New York, August 4, 2004 — China is no longer content with just being the world's pre-eminent manufacturer, as it is increasingly active in the development of global technology standards, Deloitte finds in a study released today. Produced by Deloitte's Global Technology, Media & Telecommunications (TMT) Industry Group and Deloitte Research, the report, "Changing China: Will China's Emerging Technology Standards Reshape Your Industry?," details how China's technology standards initiatives will shape global competition in the TMT sector for years to come. A Chinese language overview of this report also is available.

China's current position as the leading consumer and producer of many technology products — along with its healthy long-term growth prospects — puts it in a strong position to influence standards in both its own and global markets. As China's standards become more widely accepted, Chinese firms will increasingly direct the global technology sector.

"Technology vendors that misjudge the impact of China's standards revolution could find themselves at a significant disadvantage, with their position in the market increasingly overtaken or encroached upon," says Clarence Kwan, National Managing Partner, Chinese Services Group, for the Technology, Media & Telecommunications practice at Deloitte & Touche LLP in the U.S. "China is able to use the lure of its massive markets and spectacular growth as leverage in the standards war. Global technology and telecommunications companies need to review China's standards initiatives and collaborate, where appropriate, with Chinese companies in standards development."

Deloitte identified four practical strategies for technology firms to consider as China's technology standards develop:

1. Collaborate with standard setters.
2. Compete selectively, focusing on areas where standards are harder to mandate.
3. Innovate specifically for the Chinese market.
4. Seed emerging markets to encourage growth and establish early control.

"Firms with a strong base of support among Chinese companies and consumers are in the best position to promote their own standards. Those lacking widespread support would be wise to co-operate instead of competing," continues Kwan.

From operating systems and software applications, to storage media, wireless communications and satellite positioning, Chinese government agencies and companies are working to shape new technology standards for economic advantage. Deloitte expects Chinese manufacturers to begin by building critical mass of support at home, then exporting their technologies to emerging markets such as Southeast Asia and the Middle East.

"Technology companies must carefully monitor China's actions, assess the implications of Chinese standards, and amend their strategies accordingly," adds Kwan. "Companies that don’t may find themselves locked out of the world's largest and fastest growing marketplace, which is increasingly defined by standards that originate in China."

Examples highlighting China’s impact on standards include:

Technology: Operating systems

• The Chinese government recently announced a major commitment to Linux and announced it was drafting a new "standard" specifically for the Chinese market that might be made compulsory for all IT vendors and service providers.
• The Chinese software industry is still in its infancy and China wants to source software or create its own software that is affordable to the masses.

Technology: RFID (Radio Frequency Identification)

• China established a working group to draft and develop national standards for RFID tag technology. Some reports indicate the group is adhering to international standards, while others suggest the group is planning to go its own way. An incompatible RFID standard could pit the interests of China's emerging IT industries against the interests of major purchasers of Chinese products.

Media: EVD (Enhanced Versatile Disc)

• Chinese companies are trying to promote a successor to the DVD optical disk standard, called Enhanced Versatile Disc (EVD), which has better sound and picture quality than DVD.
• Chinese companies are constrained by hefty DVD royalties, which range from US$15 to $22 on players that today often retail for less than $60. A consortium of China's leading makers of DVD players holds the EVD patents and collects royalties.

Media: Audio video coding

• China is developing its own standard technology for compressing audio and video. The new standard, calls AVS, is competing with MPEG-4 and H.264 to replace the current worldwide compression standard, MPEG-2.
• EVD is currently based on MPEG-2, but a switch to AVS is expected — allowing Chinese manufacturers to produce state-of-the-art video players based entirely on Chinese technology standards.

Telecommunications: Cellular networks

• China has its own globally approved standard for 3G and as the world's largest market for mobile communications, is well positioned to take a lead role in defining the 4G standard.

Telecommunications: Satellite positioning systems

• China recently chose Europe's Galileo system over the U.S. military's Global Positioning System. The push into satellite positioning systems has significant commercial and geopolitical ramifications.

About Deloitte's Technology, Media & Telecommunications Group
The Global Technology, Media and Telecommunications (TMT) Industry Group consists of more than 5,000 partners, directors and senior managers supported by thousands of other professionals dedicated to helping clients evaluate complex issues, develop fresh approaches to problems and implement practical solutions. TMT has dedicated practices in 45 countries and centers of excellence in the Americas, EMEA and Asia Pacific. We serve nearly 80 percent of the TMT companies in the Fortune 1,000.

Clients of global TMT practices include the world's top software company, computer manufacturer, wireless operator, satellite broadcaster, advertising agency and semiconductor foundry — as well as leaders in publishing, telecommunications and peripheral equipment manufacturing. We work across all service lines: assurance and audit; risk consulting; tax advisory; business and technology consulting; financial advisory and corporate finance; mergers and acquisitions and Sarbanes Oxley compliance. Our practitioners invest vigorously in understanding and promoting the TMT sector, generating world class insight via Deloitte Research; identifying upcoming industry leaders through the Technology Fast 500 programs and polling leadership opinions via our Global CEO survey.

About Deloitte
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