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BEIJING—During conversations with several executives working in the Chinese wireless industry here, it became clear that the Chinese government is becoming increasingly aware of domestic technical problems and is now more responsive to the realities of the standards and procedures of the global wireless enterprise market.
The Chinese government dressed up its decision to delay the implementation of a new wireless security standard as part of a wider trade deal with the United States. But the Chinese never agreed to give up on its plan to create its own wireless encryption standard at some point in the future.
However, Chinese Vice Premier Wu Yi has said that when China implements any of its technology standards it will ensure any rules will be fair to U.S. businesses. China has agreed to drop a June 1 deadline for its WAPI (Wireless LAN Authentication and Privacy Infrastructure) encryption standard and will work with international standards-setting bodies such as the ITU going forward.
“The whole government mentality has become very practical, and [there is] a recognition that domestic Chinese companies need more time to improve their performance before any new standards are ready for the market,” says Joan Wang, director of 3G strategy and planning at UTStarcom (China) Ltd.
U.S. chip and telecommunications companies objected to a Chinese decision to extend free access to the WAPI standard to a select group of more than 20 Chinese telecommunications equipment makers.
Under Chinas original WAPI plan, foreign vendors would then have to license the technology from the Chinese telecom companies, which many U.S. companies argued would be in strict violation of international free trade rules. Intel, Texas Instruments and Broadcom have been steadfast in their refusal to comply with Chinas original WAPI rules.
Another critical issue for U.S. companies is that Chinas WAPI standard is not compatible with current Wi-Fi security standards. China has said it is not comfortable with the security provided in the 802.11 WLAN protocol, arguing that it poses a threat to its national security. The IEEE has been working to improve Wi-Fi security with additions such as the 128-bit Advanced Encryption Standard in the upcoming 802.11i specification.
Meanwhile, moves are afoot for the Standardization Administration of China (SAC) to work with the IEEE on wireless broadband standards development. From May 17-20, the IEEE 802.16 broadband wireless working group will hold its first-ever meeting in China in the city of Shenzhen.
“By next year, there will be more development of wireless broadband services in China, and greater importance is being attached to Wi-Fi,” says Xie Linzhen, vice president of the China Mobile Communication Association. Xie added that any controversy surrounding Intel and other chipmakers over WAPI “will be solved through negotiations.”
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One of the primary motivations for the Chinese developing their own technology standards is to avoid potentially expensive royalty fees for licensing western technology.
Several sources in China said that while the Chinese government is developing a variety of homegrown technology standards, none is ready for global licensing. Neither WAPI nor TD-SCDMA (Time Division Synchronous Code Division Multiple Access) is well-developed, and both still face considerable technical obstacles. There is no question the Chinese government is going to continue developing its own standards, but considerable effort and fairness will have to arrive before U.S. and other international technology companies comply with any new technical security rules.
The Chinese are very sensitive to being perceived as backing down to international pressure. As part of their wider U.S.-China trade agreement, Beijing got the Bush administration to reconsider its current ban on U.S. exports to China of high-tech products that could potentially have military applications.
China was also successful in avoiding concessions on the issue of its continued imposition of a 17 percent VAT (value-added tax) on imported semiconductors. U.S. companies exported close to $2 billion in chips to China in 2003, based on statistics from the Office of the U.S. Trade Representative. The sale of those chips in China cost U.S. companies $344 million in Chinese-imposed duties.
Prior to the U.S.-China trade agreement, the Bush administration filed a formal fair-treatment complaint against China to the WTO (World Trade Organization) on the chip VAT issue. The chip tax amounts to a rebate for Chinese companies, say U.S. chip companies and the SIA (Semiconductor Industry Association). It is unclear if and when the WTO will issue a ruling on this point.
The U.S. has also been pressing China to stem the rampant tide of software, music and movie piracy of CDs and DVDs. As part of its trade deal with the United States, China has said it will begin to impose more stringent penalties for intellectual property piracy by the end of 2004. However, an informal survey of several stores and a number of underground markets in Beijing reveals it is possible to procure DVDs and CDs for $1 or $2, without any Chinese government involvement.