By Dieter Ernst
HONOLULU (July 19, 2010) -- China has substantially improved its capacity to develop and implement a broad set of interoperability standards, security protocols and product specifications as a platform for the development of indigenous innovation. However, as rising complexity in technology, business organization, market structure and regulations reshapes the international standardization landscape, China's government-centered standardization strategy is under pressure.
While rising complexity creates new opportunities for learning and institutional innovations, it also increases the cost and risks of standards development, especially for Chinese companies that seek to move beyond the status of fast-followers to become co-shapers of international standards.
An important drawback of China's top-down approach to standards and innovation policy is the elaborate lists of products and technologies that are constructed to assess compliance with standardization and certification requirements. It is very cumbersome and time-consuming to construct and manage such lists, and as a result, they risk being quickly outdated and bypassed.
Even more troublesome for China's objective of fostering indigenous innovation is that such control lists focus on existing technologies, rather than on the future innovations that they are designed to promote.
For China, the development dimension remains critical, with the result that the state will continue to play an important role as a promoter and coordinator of an integrated standards and innovation policy. However, it is necessary to increase the flexibility of policy tools and institutions in order to cope with the sometimes disruptive effects of unexpected changes in technology, markets and business strategies.
In a world of rising complexity, it is always preferable to have built-in redundancy and freedom to choose among alternative options rather, than seeking to impose the "one best way" of doing things.
First, rising complexity drastically reduces the time available for standards development and implementation, which makes it practically impossible to get solutions right the first time. There may have to be many policy revisions, based on trial-and-error and an extended dialogue with all stakeholders to find out what works and what doesn't.
Second, rising complexity makes it very difficult to predict possible outcomes of any particular policy measure. This is especially true of unexpected negative side-effects, of which there is an almost endless variety. Hence, one small change in, for instance, a particular compliance procedure can have far-reaching and often quite unexpected disruptive effects on many other policy variables and outcomes.
Third, it is next to impossible to predict the full consequence of interactions among China's increasingly diverse population of standardization stakeholders. Thus, the results of a particular standards policy depend much more on negotiations, gaming and compromises than on the logical clarity and technical elegance of that policy.
It is time to give Chinese standards associations the right to make their own standards and to let the market develop voluntary standards, especially in strategic areas like inter-operability. Additional reforms should include the harmonization of standards and conformity assessment; attempts to rationalize the outsourcing of research and support services by ministries to specialized research institutes; efforts to strengthen cooperation between China's standardization system and its State Intellectual Property Office; and integrating standards and innovation policy with China's still relatively new and untested Anti-Monopoly Law.
Finally, a sustainable upgrade of China's standards system critically depends on effective policies to strengthen the position of China's small and medium-sized enterprises, which lack adequate standardization capabilities. For these companies, standards are a burden that generates very high costs. A fundamental prerequisite for upgrading China's standards system is to reduce the huge gap in standardization capabilities that separates SMEs from the handful of dominant Chinese global players.
Dieter Ernst is a Senior Fellow in Economics at the East-West Center in Honolulu. He can be reached at ErnstD@EastWestCenter.org
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