2010 August 03 Tuesday
Domestic Smart Phone OS For China

Remember when US businesses heavily lobbied Congress to pass Most Favored Nation trade status for China? Supposedly this was going to open up China for American business. But the Chinese are very mercantilist. The Chinese government wants a domestic Chinese smart phone operating system.

Having long memories, China's Ministry of Information Industry officials recall their selection of GSM, the 2G European digital standard, under the brilliant former MII Minister Wu Ji-chuan, as the Chinese mobile standard in the mid-1990s. The GSM selection ushered into China foreign network equipment and mobile phone vendors (Ericsson and Nokia, by holding important GSM patents, occupied an advantageous position for GSM network and handset development, which left Chinese firms in catch-up mode). MII grudgingly worked with foreign suppliers, which made possible the enormous increase of Chinese mobile subscribers, and also concluded that a domestic mobile industry was strategically important for the Chinese state and economy. So this nationalist outlook led to MII adopting a Chinese 3G standard — TD-SCDMA — which became a long saga for network deployment.

Crucially, all current mobile smart phone platforms – Android, Symbian, iOS 4, Windows Phone 7, WebOS, BlackBerry, and others – pose a problem to Chinese authorities: like the 1990s GSM and CDMA network standards, all are foreign-made. Foreign firms, according to MII, take revenues from Chinese enterprises (like carriers’ networks) and consumers, as well as having the potential to embed socially “harmful” software apps into handsets, including mobile search for politically sensitive topics. Ultimately, a China-domestic smart phone operating system (with Chinese-made apps) plus a domestic mobile search engine will be the best strategic 3G smart phone combination for MII. Hence, MII will certainly lobby China Mobile, China Unicom and China Telecom (the three Chinese mobile carriers) to push handset suppliers like Lenovo and Huawei (plus other OEMs for new tablets, auto apps, TV set-top boxes) to adopt new Chinese mobile platforms.

Microsoft, Google, and other big lights of American software have dim future prospects in China. The Chinese government will see to that.

China has a big enough internal market that it can pursue the same trade policy the United States followed in the 19th century: protect domestic industries from foreign competition so that domestic markets are serviced by companies that have their loyalties firmly for the nation and so that the elites that profit from economic growth will be domestic elites. This policy worked well for the United States, btw.

Contrast this with the free trade globalism of our own elites which admits to no doubts in Ricardo's fairly simple model of comparative advantage (or am I being unfair to Ricardo?). Which will do better in the long run?

Share |      By Randall Parker at 2010 August 03 08:53 PM  China

Gorilla said at August 4, 2010 7:07 AM:

Not the Chinese. Eventually they will screw it up. The current ruling elite will only be there for so many years, and eventually the a party elite of incompetents will take over. This is the same political system as the 60s and 70s, just with different people.

NotProgressive said at August 4, 2010 9:59 PM:

Steve Sailer, "Thoughts on America's Jewish Ruling Class" makes the case that our new ruling class has fundamentally no connection to the ruled. Hence, our elites continue to make choices inimical to the better interests of America. My view is the ruling class of China are Han's who are ethnocentric brothers to the ruled, and will be more likely to make sympathetic decisions.

Of course, China had rent seeking Mandarins who ruled by decree for Centuries. Westerner's used to wonder if the Chinese would still be floating on their boats at the end of time.

bbartlog said at August 7, 2010 7:05 AM:

Protectionist policy is basically a fairly efficient way of forcing local citizens to invest in local industrial capital. I suppose 'invest' might not be the right word since the returns are not to the 'investors'. Anyway it doesn't have the micromanagement and corruption problems involved with trying to have government allocate investment resources directly to firms.
I used to support free trade, but I've come to conclude that so much of consumption involves de facto positional goods (or aggregates of goods that function in the same way) that import tariffs are an easy way to safeguard the welfare of future generations without much real impact on the welfare of current consumers. For example, 90% of home improvement hardware (much of it imported) is just used in a nearly zero sum competition to raise the appeal of houses vis a vis other US houses.
The historical record also suggests that there is something incomplete about Ricardian theory. I wouldn't say Ricardo is wrong per se; rather you can't predict the long-term success of nations and peoples by using a simple scalar construct like utility.

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