US aims to bring down China's regulatory wall

Long-term trouble?
History shows that these sorts of trade problems can last a long time. In the 80s, Japanese and US semiconductor manufacturers sparred constantly. A truce only began in the 90s when Japan was already mired in an economic slide. Moreover, such trade quarrels can lead to global incompatibilities that linger for years and hurt both importers and exporters.

"I believe there are genuine security concerns on China's part, although the domestic industry is also likely to benefit," said Lawrence Lau, the Kwoh-Ting Li professor of economic development at Stanford University. "This happens quite often. Our cell phones do not work in Japan, so the Japanese manufacturers and distributors have a lock in their home market. However, that did not exactly help Japan. By setting a different standard, Japan has actually limited the growth of its own cell phone companies."

On the other hand, the United States and China have strong incentives to cooperate. For one thing, trade is booming. China's trade with the United States came to $191.7bn in 2003 ($28.4bn in US exports to China and $163.7bn in Chinese exports to the United States), up 23.2 percent from the year before, according to statistics from the US International Trade Commission. Electronics were the United States' largest export and the second biggest Chinese export.

Recently, The Bush administration slightly relaxed its stance on the exportation of 130-nanometre semiconductor manufacturing equipment to China and will let companies export this equipment under certain circumstances, said Maggie Angell, director of public policy at Semiconductor Equipment and Materials International (SEMI), a trade organisation for chipmakers. Until recently, national security concerns barred these sales.

European and Asian governments already let their companies export this kind of equipment, which has been available in other countries since the late 90s, to China. Some semiconductor test equipment will be removed from national security classification as well.

"I do not see a wholesale change in export control, but there are some things going on that can be called forward movement," Angell said.

Chinese companies are also getting hit. Semiconductor Manufacturing International Corporation (SMIC), which makes chips for companies that don't maintain their own foundries, is one of China's premier chipmakers. The company has raisedms from US venture capitalists like New Enterprise Associates and can count US chip designers such as Broadcom among its customers. But despite the pedigree, the company saw its shares decline in its IPO on the Hong Kong and New York stock exchanges this week.

And, as many Western companies have seen, China is also discovering that promoting a new standard and getting people to adopt it are two separate things. So far, sales of DVD players based on China's Enhanced Versatile Disc (EVD) standard are disappointing because of high prices and a lack of titles, according to a January report in the People's Daily.