In October 2021, the State Council of China unveiled a new strategy to influence international standardisation practices. Leveraging modern technology and the Belt and Road initiative, China is attempting to turn the tables of global standard-setting. Find out how this strategy aligns with Xi-Jinping’s promises to make China a “major power with pioneering global influence”.
Standardisation – along with the internationalisation of trade, this practice has been an essential process to facilitate cross-border transactions. Their rationale seems trivial: besides providing greater means of safety and comparability for consumers, specifications likewise yield immense utility for private companies: transaction costs fall, and companies profit from greater interoperability, comparability and compatibility between goods and services.
That standardisation can equally constitute a geopolitical weapon, leveraged by Chinese authorities, has partly been left in obscurity by the general public.
China Standards 2035
In October 2021, the State Council of the People’s Republic of China unveiled a new national strategy to advance its position in international standardisation norms for new technologies. Essentially, this new initiative is to effectively implement China Standards 2035, another multiyear research project launched in 2018 by the Standardisation Administration of China.
Standardisation is a truly European enterprise
As for the European Union, the harmonisation of technical norms and standards has always been an inherent instrument of the Single Market. As MEP Reinhard Bütikofer assessed, Europe’s standardisation processes had excelled in the past decades, and thus, European expertise had translated to the international landscape. Following an ethic of inclusion, the development of standards was conducted in accordance with small and medium enterprises, yet also consumers and employees.
– The Chinese approach, however, provides stark contrasts.
The Chinese approach
As opposed to free market economies, the Chinese one-party state exploits standardisations and norms as an instrument of economic development, thereby occupying a predominant role in the process of industry standardisation in the past. Yet, the new standards strategy has somewhat altered China’s state-run approach, calling for more industry involvement in standard-setting – essentially, as a matter of efficiency: present Chinese attempts to set international standards can be interpreted as a tool of retaliation. If in the past, China has been adopting Western standards, it now envisages an assertive Chinese state setting them.
Standard essential patent (costs)
Part of the state’s China Standards 2035 initiative is motivated by licence fees. These accrue if certain patents need to be employed for the establishment of standardisations.
Experts coined them “standard-essential patents”, referring to standards that rely on patented-technology. Especially in the telecommunications industry that heavily depends on standardisation, a substantial amount of innovations – Wi-Fi networks and 5G included – are protected by standard essential patents (SEPs). Indeed, SEPs are somewhat becoming essential in the field of the Internet of Things (IoT) in consumer electronics, and the automotive and electricity grids industry.
On lucrative royalty incomes
In 2018, China was the second-largest payer of SEPs, with mostly Western firms from the US, Europe, but also Japan and South-Korea profiting from this practice. The crux here is that the vast majority of declared SEPs are renewed indefinitely, thereby hinting at their “significant market value” that “may be subject to lucrative royalty income”, a European report posited.
As a new study on telecommunications policy has proved for the first time, SEPs likewise have pertinent macroeconomic effects, serving as “tools for maintaining value creation within a country”. Herein resides their salience for policymakers. According to the European Commission, these patents serve as a critical tool to foster innovation ensuring that their holders are compensated with an appropriate return on investment in research and development.
How 5G is turning the tables
In the past decade, changes within the realm of SEPs have been manifest. It was already in 2016 that a report, issued by the European Commission, presaged a growing share of declared SEPs from Chinese companies, placing emphasis on the telecommunications sector.
The Commission was right: if for 4G/LTE technology, China had a share of approximately 7% of SEPs in 2018, it now possesses around one third of 5G-techonology related SEPs, a highly patented industry with approximately 100,000 declarations between 2017 and 2019. In fact, in January 2020, Huawei declared most 5G patents, followed by Korea and ZTE, another Chinese company.
Further, as a recently issued paper suggests, the rise of the one-party state in 5G SEPs confirms “the role of China as a game changer in mobile communication technologies”.
This transition has been accompanied by a growing reluctance to adopt international standards: while in the late 1990s, China applied approximately 70% of new ISO-norms, this figure has plunged to around 20%.
Hence, China’s approach – as an emerging market economy – to leverage standardisation for innovation purposes has so far proved potent: the steadily increasing value of its SEPs hint at China’s standardisation acumen.
Yet, the present Chinese efforts in this realm are evidently of geopolitical intent. Indeed, China’s state-controlled strategy to widen its sphere of influence on international standard-setting, now a weapon of foreign policy, perfectly aligns with Xi Jinping’s vows to make China a ‘major power with pioneering global influence’ by 2049. To do so, China is paving the way for two paths, as the Times of Israel reported.
Number one: to insidiously seize political power
Today, myriads of international entities, named Standards Development Organisations (SDOs), are involved in the provision of technology standards. Composed of a wide range of experts from competent industries, governments and the academic field, standardisation bodies place great value on principles of political and commercial impartiality and neutrality. It is here that the People’s Republic seeks to overthrow the present landscape of standardisation bodies.
China’s involvement in multilateral and multi-stakeholder technical Standard Setting Organisations (SSOs) has been expanding as a rising number of leadership positions have been assigned to Chinese executives, such as within the International Organization for Standardisation (ISO), the International Electro-technical Commission (IEC), or the International Telecommunications Union (ITU). Accelerating the competition for standards over the creation of Information and Communication Technology standards, China’s strategic achievements have been manifest: “Affiliates of Huawei […] are also more likely to be appointed to leadership positions” of SDOs, the authors of a new study contend. Exerting tangible influence, this strategy presents a threat to European and American players: it manifests itself in an exorbitant volume of standards proposals.
The apparent “flood” of Chinese firms in international committees is also accompanied by strategic voting. As a new report from Israel analysed, Chinese executives vote as a single bloc. Further to the detriment of autonomous decision-making, Chinese menaces towards other countries, exploiting its “debt and trade leverage”, have likewise been a tool to curb and manipulate the success rate of Chinese submissions of patent proposals at the ITU, an agency of the United Nations.
Number two: to blatantly build material power
Deeply intertwined with the Belt and Road Initiative (BRI) and the Digital Silk Road (DSR), China’s infrastructure projects to access new markets has been accompanied by a wave of national standards being adopted abroad.
Reproaches that China is leveraging the BRI to exert authority in the standardisation processes are amplifying. This particularly Western critique resides in the fear that China may retain a first-mover advantage in critical fields of the next generation, such as Cloud Computing, Big Data, Artificial Intelligence (AI), and the IoT.
An essential vehicle to provide domestic technology to BRI partners, China is using the Digital Silk Road (DSR) to propagate its standards across the globe. Forging new trade corridors, an inherent part of the BRI constitutes the construction of ports, roads, and railways in host states. These infrastructure projects are a treacherous trap – preventing states from switching to other suppliers than Chinese vendors that are equipped with standardised technology for maintenance and expansion. If comprehensively accepted, China will succeed in entrenching dependencies of low-income countries and emerging economies with the state-influenced economy.
Lock-in effects have already become tangible for many countries on the African and the Asian continents, for instance with the construction of a high-speed line in Indonesia from Jakarta to Bandung, a landmark BRI project.
Geopolitical menaces of technological alignment have likewise spread to Europe. As MEP Reinhard Bütikofer claimed, China had tried to intrude into Hungary with the construction of a railway line from Belgrade to Budapest, “but the EU intervened”.
Ultimately, the threat consists of Chinese standards outpacing, and not least, replacing American and European standard-setting. Not only to the detriment of their respective private sector, but also to their geopolitical positioning.
To respond or not to respond
According to a report issued by Carnegie Europe, a think tank, the geopoliticisation of international standardisation does not need much response. Distortions of neutrality questions would be compensated by shifts in the Chinese strategy towards private industries. Haunting fears that domestic industries become locked in Chinese state-influenced standards, prone to rapid obsoletion, could accelerate the transition towards a more market-oriented approach. Indeed, the think tank suggests that the government’s announcement will induce the private sector to gain momentum in advancing domestic standardisation. The carrot to the stick? Winning subsidies.
Retaliation is a slippery slope
As for the geopolitical threats of standardisation, any attempts to exclude researchers or the Chinese private sector from international organisations would bear substantial retaliation costs. What can be suggested instead, is opting for further engagement in SDOs to address “distortionary practices” by the Chinese state. Amongst proposals are tightened voting practices or, alternatively, more proactive policymakers, who also could induce private industries to engage more vigorously in SDOs. But this is a slippery slope. Nobody would like to enter a competition on subsidies with China.
– Inevitably, the stakes are high. To begin with, it might be worth lifting international standardisation from obscurity.