There is a popular saying among Chinese enterprises that the top companies sell standards, second-class firms sell brands, and companies at the bottom of the rung simply sell products.

China is the biggest DVD player production base in the world. Many manufacturers only earn one or two US dollars per unit, but they have to pay about US$5 per unit to patent owners such as Royal Philips and Dolby.

The desire to emerge from the rubble of price wars and move up to a higher level of competition is motivating Chinese enterprises to demand a greater say in the setting of standards. These efforts are merely a reflection of the country's ambition to transform itself from a world manufacturing hub to an innovation-driven global competitor.

China's 11th Five-year Programme for 2006 to 2010 proposal says the country should develop new technologies that can significantly influence socio-economic development, and set technological standards, which are important to the national economy.

New audio and video technologies and the next generation of mobile telecoms products and services are among a number of key national priorities. On February 22, the Standardization Administration of China promoted the visual half of the Audio and Visual Standards (AVS) as a national standard. This was the first major progress in the setting of standards following the proposal's announcement in October.

"This is a milestone for the AVS, because we are the only audio-visual coding and decoding technology to become a national standard," says Huang Tiejun, secretary general of the AVS working group.

Huang adds that the visual side is the most important part of the AVS standard. The audio part is likely to be approved sometime early this year.

AVS is a new generation audio and video compression standard that competes with international versions of MPEG4 and H.264, but has advantages such as more efficient coding and decoding capabilities, lower costs for migration from existing equipment primarily based on the MPEG2 standard, and simpler licensing methods.

Huang says the cost of an AVS decoder is the same as the H.264. If this is widely adopted, the costs will drop even further. The AVS standard also cuts bandwidth almost in half, which means service providers can transmit double the current content over the same bandwidth.

MPEG4 and H.246 both charge royalties on equipment and content, requiring payment for DVD players and every movie watched, but the AVS standard only charges for the equipment, so costs are lower for consumers. Audio-visual coding and decoding is widely used in DVD players, TV sets, TV station equipment, online broadcasting, and satellite broadcasting.

China's standardization efforts have progressed by leaps and bounds over the past year. In February 2005, the Chinese high-definition and high-density EVD (enhanced versatile disc) laser disc became an industrial standard, following approval from the Ministry of Information Industry.

EVD competes against global standard proposals such as Blue Ray discs and high-definition DVDs (HD DVD). Both of these are aimed at expanding disc capacity. Although EVD offers lower upgrade costs, it also has smaller capacity.

IGRS (intelligent grouping and resource sharing) initiated by iTopHome, Chinese computer manufacturer Lenovo Group and home appliance giant Haier became industrial standards in the middle of last year. They connect electronic devices at home and in the office to a wireless and integrated network.

Marketing campaign

Despite China's emphasis on innovation and standardization, the 11th Five Year Programme proposal also calls for increased standardization efforts. It is one thing to set a national standard, but winning support from the market is another matter entirely.

In September, national TV broadcaster CCTV announced it would use MPEG2 as the format for its high-definition TV programmes, which began airing in January.

CCTV, a leader in the country's migration to high-definition and digital TV, is believed to be one key links in the success of AVS. But its selection likely dealt it a heavy blow.

"If CCTV does not adopt AVS, how can you convince other broadcasters and service providers?" asks an anonymous veteran analyst with China Radio and TV Information magazine, an industry publication under the State Administration of Radio, Film and TV (SARFT).Huang does not believe there is a problem, however.

"At that time, AVS was not a national standard. But if we have a standard like this, I believe there will be a series of promotional moves from the government and the industry," he says.

High-definition TV, digital TV, and Internet protocol TV (IPTV) are three major areas for potential large-scale AVS use. They are expected to be major topics at the China Cable TV, Broadcasting, and Network Exhibition (CCBN) from March 21 to 23 in Beijing. The conference is the largest in China, and enjoys strong support from SAFRT, says Du Baichuan, deputy chief engineer with the administration.

The administration has been pushing for the digitalization of Chinese broadcasting systems throughout the past three years. It issued a circular in January requiring all 49 trial cities to begin the shift from analog TV to digital TV before June 30.

"The CCBN will become a critical point from which AVS can win back the confidence of broadcasters," says the China Radio and TV Information analyst.

Another Chinese-developed standard, the Wireless Authentification and Privacy Infrastructure (WAPI), became a national standard in 2003. WAPI also faces a critical turning point in 2006.

The implementation of the WAPI standard, which is geared at increasing the security of wireless local area networks (WLAN), was indefinitely suspended in 2004. This was due to protests from the United States and Europe. US semiconductor giant Intel was particularly upset because it promoted the idea of WLAN to the world with its Centrino notebook processors.

Late last year, the Chinese Government said it would reveal the WAPI encryption method to the world, to stop US complaints over lack of transparency and the exclusion of foreign companies from the standardization process.

In January, three Chinese ministries said government agencies should select WAPI-compatible products, including notebook computers, printers, and other devices. China Mobile, the country's largest mobile carrier, was also reported to have invested 10 million yuan (US$1.2 million) on WAPI-compatible product trials.

Industrial sources say an industrial alliance will be formed to promote the use of WAPI technology, because it is a key priority for China to protect the security of information.

"The government's role should be limited to initiating the alliance. The alliance's operations should be based on common commercial interests, which are fundamental to a healthy alliance," says domestic consultancy Analysys International in a research note.

(China Daily 03/06/2006 page5)