The Industrial Standards Battle
China Sets the Rules – How to Win the Game?
Promoting its own standards and rewriting the game rules across a range of industries, China hopes to go head-to-head with the leading standards of the West. Once China can "call the shots," how can Taiwan reap the rewards?
China Sets the Rules – How to Win the Game?By Elaine Huang
From CommonWealth Magazine (vol. 463 )
The latest saying being bandied about China goes something like this: Third-tier businesses sell cheap labor, second-tier businesses sell products, first-tier businesses sell patents, and the ultimate top-tier businesses sell paradigms.
"Whoever seizes the right to set the standard, they are the ones whose technology can become the international standard, and they can go on to gain the right to control the international market," says Shanghai Institutes for International Studies vice president Yang Jian, noting the underlying political implications of the issue.
No one now is saying China's apparent glee in pushing a "Chinese standard" and going toe-to-toe with North American and European industry standard setters is simply "the ramblings of an idiot."
With a market scale that is more than a match for that of the United States, China last year surpassed Japan as the world's number-two economy, making the coming era of the "Chinese standard" all but a given.
But looking ahead, another crucial test will be whether China's industrial standards will remain mere domestic standards holding sway on the market at home, or whether they will develop into full-fledged international standards with an impact beyond China's own borders. (See Table)
China's Standard: TD-SCDMA Poor Man's 3G Ascends Third World Throne
After ten years, TD-SCDMA (time division synchronous code division multiple access) has finally come to fruition.
With purely Chinese DNA, this proprietary technology has received International Telecommunications Union approval as an international standard and become the bellwether for China's urgent quest to announce a "Chinese standard" to the world.
China possesses the inherent conditions for developing its own mobile communications technology. According to former Datang Telecom Technology Development Department director and current TD Industry Alliance secretary general Yang Hua, a mobile communications market with traits that include a large population spread across a vast area with relatively rapid economic growth – a fitting description of China – is more likely to achieve high-speed development.
China had long been clamoring for 3G mobile communications technology, and it wasn't until January of last year that licenses were formally issued, as it was banking on TD-SCDMA being adequately prepared prior to the entry of the European WCDMA and American CDMA 2000 standards into the China market.
"That the Chinese government awarded TD to China Mobile, the world's largest mobile phone operator and with the nation's most subscribers, is indicative of the Chinese imperative," Sinocon Industrial Standards Foundation deputy CEO Catherine Chiu observes.
And TD is no unsupported weakling of a standard. According to statistics provided by DigiTimes, as of September 2010, TD subscribers in China numbered 15.3 million, accounting for more than 40 percent of China's 3G market and far surpassing the numbers of both WCDMA and CDMA 2000 subscribers.
China is also aggressively building a domestic 3G mobile communications production chain based on the TD standard to cast aside European and American restrictions at the earliest possible date and carve out its own niche for development of 4G TD-LTE mobile communications technology, proceeding to lay the basic infrastructure for network technologies such as the "Internet of Things," the integration of broadcast, telecom and Internet networks, and wireless cities.
The potential market opportunities have drawn companies including South Korea's Samsung and LG and Taiwan's FarEastTone and Vibo aboard the TD bandwagon, with pilot programs proceeding apace in hopes of cracking the Chinese mobile telecom market.
Marching on the Third World
But China's developmental ambitions don't end with reigning supreme in the domestic market. TD aspires to be like WCDMA and CDMA 2000 in spreading overseas to become a real international standard. To avoid markets where WCDMA and CDMA 2000 have already planted their ensigns, TD is advancing on the potential of industrially virgin territory: the Third World.
China's strategy may be seen as developing TD into the "poor man's 3G" – that is, the Third World's 3G – in order to become the sovereign standard of the developing world.
"For the future, TD will spread overseas and there are currently experimental networks in place in Africa and Latin America," Yang Hua obliquely confirms.
The scope of coverage of these experimental networks will be expanded from Europe, North America and Asia into the African countries of Egypt and Ghana, Yang says, with TD being used in cooperation with local telecom providers.
"But there must first be domestic commercial success at home in China before any international commercial use," says Yang.
Chinese Standard: LED Running the Blockade of the Big 5 Producers
In the lighting business, there is something of a cabal that determines industry order and standards, largely comprised of the five major European, American and Japanese producers: Philips, Osram, General Electric, Panasonic and Toshiba.
These five companies support an industry-wide standards consortium known as Zhaga, through which changes or upgrades are made to LED light engine interfaces. These standards are euphemistically referred to as open standards where other players may obtain authorization for their use, but a fee must be paid for those rights.
One Taiwanese LED industry veteran angrily protested complete mystification at why the lifecycle for LED light engines had been set at 25,000 hours. With the advent of that standard, those seeking to achieve that sort of efficiency had no alternative but to use a specific sort of fluorescent powder in the manufacturing process.
"And who is it that sells that fluorescent powder?" he asked, shaking his head ruefully. "At the end of the day, the standard is merely an act of trade war protectionism."
According to this LED industry veteran's pessimistic prognosis, those who cannot be the setter of standards are doomed to virtual subjugation.
Starting from Scratch with New Alliances
As China has risen, it has sought to change the rules of the game, in order to become a setter of standards in its own right, and to reshuffle the deck in the global LED industry pecking order.
According to statistics provided by the China Solid State Lighting Alliance, by 2015 China's overall downstream and upstream LED lighting industry will achieve a scale of US$73.2 billion, and by 2020 China's LED production will account for one half of the global total.
Yet China has long merely been an ordinary member of the European-based International Electrotechnical Commission, the international standards and conformity body for all manner of electrotechnology, and has for years been locked on the outside looking in, with no voting rights, no voice and no standing to take on commission proposals for research and reporting. Possessing a huge market but enjoying little substantive benefit, China has resolved to break the blockade of the five major industry players.
China's current proprietary LED technology hasn't the capability to be a world leader. So the Chinese have set about pulling together other global standards consortiums and commissions, starting from scratch in setting up another international organization – the International Solid State Lighting Alliance – of which Taiwan is a member.
Hsin-sen Chu, executive vice president of Taiwan's Industrial Technology Research Institute, emphasizes that Taiwan, currently world number one in LED production capacity and number two in production value, holds the edge largely in the relatively upstream areas of semiconductors and optoelectronics, areas in which it holds patents and precisely the areas in which China is lacking.
"With its construction of the 'Water Cube' and 'Bird's Nest' venues for the Beijing Olympics and their attendant LED lighting systems, China scored some real LED interface design achievements, so joining with Taiwan in an upstream/downstream arrangement would offer comprehensive experience in these systems," Chu says, adding that he believes there is big opportunity in the development of a new industrial standard.
Taiwan's Dilemma: Storing the Bows When the Birds Have Flown
China's ambitions, however, are grand and exceed cooperation with Taiwan. Indeed, it ultimately seeks to eclipse Taiwan. For example, three years ago production facilities at China's largest LED chipmaker, Sanan Optoelectronics, had twelve metalorganic chemical vapor deposition (MOCVD) reactors, but "this year they're aiming to install 40 more, with another 120 planned for next year," Taiwan Optoelectronic Semiconductor Industry Association chairman B.J. Lee says with alarm.
In addition, there is the official Chinese government assistance – the cost of 100 MOCVD reactors is about 12 billion renminbi, of which the government is subsidizing 6 billion. The Chinese government has calculated that the entire LED industry will procure an additional 600 reactors by the end of 2011 and has accordingly prepared a budget of 30 billion renminbi as a silver bullet toward that end.
Lee is also chairman of Epistar Corp., currently the world's largest LED chipmaker with 220 reactors in its production facilities.
"Sanan will overtake us in 2012," Lee says.
This is a battle in which China seeks to combine with the power of Taiwan to break the stranglehold of the five major international players in the LED industry. But the question remains whether the day China sets the international standard will be the day Taiwan loses its comparative advantage. That dilemma is indeed a double-edged sword.
Translated from the Chinese by Brian Kennedy