China's approach to innovation and standardization hardly played a role in international economic diplomacy until a few years ago. With China's economic power on the rise, that assessment has changed dramatically. Today, Beijing's innovation policy and its perceived threat to Washington's innovation and competitiveness are a hot topic in US-China economic relations, adding to contentious disputes over exchange rates, trade and foreign direct investment. The role of standardization, together with intellectual property rights and government procurement, are at the center of this conflict.

An important objective of the standards project of Honolulu-based East West Center's National Bureau of Asian Research is to improve the understanding, in the US and China both, of the role standardization plays in the other country's innovation system, and to contribute to constructive solutions to this conflict. Significant differences exist across countries and industries in the organization and governance of standardization processes.

Since the US and China have fundamental differences in their levels of development and in their economic institutions, they pursue quite different approaches to standards and innovation policy. The consensus in the US is that market forces and the private sector should play a primary role in innovation and standardization. China, on the other hand, relies more on the government to define the strategic objectives and key parameters.

In the US, there is widespread expectation that further reform of China's standards system will "naturally" converge to (almost) full compliance with a US-style market-led voluntary standards system. That expectation can be found, for instance, in American National Standards Institute's "United States Standards Strategy". The strategy document proposes the "universal application of the globally accepted principles for development of global standards", which are based on the US voluntary standards system.

Yet, as this report documents in detail, China's evolving standards system provides little evidence that convergence to the US system is likely to materialize. When Chinese reformers argue for a transition to a more market-driven standards system, they emphasize that the government will continue to play an important role as a promoter, enabler and coordinator of an integrated standards and innovation policy.

China's primary concern is to develop this vast quasi-continental country as rapidly as possible, and to catch up with the productivity and income levels of the US, the European Union and Japan. Strengthening China's domestic innovative capacity is considered the key to a sustainable transformation of its economy beyond the export-oriented "global factory" model. To achieve this goal, China's government is very serious in its aspiration to move from being a mere standard-taker to become a co-shaper, and in some areas a lead shaper of international standards.

But China's indigenous innovation policy and its entry into the global standards game as a new contender has raised concerns in the US that this may erode American leadership and hasten the decline of the US economy. The US government considers China's innovation policy to be "discriminatory", implying that this policy is used as a trade-distorting ploy to challenge American supremacy in the global knowledge economy. A recent report by the US Chamber of Commerce alleges that China's innovation policy is "a blueprint for technology theft on a scale the world has never seen before".

As for China's standardization strategy, it is viewed in the US as a critical weapon of China's "neo-mercantilist policies" to keep US companies at bay.

Perceptions in China are very different. China's leadership considers the American critique of its innovation policy to be unfair and hypocritical, and suspects that the US tries to contain China's rise.

From the Chinese perspective, reducing the dependence on manufactured exports will only be possible if China succeeds in strengthening its domestic innovative capacity. To achieve this objective, China seeks to upgrade its standards system to lessen the control of foreign advanced countries over China, especially in the area of high and new technology and increase the effectiveness of Chinese technical standards as important protective measures or barriers to relieve the adverse impact of foreign products on China's market.

A document issued by the Standards Administration of China says Beijing's standardization strategy needs to fill a policy vacuum because its accession commitments to the World Trade Organization have substantially reduced the use of most other trade restrictions such as tariffs, import quotas and licensing requirements.

China seeks to develop a "two-track" approach. On one hand, it is working within the international system with the long-term goal of creating patent worthy technology essential to global standards, and by including Chinese technology into global standards, China seeks to strengthen its bargaining power and reduce its exposure to high royalty fees. On the other had, China seeks to use its increasing geopolitical influence to promote new sets of rules for international standardization and, hence, to transform the international standards system.

On a global scale, this process is still in the initial stages. But there is little doubt that, in the medium term, China is going to change not only the international approach toward standardization, but also the rules of broader frameworks that govern international trade. The emergence of common global challenges like climate change create conflict and negotiation frameworks with dynamically changing alliances, wherein several sub-systems (including standardization, intellectual property rights and trade rules) are exposed to strong scrutiny and where the status quo may no longer be sustainable.

In short, there are vastly different perceptions in the US and China of what constitutes legitimate goals of innovation and standards policy. A proper analysis is needed to help avoid a vicious circle of escalating trade conflicts and regulatory confrontations between the US and China, where each country's public posture on innovation and standardization will increasingly harden, while frantic negotiations try to mitigate the damage in the background.

The author is a senior fellow and professor at East-West Center, Honolulu, US.