China Is Quietly Setting Global Standards

As China boosts overseas investment through its Belt and Road infrastructure program, it is increasingly dictating not just the terms of financing but also a broader set of technological applications. In doing so, it is altering the global competitive landscape by defining and exporting technical standards for everything from artificial intelligence to hydropower.

The process has so far mostly unfolded domestically, and in Chinese, as China’s government has sought to develop its own set of industrial standards for companies operating within its borders. That has made the effort mostly opaque to outsiders. Yet regulators are now starting to translate those standards into English — a clear sign that they’re meant to be exported overseas. And that should worry China’s competitors.

For decades, America’s ability to set domestic standards that would then spread globally benefited its economy greatly. As a recent paper by the East-West Center put it, “Standards serve as bridges between developing innovations and the marketization and industrialization of those innovations.” The specification of even everyday items such as USB ports has given American companies a strong advantage in selling goods in other markets.

Patents are the key conduit of this process. As standard-setting in any industry progresses, the companies that own the technology on which the standards are based benefit by either selling their equipment or licensing their patents. Telecoms are a classic example. Qualcomm Inc., which owns key patents for LTE, 3G, and 4G technology, has received billions of dollars in royalties in recent years — including almost $8 billion in China alone in 2014. And that’s in an industry where standards are set through a complex global process; when countries set standards unilaterally, the benefits for their homegrown companies can be even more pronounced.

Developing countries tend to voluntarily adopt standards set by high-income economies. But China’s government has taken a much more proactive role. Instead of trying to influence the likes of Pakistan, Thailand, and Myanmar by changing hearts and minds, it wants to convince them to change their nuts and bolts — and their data-management practices to boot. In this context, China’s recent revisions to its National Standardization Law and its Cyber Security Law look far more significant; they could reverberate far beyond its borders.

To contact the author of this story:
Andrew Polk at ap@triviumchina.com

To contact the editor responsible for this story:
Timothy Lavin at tlavin1@bloomberg.net