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June 1, 2021
The George Washington University China Development Student Think Tank conducted an interview with Bush China Foundation Fellow Dr. Michael Murphree entitled “The Role China Plays in International Technology Standards Setting.” A transcript of the interview is below.
1. Hanwen: Good afternoon Dr. Murphree, Thank you so much for joining us! To set up the context of our discussion, could you first explain what technology standards are and their roles in the global economy?
Dr. Murphree: Certainly, and thank you once again for this opportunity to speak on this somewhat esoteric topic. So, very briefly just what are standards. They are codifications of characteristics, features, and protocols that define products and systems, and there’s a wide array of standards, food and drug safety standards, production management standards like ISO9000, and even weights and measures. According to my Ph.D. dissertation, the standardization between product A and product B enables us to make price comparisons and hence enables market formation. Technology standards specifically consider what constitutes or not a given system and how one or one’s technology is then compliant with it. Hence they ensure compatibility and interoperability of systems, which reduces consumer uncertainty and enables price comparison. One thing that’s very important in the global economy is that standards are usually open in so much as once a technology has been standardized, any would-be adopter is allowed to produce standards-compliant goods. They can not be closed to an external actor, and we will get into this a little bit when we talk about intellectual property and standards here in a second.
Technology standards arguably then are usually set by formal standardization bodies. Now some of these are companies, have companies or individuals as members, voting members and contributing members, but in other cases, organizations, such as the ISO and ITU, have governments, which are the members of these standardization groups. It’s very important to remember that under World Trade Organization rules, once there is an established international standard for a given technology, member states are bound to honor and respect that standard, meaning that if there is an internationally accepted standard, a country cannot adopt a nonconforming standard and then bar imports on the grounds of this unique domestic standard.
So that’s number one (global influence) with international standards, it facilitates trade and limits protectionism. Number two big global influence is about the role of embedded essential intellectual property. When we talk about technology standards, one of the things that’s important to remember is that the inventions that go into these defined protocols are typically protected by patents. Now if a patent owner wishes to have these technologies incorporated into the standard, they have to agree to what’s called the RAND principle, Reasonable and Non-discriminatory.It means is that the licensing fees for any given technology will be reasonably priced and that the terms of licensing will be open to all, i.e. non-discriminatory.
To summarize, technology standards, they define what something is, how it works, and how it interacts. And what is their role in the economy? They create markets, to begin with; they enable price comparison; and they enable cross-border commerce; and finally most importantly they define who owns the IP; and who then must pay for the rights to access that IP when they license the standard.
2. Hanwen: Thank you so much for that detailed explanation. The next question is what is China’s overall strategy in shaping international technology standards?
Dr. Murphree: This is a wonderful question. The challenge of course is that it’s very difficult to define an overall strategy for China, mostly because China is not a monolithic actor. There are many different interested parties to standardization in China, and the perspectives of these different groups, their proposals for standardization, will differ widely. For example, at the government ministerial level, we have the Ministry of Industry and Information Technology, MIIT, the Ministry of Commerce and the Ministry of Science and Technology. All of these have very different perspectives and preferences regarding standardization. Further, the actual responsibility for standardization lies under a group called AQSIQ, the General Administration of Quality Supervision, Inspection and Quarantine. Further, in addition to the different government ministries having different views, Chinese firms also have very different perspectives, where some — and it doesn’t necessarily correlate just to state-owned versus private either — some firms, whether state-owned or private, strongly support strong government-directed standardization initiatives, and others have actively eschewed and avoided promotion or adoption of unique domestic standards in favor of contributing to and producing for global standards.
But If we had to summarize what is China’s standards, it had been summarized in a document called China Standards 2035, which is a government policy document just recently produced, which aims to establish an advanced role for China and Chinese technology in the next generation of technology standards, especially for telecommunications, artificial intelligence, green technology and autonomous vehicles etc. So the basic principle of the strategy is to increase the prominence of Chinese-owned intellectual properties in globally accepted and adopted international standards.
But how they will actually accomplishing this strategy and the strategic goal does vary, where some organizations within the Chinese state are much more inclined to have the government have mandates – these technologies must be developed and must be adopted — while others prefer to have it go through the standard competitive processes where the best technology wins. So it’s not right to argue there’s a single strategy as such. Indeed, one thing we should keep in mind is thatChina’s approach to standardization is actually quite similar to what the European Union does, in so much as it promotes a common standard within a massive market to achieve critical mass, and therefore make the standard highly attractive on a global level. To illustrate, consider China’s single electric vehicle charging standard. In the United States, we have three different EV charging standards. If I drive a Tesla, I have to find a Tesla plug-in station. If I drive a Chevy volt, I may or may not be able to charge up at any given station. Whereas in China, a single standard means any vehicle from any EV vendor can be charged at any station. This type of standardization facilitates innovation in electric vehicles, because anyone who creates one knows that they will be able to sell it to the consumer because the consumer doesn’t fear the lack of charging infrastructure. But again, it’s not a uniquely Chinese approach in so much as Europe does the same thing, at least it historically has in telecommunications.
3. Hanwen: So you have already touched upon some of them, but if you could provide a more summarizing view about the main goals of China’s efforts in standard-setting for next-generation technologies. Also, how have these goals evolved over the last decade?
Dr. Murphree: Great question. One of the things that I would say there’s a saying in China that third-tier companies make products; second-tier companies make technology, and first-tier companies make standards. What this means is that since standards are the basis on which technologies and products rely, whatever firm or country controls quote on quote the standard is in a position to profit the most. The greatest returns accrue to whatever organization or group is the standard setter. The royalties that they earn, thanks to their embedded intellectual property, as well as their ability to avoid paying licensing fees because they own the IP as opposed to having to use others, makes it so that they will actually have a competitive advantage going forward. So I would say the goal in China is to increase the hand of Chinese firms in technology standardization worldwide. And this is not really new; this has been policy since the mid-2000s.
But in my own research, I argue that some of the hard lessons learnt from China’s earlier stages of producing standards-compliant products, especially in the electronics. The hard lesson was they could make the best products and have the most productive industry, but the licensing fees they pay, because they did not control or help set the standards, severely limited the profits of these firms. Further, early Chinese efforts at developing indigenous standards were often stymied at the international level. As a result, the goal is for China’s firms to actively participate in international standards development working groups and technical committees, and also to encourage Chinese firms, even if they don’t have technology to contribute, but to attend these meetings and to participate as a way of keeping an ear and an understanding about what new technologies are coming in order to be a first mover in producing standards-compliant technology. And indeed this move towards increasing Chinese participation has been very effective. The head of the IEC, International Electro-technical Commission, is a Chinese national. Further, Chinese participants are extremely active in ISO, ITU, 3GPP. To give you a sense of the 65 new most recently proposed technical committees at ISO and IEC, 16 were Chinese submissions — this is number one. At the ITU, Chinese actors have submitted more proposals than the next top three submitters combined. This gives you a sense that China has achieved in many ways this goal of increasing its participation in international standards. So I would argue, the evolution of these goals, to summarize, is that they understand that there is a need to contribute to working groups and technical committees at the international level as opposed to trying to develop it within a closed domestic ecosystem and then attempting to promote that internationally.
4. Hanwen: So considering the increasing geopolitical tensions right now between China and the U.S., and also you mentioned China’s increasing participation in international standards bodies, what are the strategic implications for Chinese private enterprises who are participating in those international standards organizations?
Dr. Murphree: This is a very interesting question. One thing that when we study standards we always have to talk about, especially in light of Chinese-US competition and geopolitical economic competition, is that even though we talk about American standards, Chinese standards, or European, today no single country controls a standard as such.
There are companies that have dominant stakes, perhaps based on their share of embedded intellectual property, but it doesn’t mean that the firm or their home country controls the standard as such. This is because the intellectual property embedded in the standard must be made available to all in accordance with the RAND principle. While Huawei may be the number one contributor of patents to the 5G standard, it doesn’t mean that Huawei controls the standard in any sense, in so much as any foreign telecommunications firm can produce standards-compliant technology. Further, in addition to Huawei, the U.S. firm Qualcomm has a huge stake in patents for 5G, and actually as of May 10th Samsung in South Korea claims to have now surpassed Huawei as the number one patent class, claimant, within 5G. Do we say 5G now is South Korean? Not really. But what this means is that all of the firms that are involved in and contributing IP to the standard will be able to share benefits from it, so that includes Qualcomm and Huawei, but we shouldn’t pretend that these benefits accrue evenly. This is one thing we should keep in mind.
In the United States, Huawei materials is now effectively banned. But if the United States is developing a 5G network using for example equipment from Ericsson, royalties are still paid to Huawei as it has embedded essential intellectual patents, intellectual property. Same thing with even if China is deploying is domestically developed, or arguably domestic 5G standard thanks to Huawei, it’s still paying royalties to Qualcomm, because these embedded patents are in the standard as well.So even if you ban equipment from a given provider, if the patents are embedded, you still have to pay on both sides. One thing that I would say in the midst of this competition is that Chinese firms are going to continue participating in standards development, because the international standards development organizations are open-membership. So even if US-China trade tensions result in, for example, US 5G networks or US charging station network snot using foreign manufactured or Chinese manufactured equipment, it doesn’t change the fact that Chinese firms or American firms, for that matter, will still be active in the development of these standards. I would say at an international level if the United States is trying to prevent active Chinese participation in technology standardization, it’s too little to late for that, because Chinese firms for the last 15 years or 20 years have had a very active promotion of engagement in international standardization.What we would likely see is an increased commitment within the United States to supporting American participation in these bodies, and perhaps a renewed effort to encourage American firms to actively listen to, contribute to, and hopefully then have a share in the next-generation of technology standards, as opposed to purely allowing the market forces to drive it.
5. Hanwen: Based on what you just said about the continuous benefits that could be accrued by Huawei’s technologies that are embedded, and also it’s kind of too late for the U.S. to prevent China’s efforts at international standardization, so how successful would you say has China been so far in internationalizing its home-grown standards?
Dr. Murphree: Again, there is a problem with discussing the idea of “home-grown standard.” In the 1980s and 90s, back in the earlier stages of my research looking at standards from this time period, we talked about GSM in second-generation mobile, 2G, was a European standard, and then CDMA was the American standard. We could argue these things, because primarily all of the firms contributing to one of these standards was within one of these regions of the world, either within the U.S. or within Europe. And in fact, in the days of these domestic standards, Japan was extremely famous for developing unique standards and then ideally having them adopted globally by showing how effective they were. However, some scholars have noted that what Japan did with this home-grown-standards approach created aGalapagos effect. That’s actually the term. If you think about the Galapagos islands, the animals that live there are so uniquely adapted to that environment, they cannot compete with foreign invasive species. So Japanese technology standards and Japanese technologies were efficient within Japan, but when they had to compete with foreign developed standards on the international level, these rapidly proved to be uncompetitive.
And China did attempt in the late 1990s and early 2000s to develop home-grown standards including what was called SVCD, super VCD; they had ADVD, Advanced DVD or AVD; they also had their own audio and video coding standards. They’ve developed multiple Chinese standards as such, but historically these have not been well received within even the Chinese domestic market, and many Chinese firms don’t really want to produce to a unique Chinese standard. Think about it this way: if you have a unique, for example, digital signals processing standard in a mobile phone within China. If you have this standard only within the Chinese market, a Chinese manufacturer of cellphones now have to add the cost of making their phone Chinese domestic compatible and foreign compatible or to have two different production lines. This is an added cost and increases inefficiencies. Thus, in many ways, homegrown standardization has been unpopular in China. But what my research suggests is that these home-grown standards efforts, while unable to be adopted as standards as such, were very effective in changing the language and the tone of the discussion worldwide on the licensing fees for embedded essential intellectual properties. We’ve noticed a correlation between the introduction of a Chinese home-grown standard and a decline in the licensing fees that are being charged for Chinese manufacturers. So in some ways maybe that these standards are an effective negotiating tool to encourage Chinese firms to gain better access to the licenses they need in order to produce internationally standards-compliant technology.
The other thing to keep in mind is that Chinese standards generally are also somewhat open to foreign participation. Even within China, depending on the organization, different standards management groups have different policies, but foreign-invested enterprises can be observers in some cases, where they can participate but only in so much as they listen to the discussions they cannot contribute, but in other cases they are able to be participants in full standing, able to contribute technology, to contribute patents, to negotiate on the protocols, etc. For home-grown standards within China to date, I would argue they’ve not been exceptionally successful at internationalization, but the lessons learned through practicing the standardization has been very good for improving the terms of trade that Chinese firms face and also been very good for helping Chinese firms prepare for participation in international standards bodies.
Hanwen: Thank so much Dr. Murphree. Your insights are of great value to our audience. I would like to thank you on their behalf for your valuable time. All of us at CDSTT really appreciate your support for our organization.
Dr. Murphree: Thank you very much for the invitation. I greatly respect the work that your student foundation is doing, and look forward to future interviews with other great scholars. Please feel free to share my contact information if anyone has any questions or is interested in follow up as well.