David WolfBy David Wolf
First, the facts: On or about the 27th of November, the Standardization Administration of China, in coordination with unnamed industries, issued a notice stating that as of 1 December Chinese government agencies are prohibiting the import, manufacture, and sale of any Wi-Fi gear that does not adhere to the China's just-unveiled Wired Authentication and Privacy Infrastructure standard.

The standard is not supported by any current or upcoming security specifications. The standard is incompatible with global standards developed by the Institute of Electrical and Electronics Engineers (a global body) and the Wi-Fi Alliance (another global body) and endorsed by the International Telecommunications Union (ITU, a global body under the U.N.

Not only is the security protocol incompatible with nearly every one of the 2000 plus wi-fi products in the market today, it does not use the Advanced Encryption Standard (AES) at the heart of current wireless technologies and by initial accounts actually stronger than the security protocols embedded in WAPI.

Given that no other country plans to use WAPI, this will be a China-only standard.

Second, let's belabor the obvious a bit: the decision to impose this standard on this technology at this time increasingly looks like a fundamental miscalculation.

Not only is this a significant step in isolating China technologically from the rest of the world, it has also increased the costs of wireless access to the Chinese consumer by denying all wireless equipment and component makers the economies of scale that would make it cheaper for Chinese to use. It means that Chinese travelers going abroad cannot use their Wi-Fi computers there, and that business travelers coming here cannot use their Wi-Fi equipped computers here. At the grass-roots level, making China a global player just got a lot harder.

This is a broadside right into the guts of China's nascent wireless industry. There are quite literally thousands of products from dozens of companies affected by this, not just foreign manufacturers but local gear-makers like Lenovo (who just linked up with Netgear in a partnership to sell wireless networking products). Certainly, any Chinese company in the business of making networking gear that was hoping to use their home market to help create economies of scale to compete overseas is now having to reevaluate their global competitiveness.

The companies trying to make a business out of running Wi-Fi networks, like China Netcom and China Telecom, are doing so at great expense and are leading the world in a new, carrier-based business model. They too, have seen carefully developed business plans damaged as the technological barriers to their success have just risen substantially.

All for a standard that is not only incompatible, but is by all reports inferior to the global standards either proposed or in use. Under the circumstances, as one analyst told the Asian Wall Street Journal, this reeks of protectionism.

And that is perhaps the most severe miscalculation of all. China's leaders need hardly be reminded that this is an election year in the US, one that will see the issue of trade between the US and China as a central issue for both Republicans and Democrats. To take this move now not only gives the traditional anti-China forces in the US wonderful fodder, it also threatens to alienate one of China's traditional sources of support in America: a powerful group of technology companies that will now be compelled to reconsider that support.

All of this is happening at a time when the US electorate will be watching the 4th Quarter trade numbers between China and the world–numbers already uncomfortable for US and European politicians due to the seasonal flow of consumer goods from China to the west. And all of this right after George W. Bush publicly backed down on the steel tariff issue.

In short, this is NOT the time to be behaving in a way that appears to be playing protectionist games. Nobody wants a trade war, least of all the US and China, but the US government is likely to find itself forced to take a strong stand on just this type of issue to demonstrate Bush's "toughness" on China.

The good news–if there is any here, is that the fight is not over–there is more to say and do before all of this becomes final. Discussions continue between a host of foreign and domestic players and the government at many levels, and companies involved are still evaluating the standard. And the timing of enforcement–realistically, the hammer comes down in June–gives us a window of opportunity, right as the industry comes to grips with the cost of compliance.

(All of this is having some interesting unintended consequences. Foreign and domestic companies in the industry are starting to recognize that they share more interests in common than either previously thought. Hmm.)

The only way anyone–indeed the only way China–will win the wi-fight is if all parties work to ensure that the government's legitimate concerns–whatever they may be–are addressed without penalizing the industry, its users, and indeed the nation. If this is done, cooler heads may yet prevail, redounding to the benefit of all involved. I have more confidence in the fundamental rationality of the government than most, and as such am guardedly optimistic.

As I have made clear in this space before, I am a rabid advocate of China developing superior technologies worthy of becoming global standards. My rationale for that comes not just from the benefits that will come to China, but the greater good that will come to our industry by harvesting the intellectual product of China's growing number of thinkers and engineers.

But in placing what appears to many international observers to be the interests of a small group of engineers-turned-bureaucrats before those of the industry sorely discredits all of the genuinely good work being put toward creating better technology in China, and postpones–not hastens–the day when China will join the ranks of the world's technology leaders.

About the author:
Silicon Hutong is an ongoing series of thoughts and commentaries by David Wolf, President and CEO of Wolf Group Asia'a management advisory firm providing strategic communications counsel to technology, media, entertainment, and telecommunications companies in Greater China and the Asia-Pacific region. David's opinions are his own and do not reflect those of either WGA or it's clients. Past articles can be found at www.chinatechnews.com, the Silicon Hutong Blog can be found here and David himself can be contacted at [email protected].


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