The Chinese government's plans to impose a mandatory standard for RFID are unlikely to result in sharply higher costs for companies that use the technology, despite the risk of incompatibility between China's standard and other international standards.
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Kevin Walsh, vice-president of internet technology at Oracle, said mandating the use of an incompatible RFID standard in China would drive up the cost of using the technology, and manufacturing products for export from China would be more expensive and less competitive.
The question of RFID standards in China is important because of the country's role as a global manufacturing centre, churning out a large variety of products headed for export.
One Beijing company, SparkiceLab, claims to have won the exclusive right to issue National Product Codes (NPCs), the Chinese equivalent of the Electronic Product Codes (EPCs) used elesewhere, that outline what information should be contained in the RFID tag. All importers and exporters in China will be required to use NPCs by 2008, according to SparkiceLab.
While China is entitled to set its own RFID standards and requirements, the country will also have to meet the supply-chain demands of foreign companies if it wants to remain competitive as an international manufacturing centre, Walsh said.
"If you're going to be producing for export you can certainly regulate and control the part that's domestic, but you can't regulate what your customer wants," he said.
If China imposes an RFID standard that is incompatible with other standards, this would undermine the effectiveness of using the technology to more efficiently manage supply chains and would make it more expensive to use, by requiring multiprotocol RFID tag readers, for example.
"You have to find a way to make these things work together or else what's the point of doing them in the first place?" Walsh said.
China's economy is strong, despite attempts by the government to slow things down and prevent overheating. The State Development and Planning Commission recently raised its estimate of how fast China's economy will grow this year from 7.2% to 9%.
That growth has been fueled by a surge in international trade. Chinese exports hit $360.6bn (£201bn) during the first eight months of this year, up 35.8% compared to the same period last year, according to China's Ministry of Commerce.
Much of this export growth has been driven by demand for high-value products, such as precision machinery and high technology. These are the kinds of products where using RFID tags will be cost-effective and widespread, Walsh said. "You can't use [RFID tags] on a product that costs one or two cents or when the tag costs 20 cents," he said.
The RFID tags that will be used to track high-value goods will be far more sophisticated compared with the passive systems in place today that are used to track inventory, Walsh said.
Tags will be able to both identify an item when it passes a sensor and record information about what has happened to that item in between two sensors, such as whether the shipment has been exposed to heat or moisture that could damage the item, he said.
The adoption of RFID technology in China will create a flood of information that companies will have to manage and understand, opening up new sales opportunities for Oracle's database and application products, Walsh said. "That's really going to be an explosion for our business."
Sumner Lemon writes for IDG News Service