In the early 1990s, China’s consumer electronics industry lagged far behind its Western counterparts, lacking both purchasing power and advanced manufacturing capabilities. Faced with the high costs and technical barriers of dominant international standards such as VHS and LaserDisc, Chinese innovators pursued a pragmatic alternative. In 1993, Jiang Wanmeng and Sun Yansheng, working with C-Cube, introduced the world’s first commercial Video CD (VCD) player, which leveraged MPEG-1 compression to store video on inexpensive, widely available CD-ROMs. This choice aligned closely with domestic realities: VCD players were cheap to manufacture, discs were easy to copy, and the format fit neatly into China’s rental- and piracy-driven media ecosystem. Domestic firms further adapted the technology by developing “super error correction,” enabling VCD players to function reliably with low-quality or damaged discs, thereby outperforming foreign brands in the local market.
Although VCD was a technological dead end in the West, in China it served as a critical transitional platform between analog media and the later adoption of DVD and other digital formats. Rather than leaping directly from VHS to DVD, China used VCD as a phase of “digital enlightenment,” accumulating capital, manufacturing experience, and system-level know-how until higher-end technologies became commercially viable. This episode exemplifies the strategic logic often described as “crossing the river by feeling for stones”: early, low-end solutions are not viewed as failures but as necessary stepping stones toward technological upgrading. The VCD case thus offers a revealing historical lens through which to understand China’s contemporary approach to high-tech development and its long-term competition with the United States.
Historical Context of China’s VCD Case
1. China’s Structural Starting Point in Consumer Electronics in the Early 1990s
In the early 1990s, China’s consumer electronics industry entered the global market from a position of pronounced structural disadvantage. The sector was capital-constrained and technologically dependent, yet characterized by vast and rapidly expanding domestic demand. Television ownership was growing quickly across urban and rural households, creating strong demand for home video consumption. However, the supporting media and playback ecosystem lagged behind, exposing a gap between consumer appetite and the country’s ability to supply appropriate, affordable technologies.
Existing international video formats were ill-suited to China’s economic and industrial conditions. VHS, while technologically mature, depended on complex mechanical components, high-precision manufacturing, and costly magnetic tapes, all of which translated into prices beyond the reach of most consumers. LaserDisc offered superior audiovisual quality, but its large physical size, high equipment costs, and limited practicality made it inaccessible to ordinary households. DVD, though widely recognized as the future of digital video, was not fully standardized until the mid-1990s and remained tightly controlled by patent pools dominated by Japanese and U.S. firms, imposing substantial royalty payments and high barriers to entry.
China’s core constraint was not the absence of manufacturing capacity or market demand, but the lack of control over standards, intellectual property, and advanced production processes. Domestic firms were capable of assembling hardware at scale, yet remained dependent on foreign technologies and licensing regimes. Early attempts to import complete foreign ecosystems through joint ventures—such as the Hualu–Panasonic partnership established in 1992—highlighted these limitations. High costs, technological complexity, and weak alignment with local consumption patterns prevented such models from achieving broad market penetration.
Taken together, these conditions defined China’s starting point in the early 1990s: a large but underserved market, strong assembly capabilities without technological sovereignty, and global standards that were economically and institutionally mismatched with domestic realities. This structural context set the stage for China’s later pursuit of alternative technological paths that prioritized affordability, scalability, and gradual capability accumulation over immediate participation in high-end, foreign-dominated ecosystems.
2. The Practical Logic Behind VCD’s Adoption in China
By the early 1990s, China’s challenge in home video technology was not identifying the most advanced format, but finding one that could be realistically deployed under severe economic and institutional constraints. Video Compact Disc (VCD), based on MPEG-1 compression and standard CD-ROM media, emerged around 1993 as the most feasible option. Although the technology itself was not invented in China, it was commercialized, localized, and scaled there more rapidly than anywhere else, precisely because it matched China’s industrial capabilities and market conditions.
From a technological standpoint, VCD imposed relatively low entry barriers. The hardware architecture required little more than an optical CD mechanism and a decoding chip, supplied by firms such as C-Cube and later MediaTek. This simplicity reduced dependence on high-precision mechanical systems and allowed domestic manufacturers to enter the market quickly. At the same time, China already possessed—or could cheaply acquire—CD production lines, enabling rapid expansion of disc manufacturing without the need for major new infrastructure investments.
Equally important was the institutional environment surrounding intellectual property. Unlike DVD, which was governed by tightly controlled patent pools and licensing cartels dominated by Japanese and U.S. firms, VCD faced comparatively weak patent enforcement and minimal royalty burdens. This significantly lowered costs and reduced legal risks for producers, making large-scale participation economically viable for domestic firms.
Affordability and cultural compatibility ultimately sealed VCD’s success. Player prices fell rapidly from several thousand renminbi to just a few hundred, while discs sold for only a few renminbi each. The ease of copying and distribution aligned seamlessly with China’s 1990s rental- and piracy-driven consumption patterns, further accelerating adoption. In this sense, VCD was selected not because it represented technological progress at the frontier, but because it was immediately usable—an accessible, scalable solution that could bridge the gap between China’s limitations and its vast latent demand.
3. Market Fit and Bottom-Up Innovation in China’s VCD Ecosystem
The success of VCD in China was rooted less in technological sophistication than in its close alignment with actual market behavior. In the 1990s, pirated and repeatedly copied discs—often scratched or of poor quality—dominated circulation. Rather than resisting these conditions, domestic manufacturers engineered around them. Innovations such as “super error correction” enabled VCD players to read damaged media more reliably than foreign brands from Sony or Panasonic, giving local firms a decisive advantage in everyday use. This form of innovation was not frontier research, but practical, demand-driven adaptation.
Such market responsiveness encouraged a distinctly grassroots model of technological development. Engineering priorities were set by real consumption environments rather than abstract performance benchmarks. Reliability under adverse conditions, cost reduction, and ease of repair mattered more than marginal improvements in image quality. This approach allowed domestic firms to iterate quickly, learn from usage at scale, and differentiate themselves in ways that global incumbents—designed for cleaner, regulated markets—could not easily replicate.
At the same time, China constructed a complete “technology–industry–trade” ecosystem in parallel. Upstream suppliers emerged around key components such as decoding chips, laser heads, motors, and materials, with firms like C-Cube and later MediaTek playing a central role in chip supply. Midstream assemblers, including BBK, Malata, Xianke, and BenQ, competed intensely on price and volume, driving rapid diffusion. Downstream, content producers, rental shops, and informal distribution networks—piracy included—ensured constant demand and high utilization.
Rather than importing a finished foreign system, China built its own functional ecosystem through use. Price competition, large production volumes, and fast feedback loops substituted for formal standard-setting power and advanced intellectual property ownership. The VCD market thus became a living laboratory in which technology, industry, and commerce co-evolved, demonstrating how bottom-up innovation and market alignment can compensate for structural disadvantages at the technological frontier.
4. VCD as a Catalyst for China’s Early Digital Transformation
In contrast to the West, which largely skipped intermediate formats and moved from VHS directly to DVD, China used VCD as a transitional phase that introduced millions of households to digital media. Through widespread adoption of VCD, consumers became familiar with optical discs, digital compression, and electronic interfaces, laying the foundation for later engagement with higher-end technologies. By 1997, China sold over 10 million VCD players annually, accounting for roughly 85% of global VCD usage, demonstrating both the scale and significance of this domestic adoption.
This transitional phase also prepared Chinese manufacturers for the subsequent shift to DVD production. As DVDs became affordable in the late 1990s, China rapidly scaled production and, by 2000, became the world’s largest DVD manufacturer. However, this transition exposed domestic firms to international patent constraints and licensing conflicts, including the so-called 6C/3C alliances, which imposed heavy royalties and compressed margins. The experience, while challenging, provided critical lessons in navigating intellectual property, global competition, and technological upgrading, underscoring VCD’s role not merely as a market success, but as a formative stage in China’s broader digital modernization.
5. The Enduring Industrial Legacy of China’s VCD Era
Although the VCD format itself eventually vanished, the industrial ecosystem it fostered left a lasting imprint on China’s technology landscape. Companies that began in the VCD era evolved into major global players: BBK Electronics grew into OPPO and vivo, C-Cube and UMC laid the foundation for MediaTek, Hongen Education pivoted into gaming with Perfect World, and the vibrant CD/DVD retail networks of Zhongguancun evolved into e-commerce giants like JD.com. This continuity demonstrates how early market-driven ventures can generate enduring institutional and organizational capacity.
Equally significant was the human capital cultivated during the VCD boom. Engineers, managers, and supply-chain specialists trained in the production, distribution, and commercialization of VCDs carried their expertise into emerging industries. This experience underpinned the development of MP3 and MP4 players, smartphones, display technologies, batteries, electric vehicles, and robotics, creating a foundation for China’s later technological ascent. In this sense, VCD was less an end product than a formative stage, seeding capabilities and networks that continue to drive China’s industrial and technological growth.
Key Lessons from China’s VCD Experience
China’s experience with VCD offers enduring lessons about the interplay between technology, market conditions, and industrial development. One of the most important insights is that the “right” technology is highly context-dependent. VCD was technologically inferior to VHS or LaserDisc in terms of image quality, yet it succeeded because it matched China’s income levels, institutions, and manufacturing capabilities. Its affordability, speed of deployment, and scalability made it far more effective in practice than pursuing advanced formats unsuited to local conditions. Development, as the VCD case shows, is path-dependent rather than linear.
A second lesson concerns the relative importance of industrial learning versus intellectual property ownership. China never controlled VCD’s core patents, yet domestic firms gained deep experience in manufacturing, system integration, cost engineering, and supply-chain coordination. In contrast, the rigid patent regime surrounding DVD extracted royalties, limited experimentation, and compressed margins, demonstrating that owning the ecosystem often matters more than owning the underlying invention. This insight has informed China’s subsequent approach to technology strategy.
Scale proved to be another critical lever. China overcame initial technological disadvantages through volume-driven iteration: thin margins encouraged massive production, which enabled rapid learning, which in turn allowed migration into adjacent industries. This approach would later underpin China’s success in smartphones, displays, batteries, and electric vehicles, highlighting the power of scale to compensate for early inferiority.
The VCD era also illustrated the benefits of messy openness. While the market was chaotic—with piracy, low-quality discs, and inconsistent hardware—this disorder lowered entry barriers, encouraged experimentation, and allowed the domestic ecosystem to evolve organically. In contrast, overly controlled and standardized systems, as seen with DVD and Blu-ray, proved rigid and slow to adapt. China’s experience suggests that strategic flexibility and tolerance for market messiness can be more productive than early attempts at perfection or strict control.
Finally, the VCD case underscores that temporary technologies can have permanent effects. Although the format itself eventually disappeared, the human, organizational, and industrial capabilities it incubated endured, seeding future industries and supporting China’s broader technological rise. VCD’s real legacy lies not in its media format but in the ecosystem it created, demonstrating that early, imperfect solutions can lay the foundation for long-term industrial and technological advantage.
What the VCD Experience Reveals About the Contemporary China–U.S. Technology Rivalry
China’s experience with VCD offers a strategic template for understanding its behavior in today’s technology competition with the United States. The central implication is that China often prioritizes ecosystem formation over immediate leadership at the technological frontier. Rather than waiting for perfect or cutting-edge solutions, China tends to deploy workable technologies at scale, refine them through use, and consolidate standards only after mass adoption. This sequence—deployment, iteration, consolidation, and eventual upgrading—mirrors the VCD trajectory and continues to shape China’s approach in fields ranging from telecommunications to artificial intelligence.
A second implication lies in China’s deep sensitivity to technological chokepoints and patent weaponization. The costly experience of DVD-era patent wars left a lasting institutional memory, reinforcing the risks of reliance on foreign-controlled standards and licensing regimes. Today’s emphasis on self-reliance in semiconductors, operating systems, and foundational digital technologies reflects not a pursuit of isolation, but a desire for strategic resilience—ensuring that critical industries cannot be externally constrained at decisive moments.
Open-source ecosystems have consequently become a key strategic instrument. Just as the loose intellectual property environment surrounding VCD enabled rapid industrial expansion, China now actively supports open platforms such as RISC-V, HarmonyOS, and open-source AI frameworks. These initiatives reduce dependence on proprietary U.S.-controlled technologies and facilitate coalition-building, particularly with emerging markets that share similar cost and access constraints.
The VCD precedent also suggests that China is more likely to pursue asymmetric breakthroughs than head-on competition at the frontier. While it may lag in areas such as extreme ultraviolet lithography or the most advanced AI models, China can still gain advantage through applications, system integration, and cost-driven diffusion. This pattern is already visible in electric vehicles, large-scale 5G deployment, and AI inference hardware, where usability and affordability matter more than absolute technical supremacy.
Cost, in this context, functions as a strategic weapon. By driving prices down—whether through sub-$200 smartphones or affordable electric vehicles—China accelerates adoption, builds network effects, and reshapes global markets. This dynamic exerts sustained pressure on U.S. firms that depend on premium pricing, much as VCD undermined VHS and LaserDisc by making video access cheap and ubiquitous.
The VCD case cautions against underestimating “imperfect but scalable” technologies. Chinese solutions are often less refined, more iterative, and tightly embedded in mass-market usage. Yet once these systems achieve scale, they become deeply entrenched and difficult to displace. In this sense, the VCD experience not only explains China’s past industrial ascent, but also offers a lens for anticipating the trajectory of the ongoing China–U.S. technology competition.
Summary & Implications
VCD was not a technological triumph judged by absolute standards, but a developmental success achieved under severe constraints. Its significance lay not in technical excellence, but in strategic fit: it was a platform China could afford, deploy, and learn from at scale. The enduring lesson is that technology leadership does not always come from choosing the most advanced option, but from selecting a viable foothold and moving quickly to build capability upon it.
This logic—first tested in the VCD era—continues to shape China’s approach to technological competition today. In the ongoing China–U.S. rivalry, China’s strategy remains rooted in pragmatic deployment, rapid iteration, and ecosystem building, reflecting a belief that sustained progress depends less on perfect starting points than on the ability to learn, scale, and advance under constraint.
References
- Towards Independent Innovation: Seeking The Source Of China’s Strength (zou xiang zi zhu chuang xin: xun qiu zhong guo li liang de yuan quan). Lu Feng. 2019