“Economic nationalism is about to disappear. And technical nationalism has disappeared!”
So declared Olle Sturen in 1969. At the time, he headed the International Organization for Standardization (ISO), an institution that created the intermodal freight container (known as the twenty-foot equivalent unit), those ubiquitous metal boxes that utterly transformed global trade. A Swede who championed China’s entry into his Geneva-based organization in the 1970s, Sturen had an optimistic view of how the ISO’s work would bring the world together. It’s unlikely he would have envisioned how those standards would instead become a geo-strategic battleground between China and the West.
Standards are vital, as electrical engineers realized in the late 1800s. They found that equipment and devices needed to be made to specific, interoperable standards in order to avoid disaster. Today, there are scores of different international bodies that set industry standards. Lately, they’ve largely been driven by the private sector and many are somewhat informal. How informal? One internet-related body gauges consensus by humming rather than voting.
But standards-setting remains an arena where the act of writing the rules can be an opportunity to quietly confer tremendous power, and profit, on the author. Enter China.
Beijing conceives of standard-setting as a tool for moving its manufacturing up the global value chain, and building its influence abroad. This was laid out in a leadership document dubbed China Standards 2035, released late last year.
On the domestic front, “the idea is to set technical standards high, essentially forcing manufacturers to upgrade their processes whether they want to or not,” Matt Sheehan, Marjory Blumenthal and Michael Nelson of the Carnegie Endowment for International Peace wrote. (China’s scientific research in the Arctic also plays a role in encouraging advanced industrial development.)
China’s plans also call for boosting its efforts internationally. One part of that is via the Belt and Road Initiative (BRI). If a member nation—Ethiopia or Indonesia, say—approves a rail project under the BRI, it will hardly be able to buy replacement signaling gear from a European provider that uses a different standard.
Beijing is “very well aware of the technological dependencies it can create if it succeeds in spreading and rolling out Chinese technical standards through BRI projects,” Tim Rühlig, Research Fellow in the Technology and Global Affairs Program at the German Council on Foreign Relations, said in a recent Pekingology podcast.
It’s possible that in time China will seek through BRI to institutionalize a “parallel world of technical standards” Rühlig said.
Meantime, the simple publication of the 2035 plan will serve as a powerful impetus throughout China’s government and private sector to contribute to the new national goal, the Carnegie authors wrote:
“This type of activity will have major and uncertain spillover effects beyond China. It could position Beijing to wield greater influence on standards-setting across the board, including a vast range of products and processes—anything that might be standardized.”
Another consideration is that standards can reflect choices on principles and even ethics. Back in 2006, the ISO rejected a Chinese Wi-Fi encryption standard amid concerns there were no guarantees that WAPI, as it was known, didn’t allow backdoor access to encrypted material.
China hasn’t only radically expanded its presence in the global technology sector since then, but is stepping up engagement with standards-setting bodies just as private-sector led efforts by Western nations drops off.
“American companies and European companies are not supporting as many of their people to go be part of the standards process as they used to,” said JoAnne Yates, an MIT Sloan School of Management professor who co-wrote a book on the modern history of standards-setting, in a China Talk podcast.
Having the likes of Washington, Brussels and Tokyo step heavily back into the breach, however, may pose another challenge.
The private-sector driven model arguably allowed innovation and the rapid growth of markets. A heavily politicized mechanism for setting standards could inhibit the development of new technologies. Stepping in early to impose a certain standard could lock in the use of less-efficient methods or products, or ones that would otherwise have become quickly outdated.
Jude Blanchette, Freeman Chair at the Center for Strategic and International Studies, cautions that over-emphasizing the geopolitical security aspect of the current standards landscape has “profound costs.”
Nevertheless, the evolution of different sets of standards seems increasingly unavoidable.
“It’s hard to imagine now that, for the next generation of mobile devices—6G—that it will be as smooth” to establish the same type of industry standardization as for past generations, said Zhikai Chen, head of Asian equities at BNP Paribas Asset Management. “This is just one example. We probably will see others emerge over the next five to 10 years.”
What could materialize is different spheres of influence, where one set of standards is used for all associated devices in one group of nations, and another set for a separate group.
From an investment standpoint, that means companies would have to incur extra costs to manufacture to, say, China-oriented standards and Western-oriented ones.
“You’ll have to have two different products, catering to potentially different spheres of influence. And you can imagine that that’s probably not good for economies-of-scale or production,” Chen said.
Or, a company could opt to concentrate on just one bloc of nations, abandoning the revenue stream tied to servicing another. Either way, it would seem that Suren’s utopian vision from half a century ago will remain out of reach for many decades to come.
https://www.bloomberg.com/news/newsletters/2022-11-05/china-rewrites-the-rules-that-run-the-world-new-economy-saturday....
This is similar to the european union recently mandating USB-C for all smartphones.
China as a central global hub of manufacturing places it in a position to mandate standards of its own in manufacturing sectors. Not only for products it exports but also for development projects it undertakes abroad in foreign countries.
To add another layer to the arrangement, china appears to be borrowing from nintendo's business strategy. Where nintendo refused to adopt CDs and DVDs for many years, opting to use cartridges with the N64 and their own proprietary disc formats afterward. The motive behind nintendo's use of 2nd tier technology was motivated by it earning additional profits through charging developers for licensing fees for using its own in house technology.
It appears that china may follow a similar trend by charging licensing fees for using the technology standards it establishes. Whether or not these trends may be significant or relevant in the future remains to be seen. But it is certain that china is attempting to monetize other untapped revenue streams, which will hopefully help it to stabilize its economy.
