTO rules, it is by no means obviousthat China is violating the letter of any of its WTO commitments in using stan-dards in support of industrial policy. Indeed, we have suggested above thatattention to standards, and a new appreciation for the power of procurementin advancing technologies, seem to be a response to WTO accession. Thatsaid, in execution, some of the standards-based policies could be construed asinconsistent with the spirit of WTO agreements and as narrowly protection-ist measures implemented by a strongly techno-nationalist regime. As we haveseen, this is certainly how members of the international business communityhave reacted to the domestic software requirement in government procure-ment and to the WLAN security protocol. As the scope of China’s aspira-tions for its standards policies comes to be better appreciated abroad, con-cern for its techno-nationalist tone will surely increase.

Making the case that China is pursuing a new narrow techno-nationalism is not a simple, unambiguous matter, however. First, more eco-nomically liberal attitudes also seem to be associated with standards policies,including the steps—however halting—that have been taken in the directionof transparency, national treatment, and harmonization with international norms.Beyond attitudes, there are also issues of capabilities, as the software caseillustrates. While China, in comparison with most countries, is in a relativelygood position to challenge established technological architecture, it really isnot yet in position to do this on its own in most technologies, and there aregood reasons to wonder whether it could be any time in the near future. Hence,the important role of global industry leaders as allies in its architectural chal-lenges, is illustrated most clearly here in the efforts to promote Linux, but isalso evident in the role of Siemens and others in the TD-SCDMA case. Thelatter also illustrates China’s interests in bringing its standards agenda to in-ternational standards bodies for international review and certification.

In this sense, China seems to fit the model of “neo-techno-nationalism” suggested by Yamada. The standards strategy seems interested,indeed, to advance national interests “by leveraging globalization,” and showsthe influences of public, private, foreign, and domestic initiatives, as suggestedby Yamada. Even in the hotly contested WAPI case, the forces of globalizationare likely to temper the techno-nationalist inspirations behind the standard,yielding an outcome which is likely to reflect elements of both conflict and


cooperation.103 In looking at China’s standards-based approaches to industrialpolicy in neo-techno-nationalist terms, we come to a more nuanced view ofChina’s rise as a commercial competitor. As noted at the outset, it is easyeither to underestimate or overestimate the nature of the Chinese competitivechallenge, and thus mischaracterize it. The software case illustrates verynicely that the name of the game is not simply Sino-foreign competition; Sino-foreign competition there surely is, but a number of other contingencies mustbe understood, as suggested by the Yamada argument, if sensible policy re-sponses are to be devised.

The first of these, of course, is that Chinese firms, with only a fewexceptions, are really not serious competitors with global industry leaders andmany Chinese believe that this calls for government intervention in an attemptto right the imbalance. However, the nature of that intervention is increas-ingly contested in China, between those favoring a more interventionist stanceand those wishing to see the market work.104 One way that this contest playsout, it has been suggested, is through flexible policy intervention and imple-mentation, in which a hard techno-nationalist position is enunciated to see “whatthe market will bear,” so to speak, followed then by a relaxation of declara-tive policy or by lax implementation.105 There is a certain pragmatism to thisapproach which allows the state to pursue its objectives, but at the same time,to allow market-based responses from an increasingly differentiated indus-trial community which may have rather different interests in particular stan-dards from those proposed by the state.106

103 In addition to signs that Texas Instruments is prepared to work with China on the WAPImatter, Intel also is in discussions with China on the standard and recently sent its chief technol-ogy officer, Pat Gelsinger, to China to consult with Chinese officials even as U.S. industry pres-sures the U.S. government to raise the political visibility of the issue with the Chinese govern-ment. For more on the Gelsinger visit, see <http://www.infoworld.com/article/04/03/04/HNintelchinawapi_1.html>.

104 This basic tension has been nicely described in a recent paper by Edward Steinfeld. SeeEdward Steinfeld, “Chinese Enterprise Development and the Challenge of Global Integration,” inShahid Yusuf, ed., East Asian Networked Production, Washington, D.C., The World Bank (forth-coming); See also Barry Naughton and Adam Segal, “China in Search of a Workable Model: Tech-nology Development in the New Millennium,” in William Keller and Richard Samuels, eds., Cri-sis and Innovation: Asian Technology after the Millennium, New York: Cambridge UniversityPress, 2003.

105 Personal communication, Beijing, November 2003. For the student of Chinese politics,this alternating tough/soft approach is reminiscent of the long-standing fang/shou, loosening/tightening dynamic of political control more generally in which crackdowns and repressions arefollowed by liberalizations which are then followed by more crackdowns and repressions.

106 As Peter Grindley has argued, keeping a good balance between government initiatives onstandards and market forces is an important issue in standards policy. For standard setting to besuccessful, policies taken by the government must be responsive to markets. Peter Grindley,Standards, Strategy and Policy: Cases and Stories, New York: Oxford University Press, 1995.


A second contingency to be considered in assessing the challenges ofChinese standards policy is the nature of competition among MNCs them-selves within China, as illustrated again by the software case. In this view,China has become the most important new field of competition for the play-ing out of global competitive strategies among MNCs.107 This fact, combinedwith the significant organizational changes in commercial life in China result-ing from economic reforms, points to a far more complex competitive envi-ronment. While simple Sino-foreign competition may still be one dimension ofthis environment, the game is now characterized by multiple players (differ-ent units of government in China, Chinese companies with different owner-ship and reporting relationships and different commercial objectives, competi-tive multinational corporations, their home governments, etc.) with multiple in-terests and objectives. Thus, in some cases, we might find a high coincidenceof interest among the Chinese players on standards issues, but in other issues,the interests of Chinese firms may overlap more directly with those of for-eign firms, rather than with the Chinese government. In the area of processmaturity standards used in the software industry, for instance, some Chinesecompanies have complained that new standards initiated by the Chinese gov-ernment which deviated from internationally recognized standards have donenothing but cause considerable confusion.108

China is neither the first nor the last country seeking to use standardspolicies to enhance the competitiveness of its firms and national economy. Re-sponses to these efforts, however, should recognize the contingencies identi-fied above. While we can expect self-interested strategic behavior from all ofthe players in this game, we should also recognize that China’s neo-techno-nationalism permits the search for principles which can contribute to the reso-lution of conflict over standards. In the final analysis, if the global economy isto function, all parties will have an interest in embracing ideas of transpar-ency, harmonization, and national treatment in the setting of standards, and allwill have an interest in standards which contribute to principles of economicefficiency and technological progress. This said, it is also likely that conflictsover Chinese standard-setting propensities will not disappear. China has bothmotivation and capabilities to pursue an aggressive standards-based policy. The

107 Denis Fred Simon, presentation made at the Conference on China’s Emerging Techno-logical Trajectory in the Twenty-first Century, Rensselaerville, N.Y., September 4–7, 2003.

108 Xiangkui Yao, China Software Industry: Techno-nationalism and China’s National In-novation System, unpublished master’s thesis, Department of Political Science, University ofOregon, 2004.


motivation comes from commercial, security, and cultural interests in standardsetting which, as suggested at the outset, have roots that are deep in modernChinese history. In dealing with the conflicts which will inevitably arise, it willbe important to understand both the capabilities and the diverse motivationsbehind Chinese actions in this increasingly important area of technology policy.


Appendix 1: Recent History of IWNCOMM’s R&D Projects

• 1992–1994 “Development of the Wireless IP” (with Japanese partner)

• 1994–1995 “Development of Wireless Bridge” (with Japanese partner)

• 1994–1995 “Development of Key Chips for High Speed Wireless Net”(with Japanese partner)

• 1994–1995 “The Design and Implementation of the Campus Networkfor XiDian University”

• 1995–1996 “Research into Nomadic Network System and Key Tech-nologies” (supported by the National Natural Science Foundationof China)

• 1997–1998 “Mobile Management of Mobile Network” (supported by theNational Natural Science Foundation of China)

• 1997–1998 “Technology and Equipment for Wireless LAN” (supportedby “863”)

• 1997–1999 “The Router Technology of Satellite Internet” (with U.S.partner)

• 1996–2000 “High Speed Grouping Wireless Net”

• 1996–2000 “Research Into Short Wave Self Organized Net”

• 1999–2001 “Research Into the Connecting Technology of High SpeedInformation Net” (with support from the National Natural ScienceFoundation of China)

• 1999–2000 “Broad Band Wireless IP System” (with support from “863”)

• 1996–present Research into IPV6, and the establishment of aNorthwest IPV6 node.

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