China has announced that it will adopt its own unique Wi-Fi wireless device communications standard from June 1, in the face of vociferous opposition from some foreign business and government interests, and support from others.
A letter signed by US Secretary of State Colin Powell, Commerce Secretary Don Evans and Trade Representative Robert Zoellick urged Beijing to stick with the global standard for Wi-Fi. Intel and Broadcom came out strongly opposed to the standard. Intel said that it opposed the Chinese standard on the grounds that it would not be able to maintain acceptable levels of quality.
AMD, BenQ and Texas Instruments on the other hand, said they plan to incorporate the mainland standard into their wireless technology. Chinese officials have said that any technology that does not comply with its wireless encryption standard will effectively be banned.
Chinese officials said that Intel, the most vocal opponent of the encryption standard, should "calm down."
The decision appears to be another step in a trend of China-only technological standards incompatible with global technological standards, which also includes DVD disk standards and mobile phone systems.
On the wireless issue, the central government will require foreign companies that accept its wireless encryption standard, known as WAPI (wired authentication and privacy infrastructure), to share product designs with Chinese companies designated as official standard licensees.
The intended prime beneficiaries of WAPI appear to be the Chinese standard licensees, of which there are 24. Foreign companies have two options: accept the standard and work with the Chinese licensees or reject the standard and miss out on the market.
Beijing's gamble has an upside for domestic firms eager to move up the IT food chain, but there are negative ramifications which could also emerge. If implemented, Chinese WAPI would serve as a technological barrier in a world that has benefited from consistent technical standards in many ways. The inability of a foreign businessman to link his global Wi-Fi'ed laptop into a network on a trip to China is just the beginning of the problems.
The irony of WAPI is that it fundamentally goes against the raison d'etre of wireless Internet: to create a world where anyone with a computer can go online wherever they go in the world.
Andy Xie, Chief Economist for Morgan Stanley in Hong Kong, said that the globalization trend has been largely positive for China, adding that implementing a Chinese WAPI standard will create unpredictable results.
"If you create a system that is totally different from the prevailing system used in the rest of the world, you create economic cost for China," Xie said. "I think the Chinese government is aware of that. How far to push it? We don't know."
If implemented, the Chinese WAPI standard could leave Chinese consumers paying more than free market conditions would dictate, but would also leave Intel and any other companies that decided to decline to compromise frozen out of an important segment of the world's fastest-growing market.
Roughly one quarter of the laptop computers bought in China in 2003 used Intel's Centrino system. Intel is a major foreign investor in China, currently building a US$375 million chip test and assembly plant in Chengdu, Sichuan province, part of its US$1 billion investment in the mainland.
At the crux of the issue is the question of how much China can and should implement, or have an impact upon, global standards. This further relates to market size (huge in reality and bigger in potential) and contribution to technological development (still minor).
The use of homegrown standards is nothing new in China. China also has its own 3G mobile communications standard, known by the hefty acronym TD-SCDMA.
Development of TD-SCDMA has come via cooperation between Siemens and Huawei Technologies, which hope it will be picked up outside of China. Huawei Technologies is one of the Chinese companies best poised to profit from China-only technological standards – it is also one of the 24 WAPI licensees.
China is also developing a video disc format known as EVD to compete with the DVD standard. Chinese companies currently pay DVD royalties of around US$2 billion per year to a consortium of 18 companies including Sony, Philips, Time Warner and Microsoft.
Successful implementation of the EVD standard would eliminate those royalties, but it could come at a price.
One Shanghai-based analyst told China Economic Review that using technological standards as barriers to entry by foreign firms into the Chinese market will only hurt Chinese consumers. "Consumers have a choice," he said. "If the Chinese government wants to force a standard, it can try and do so, but it's consumers who make the ultimate decision."
The ramifications of WAPI are not limited to computers either. Nokia's new handset, the 9500 Communicator, is another major product that in all likelihood will not enter the Chinese market due to WAPI. The handset is compatible with the 802.11b wireless standard, Bluetooth and EDGE (Enhanced Data Rates for GSM Evolution), but not WAPI. Nokia indicated that it would try to meet the June deadline, but it was unlikely due to the suddenness of the government's announcement of the WAPI deadline.