A Power Shift in International Technology Standard-setting
Although there is a high probability that the US–China trade war will subside with time, it is likely that the two countries will continue to aggressively compete to lead the global high-tech sector. US political elites alongside leaders from the Five Eyes countries suspect that China’s controversial ‘Made in China 2025’ industrial upgrade strategy will challenge the West’s monopoly in high-tech sectors. As a result, China’s technological stridency, together with its distinctive one-party government apparatus at home, is now reshaping the global technological and economic order.
In the current context, the setting of technology standards becomes more pivotal in the race to economic and technological supremacy. While many discussions of the ‘Thucydides Trap’ – the idea that competition between an established power and a rising power tends to result in war – fixate on the US and China’s military and economic rivalry, President Trump’s attacks on Chinese technology signals a new front on which the two countries may clash.
This chapter aims to examine China’s evolving role in global technology governance. In particular, where the decision-making power in global technology governance lies; how China’s role in the global technology regime is evolving; and, most important, what is the key to success for Beijing in promoting its favoured standards in global technology governance.
Global governance and technology standard-setting
In recent years, the inclusion of technology standard-setting in global governance has sparked intense debates among academia and the policy community.
Global governance incorporates ‘the rules, procedures, and norms that define appropriate behaviour, facilitate cooperation, and manage differences among states and non-state actors from multiple countries’. In the eyes of the Chinese leadership, setting the global governance agenda is part of projecting China’s ‘discursive power’, in other words, testing its ability to shape the international norms and widely practised standards.
It is mostly developed countries that decide the global governance rules for technology use and establish organizations that effectively enforce agreed norms and procedures. Other corporate actors and non-governmental organizations initiate changes according to their technological innovation capacity and institutional preferences. Both state and non-state actors also join forces to combat transnational technological challenges to this order.
Global technology standards are the crucial benchmark for the development of the technology regime. Countries and non-state actors that seek to establish new global technology standards do so to project influence. As well as clarifying and defining what is considered safe use of new technologies, these standards are there to eliminate confusion and reduce costs that may arise from transnational/cross-border trade and manufacturing. To a large extent, a clear set of technology standards could be considered a public good for the whole world.
The competition to influence global technology standards reflects countries’ parallel desires for global economic dominance. Ostensibly, setting a technology standard may appear to be a politically neutral act carried out by relevant expert engineers and technocrats. However, the essence of this competition is to decide who sets the standards and the relevant legislation and who follows these standards. The followers tend to bear massive costs in switching to adhere to new standards, which affects profits and revenues.
The setting of global technology standards tends to include two approaches. One is the so-called ‘market access approach’, which broadly aligns with the goals of leading multinational corporations. Major influential producers who monopolize key technologies and consistently innovate tend to prefer to establish their own global standards and propagate these worldwide. For example, Huawei and its contentious but economical 5G communication technologies and Microsoft’s Windows software, which is used by most computers in the world.
The second approach is a conventional rule-based institutional one established by international organizations. There are two major international organizations setting global technology standards: the International Organization for Standardization (ISO) and the International Electrotechnical Commission (IEC). Both organizations form a broad consensus and attempt to include as many of its members’ preferred standards as possible. Each organization also hosts a simple majority decision-making process for the adoption or rejection of proposed specifications as an international standard. Both organizations are largely funded by private-sector members through voluntary contributions and not subject to public scrutiny.
In the past decade, national governments have delegated a single international private-sector body to act as the standard-setting authority. According to Ernst, ‘developed countries remain the dominant players whereas developing countries face intense pressure to choose the prevailing international standards over indigenous ones as they seek to secure the inflow of global capital’.
China’s competition with the West in global technology governance
China’s expanding international influence has always made it less likely that Beijing would continue to accept existing global standards and institutions established and widely practised by developed countries based on ‘the Washington Consensus’. Irrespective of who leads the Chinese government from Zhongnanhai, China’s geographical size, economic might and self-confidence will inevitably lead Beijing to propose and implement changes to the rules of international politics and the standards set for global technology governance.
However, China does not want to wholly revise global technology governance nor does it wish to accept the status-quo. China established its national patent agency in 1980 and subsequently joined the World Intellectual Property Organization (WIPO). By 2001, a selected number of Chinese companies gradually accepted IP norms defined by the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS), as a result it was admitted to the WTO.
The role of the state is of vital importance to the establishment of a science and technology sector. The Chinese government launched the ‘National Medium- and Long-Term Program for Scientific and Technological Development (2006–20)’ in 2006, intending to advocate for indigenous innovation and create an ‘innovative society’ in China by 2020.
An indispensable element of this programme is the establishment of home-grown Chinese standards that incorporate domestic IP. From Beijing’s perspective, the quantity of patents and the country’s role in the establishment of standards demonstrate China’s innovation success. Due to tireless efforts by both central and provincial governments, ‘China has moved to the second position as filer of international patent application at WIPO in 2017 just below the United States’.
China has not only managed a technological leap forward by implementing new national/indigenous technology standards, but also effectively internationalized some of those standards as viable alternatives. These actions have caused some consternation in the international arena. As a result, competitors see these as moves of a revisionist China seeking to change existing power structures. An example of China’s success in this area is the approval of its home-grown Internet of Things standards, Intelligent Grouping and Resources sharing (IGRS), as a joint ISO-IEC standard.
The launch of the BRI also offered China an opportunity to widen and internationalize the distribution of its own national standards under the framework of ISO and IEC in neighbouring countries signed up to the BRI.
China’s influence on global technology standards
Beijing’s strident promotion of its own technology standards has not been well received by countries with competing technologies. Traditionally the setting of international technology standards has been the preserve of developed economies, which in some areas has essentially been a monopoly. When a technology standard is accepted and approved by ISO and IEC, all members of these organizations have commercial incentives and legal obligations to comply. If a private company has developed the approved technology standard, then it is likely to dominate that particular sector.
While emerging Chinese technology may have ruffled some feathers, new substantive global standards based on Chinese home-grown technologies will widen the choice available to companies and consumers worldwide and diminish any existing monopolization of technology standards.
The current spat between Beijing and Washington over 5G networks provides the best illustration of the impact of global technology standards on competition. The Chinese government and businesses see the often-proposed global technology standards as belonging to a small number of developed and relatively wealthy Western liberal democracies. Such standards might not be applicable to China and other non-Western developing countries.
Traditionally the setting of international technology standards has been the preserve of developed economies, which in some areas has essentially been a monopoly. When a technology standard is accepted and approved by ISO and IEC, all members of these organizations have commercial incentives and legal obligations to comply. If a private company has developed the approved technology standard, then it is likely to dominate that particular sector.
Beijing’s stridency in utilizing alternative technology standards will also require multinational corporations to adjust their strategies for entering the vast Chinese domestic market. It poses a dilemma for companies unenthusiastic about accepting Beijing’s preferred technology standards, but which rely on access to China’s market for growth.
The biggest hindrance to China’s desire to lead the global governance of technology standards are heavy-handed interventions by the authoritarian political regime in Beijing. This hurdle has already sparked intense debates such as the recent rows over Huawei and its development of 5G networks.
The Chinese leadership aims to achieve its long-desired economic re-balancing from a hub of labour-intensive manufacturing to a global innovation powerhouse. This remains the absolute priority of the ruling Communist Party. Beijing is cultivating national champions that can drive China’s technological innovation, with the goal of using domestic suppliers to reduce reliance on foreign technology.
However, this growing prowess has stoked fears across advanced economies in North America and Europe. Huawei’s 5G mobile network is widely used in medical devices, domestic white goods, electric vehicles and other communication technology. However, using Huawei’s 5G technology could potentially expose users’ personal information and data in strategic sectors. Many Western security services are convinced that the Chinese state dominates the economy in part to use companies like Huawei and ZTE to advance its own ends. As such, if Beijing were to engage in political espionage it is likely to be through high-tech Chinese companies that have developed the latest standards.
It is unclear if Chinese government intervention will eventually achieve the technological self-sufficiency Beijing has long desired. China’s approach to macroeconomic management diverges significantly from that of the US and other real market economies, particularly in its policy towards driving innovation. While Beijing financially supports government-controlled technological enterprises, Washington’s laissez-faire attitude ensures minimum state intervention in the business sector.
Moreover, in line with most libertarian economists, Washington believes the government should refrain from market intervention whereas Beijing stresses a state-dominated economy as a necessary precondition both to the future growth of the Chinese economy and to the legitimization of one-party rule. China has firmly dismissed allegations of ‘forced technology transfer’ from its major economic partners and competitors.
It is natural for China to look to develop ‘indigenous innovation’, however, by employing measures to support home-grown enterprises, the government is contravening free-market norms and WTO rules. For example, under the ‘Made in China 2025’ initiative, Semiconductor Manufacturing International Corps, one of China’s home-grown semiconductor manufacturers, received a subsidy worth over $100 million.
In the race for global influence, China must recognize that advantages in the technological sphere are much harder won than in conventional battlegrounds. Many of China’s actions in international technology standard-setting have provided an alternative to the monopolies controlled by a few wealthy countries, but these initiatives have not always been well received by end-users.
China’s desire to be an alternative champion of technology standard-setting remains unfulfilled. Its ample innovation talent is a solid foundation in its quest for global technology supremacy, but tightening controls over personal freedoms could undermine it and deter the desire of global partners to cooperate. Simultaneously, innovation and authoritarian control are flourishing in China. According to one expert, ‘the unanswered question for China is whether it is possible to have scientific innovation without personal rights’.
Rather than attempting to overturn the existing international technology governance framework, Chinese companies and relevant institutions have followed the rules of international standardization on most occasions. They have continued to observe the current international framework and rapidly expanded China’s influence in relevant international institutions. China’s steep learning curve has meant that the country is now well versed in the formal rules of technological standardization.
Seen in this light, Chinese companies may have an advantage over their US competitors in technology standardization institutions – not because of protectionism by the Chinese state, but because of their understanding of the rules of the game.
Yet, inherent tensions in Chinese policy and one-party rule make Beijing’s desire for a leading role in the international technological standard-setting more complicated and problematic. Due to the legacy of a state planned economy, China increasingly believes that simply relying on market forces is insufficient, as these favour the incumbent international technology governance framework. As a result, there is a strong inclination towards state-led developments of technology standard-setting among both the government and companies.
To many, Beijing represents an authoritarian Leninist regime, which stands apart from the representative democracies in the West. In a more liberal political system, the strength of technological innovation tends to go hand in hand with individual political freedom. China might have the ambition and financial capacity to lead global technological governance, however, it lacks sufficient political credibility to win over competing nations.
On the other hand, policymakers in Washington are overlooking the inherent dynamism of technology. By regarding technology as a fixed object rather than a process in a constant state of flux, the US believes it can block Chinese technology and maintain the US monopoly over the market. This flawed approach has inadvertently emboldened Beijing to boost technology standards and achieve greater self-sufficiency. Consequently, China’s technological advancements may well boost the Communist Party’s means of governing and monitoring the population, yet simultaneously create more controversies on how to handle those technologies without stoking even greater fear on the other side of Pacific.