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The Battle for Global Standards

China's Three Golden Silk Roads


China's Three Golden Silk Roads


China is setting new standards in markets long dominated by the West. Taiwan now faces a decision on which way it should go and whom to follow.



China's Three Golden Silk Roads

By Fuyuan Hsiao
From CommonWealth Magazine (vol. 498 )

Greece is broke, and Europe's economy is swaying precariously, uncertain of its future direction. The persistent sense of crisis in recent years has created a new world order, influencing international capital flows.

Among the battlegrounds in this titanic shift expected to have a profound influence on Taiwan is the fight between China and the West over product standards. From mobile phones to e-commerce, from luxury goods to Hollywood movies, Chinese companies have made their influence felt everywhere over the past year.

Not only is China establishing its own new standards in its domestic market, it is also rewriting global trade rules as its products overwhelm global markets.

At the beginning of May, CommonWealth Magazine reporters covered 20,000 kilometers following China's three new "golden silk roads" – arteries disseminating mobile phones, e-commerce and luxury goods, respectively – all the way to the borders from which the products were being exported.

Lines of trucks waiting to transport goods into Central Asia; pipelines ready to channel oil into China from the Indian Ocean; cartons of women's handbags sold online to Japan – these all reflect the pervasive influence of Chinese standards that have pushed deep beyond China's western frontiers into European and Asian markets, bypassing American-dominated Pacific Ocean ports.

Traditionally a follower of advanced Western economies and Japan, Taiwan suddenly faces a dilemma: Which set of standards should it pursue?

A New Piper in the Global Village

In the well-known fairy tale the Pied Piper of Hamelin, a piper in multicolored clothes lures rats and then children to follow him with tunes played on his magic flute.

In the post-World War II era, the world has had its own pied piper – the United States – setting product standards and the rules of the game and attracting followers who stick loyally to the charted course.

Entering the second decade of the new millennium, however, another pied piper has emerged on the scene, bewitching others to follow it: China.

In 2009, CommonWealth Magazine explained in a cover story how China was leveraging its massive domestic market to cultivate new industry standards capable of counterbalancing those enforced by the United States.

This year, based on the rhetoric of Chinese officials and businesses, China appears ready, after 10 years of honing its "new standards," to export them abroad. 

In March during a spring chill, China published the first foreign-language edition of "China Communications Construction Standards and Specifications" in 12 volumes. Few actually read the publication, but it created a massive stir. Central government officials and business leaders crowded into the book's launch ceremony at the Great Hall of the People. 

"We are fully confident of having the world widely accept our standards system," said Chinese vice commerce minister Chen Jian. The high profile of the gathering made it evident that China's development strategy was evolving from an emphasis on speed, quality and quantity to a focus on standards.

Chinese Standards Breaking Through

The 12-volume work was simply the latest in a progression of actions taken in pursuit of China's "Going Global" strategy.

In 2009, China's Ministry of Transport and Export-Import Bank, and China Communications Construction Company, the country's biggest international engineering contractor, joined together to produce English and French versions of a 92-volume work on transportation engineering standards to help Chinese standards go global.

Translating a book of Chinese standards may have seemed like a waste of time and money, but to Beijing, it was a lynchpin in the strategy to break through European and American barriers constraining China's national development strategy.

As the world's second largest economic entity, China has felt a special sense of urgency to break through barriers in a world where "hard standards," for things like communications, the Internet, computers, transportation, electricity and water works, and even "soft standards" covering culture, luxury goods and commercial models, are monopolized by Europe and the United States.   

In an article in the journal Foreign Policy published last November, U.S. Secretary of State Hillary Clinton declared America's renewed focus on the Asia-Pacific region. As part of that, she pushed the Trans-Pacific Partnership (TPP), a Pacific Rim trade deal whose original signatories were Brunei, Chile, New Zealand and Singapore and that the U.S., Australia, Vietnam, Peru and Malaysia – but not China – are currently negotiating to join as well.

The TPP would go beyond simply eliminating tariffs and also cover intellectual property protection, government procurement, competition policy and technical barriers to trade.

"A TPP agreement with high standards can serve as a benchmark for future agreements – and grow to serve as a platform for broader regional interaction and eventually a free trade area of the Asia-Pacific," Clinton wrote.

To China, however, the pact not only seals off some of its Pacific outlets, but actually poses a threat to the global competitiveness of its industries and companies.

The current state of affairs resembles the game of Go. America, playing the white stones, is dominating the board, and China, playing the black stones, has to create a separate battlefield to avoid coming under siege.

The result was China's three new "golden silk roads," meant to spread Chinese standards around the world.

These three new silk roads all begin in Shenzhen. The road heading northwest toward Xinjiang is forging the "hard standards" related to the computer, communications and consumer electronics sectors, while the "southern road" heading west toward Yunnan Province is conveying the "soft standards" of luxury goods. The "e-road" heading due north to Jiangsu Province is setting e-commerce standards.

On the New Golden Silk Roads

CommonWealth Magazine reporters ventured to the westernmost outlet of the new northern silk road, the town of Horgos in Xinjiang on the border with Kazakhstan, 5,000 kilometers away from Shanghai.

On a six-lane highway heading toward the border, only one traffic policeman is on duty. Bright red trucks with Cyrillic script and Kazakh license plates form a 200-meter line, waiting to clear customs. They are carrying mobile phones produced in Shenzhen.

China's 4G TDD-LTE standard is being exported through this small border town to five Central Asian countries with a total population of 60 million people.

Another CommonWealth Magazine team visited the town of Ruili in Yunnan Province, on the border with Burma, where big trucks carrying 7-meter-long oil and gas pipes were navigating the old Burma Road, built during the Sino-Japanese War in 1937 and 1938, into the Southeast Asian country.

The pipes will be installed in a 2,380-kilometer oil and gas pipeline connecting Kyaukpyu on Burma's west coast and Kunming in southwest China, passing through Ruili.

The pipeline will make it possible for shipments of oil from Africa to be channeled directly to Kunming from the Bay of Bengal, enabling tankers to bypass the Malacca Strait and the South China Sea, cutting the length of their journeys by over 1,000 kilometers. Implicit in the strategy is that China will also avoid passing through waters controlled by America's military might.

China's taste for luxury items, such as jewelry, gold and jade, has created a rapidly expanding market that through the border outpost of Ruili has also attracted the participation of businessmen in southeast and southern Asia.

"In Ruili, whether going out or coming in, there are markets of more than 1 billion people in each direction," says Zhan Maosheng, president of the Tai Lee Group and head of a Taiwanese business association in Kunming, who has been in the jewelry business in Ruili for over 20 years.

From communications to e-commerce and luxury goods, Chinese companies are all pitching Chinese standards to conquer foreign markets.

The Chinese Standards' Joint Fleet

Speaking before both the National People's Congress and the Chinese People's Political Consultative Conference in Beijing in the second half of March, Ma Zonglin, the general manager of China Electric Power Construction Group Co., Ltd., powerfully enjoined Chinese companies to build strategic partner relations and create a "joint fleet" that fully harnesses Chinese standards, Chinese designs, Chinese manufacturing and Chinese capital.

"We need to not only go out, but also go in, and even more importantly, to keep on going," Ma, who is also a delegate to China's National People's Congress, declared to an appreciative audience, outlining China's pressing desire to export standards, infiltrate markets and sustain its presence abroad.

Over the past few years, China has aggressively pursued overseas transportation infrastructure projects using Chinese standards and designs, in order to help Chinese standards "go out, go in, and keep on going."

According to PRC Ministry of Commerce statistics, China has won US$841.6 billion in contracts for engineering projects overseas as of the end of last year, roughly equal to two years of Taiwan's GDP.

Liu Qitao, president of China Communications Construction, China's biggest international public works contractor, which got its start building basic infrastructure such as harbors, railways and bridges, spoke bluntly at a seminar about the importance of the standards game.

"We urgently need to push for Chinese standards to go out," he said. "Whoever controls the standards controls the present and the future. Whoever lacks standards loses the right to have a voice."

Having already penetrated Central Asia, Russia and Southeast Asia, China has quickly moved into central and eastern Europe in recent months through loans and mergers.

At the beginning of February, China's Great Wall Motors built a plant to produce cars in Bulgaria and used that as a base to expand its business into neighboring countries.

Two months later, at the end of April, Chinese premier Wen Jiabao attended the "China-Central Europe-Poland Economic Forum" in Warsaw, and announced that Beijing would create a US$10 billion loan fund designed to support Chinese companies investing in basic infrastructure, new technologies and renewable energy in Central Europe.

Less than a week later, vice premier Li Keqiang flew to Hungary and proposed a US$1 billion credit line to fund the construction by Chinese companies of a railway line connecting Budapest and its international airport southeast of the city.

Which of the Two Pied Pipers to Follow?

In their new book called In the Shadow of the Dragon: The Global Expansion of Chinese Companies – and How it Will Change Business Forever, IMD business professor Winter Nie and freelance writer William Dowell foresee a Chinese tsunami in overseas markets consisting of US$2 trillion in investments and acquisitions over the next 10 years.

The strategy to go global goes beyond acquiring technology. It will also allow China to sell Chinese services and standards through brands recognized in the West. The authors already see China today as rewriting global standards and norms. 

"The experience of the first wave of emerging Chinese multinational corporations indicates that tomorrow's corporate giants will challenge the world's established multinationals in knowledge-intensive and technology-intensive businesses, and that they will strike in the West's home markets with extensive R&D and quick-learning and quick-strike capabilities," the book says.

In this global battle of the two pied pipers – the United States and China – which one should Taiwanese companies follow?

In the communications field, notebook computers, cell phones and the Internet have always followed U.S. standards, but a growing number of Taiwanese companies, including Taiwan's "Big Five" electronics companies (Hon Hai, Quanta, BenQ, Asustek and Compal), as well as HTC and MediaTek have all seen Chinese standards gradually take hold and have gradually joined the Chinese camp.

At present, Taiwanese companies operating in China are facing considerable hardship as costs rise and operating conditions worsen. Following Chinese standards into emerging markets could represent a new opportunity for them.

But they cannot forget that in the folk tale, the pied piper eventually used his magic flute to take revenge on the village he saved by luring its children into a cave and sealing them inside, never to be seen again.

How Taiwan's enterprises will follow China as it reaches out globally without being trapped is a risk they will have to think through before bravely venturing out to the tune of the world's new pied piper.

Translated from the Chinese by Luke Sabatier