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Why does Chinese government procurement favor foreign products?
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16:20, July 01, 2009

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Thanks to the strong brand advantages, coupled with the appreciation of the RMB reducing pressure on prices, as well as China's policy to encourage imports, foreign products have gained the upper hand in Chinese government's procurement for a long time. This makes China's domestic laws and regulations on the procurement of domestic equipment difficult to implement.

China's "Government Procurement Law" stipulates that "The government shall procure domestic goods, construction and services ", the National Long- and Medium-term Program of Sci-Tech Development Planning and related policies says "in key projects of the national and local government investment, the ratio of domestic equipment procurement in general may not be less than 60% of the total value."

In the end of May, 2009, as foreign companies lost orders of about five billion euros of 25 wind turbine generators, European Union Chamber of Commerce said that foreign suppliers are being excluded from the 4 trillion yuan of fiscal stimulus program contracts.

Later, The National Development and Reform Commission (NDRC), the Ministry of Industry and Information Technology, and another 7 ministries jointly issued a statement, emphasizing the Government's investment projects are government procurement, and should purchase domestic products. This led to accusations of protectionism by China.

Lu Renqi, vice president of China Machinery Industry Federation said: At present, there is small price difference between major foreign equipment and domestic equipment in equipment manufacturing industry, under such circumstances people prefer to choose foreign products. This is a universal phenomenon.

Head of National Development and Reform Commission also pointed out that there are discriminatory conditions in tendering activities of equipment manufacturing industry, and there are even restrictions of using domestic equipment. This means that the problem is not "exclusion of foreign suppliers ", but rather "discrimination against Chinese goods."

Since the financial crisis, the overall growth rate of 13 large industries under the management of China Machinery Industry Federation, such as motor vehicles, construction engineering equipment, engineering machinery, agricultural machinery, and environmental protection machinery declined by 21% between January and April , 2009.

There are three reasons for this situation.

First, from government procurement to the private consumption, foreign brands dominate the competition. And there are also many joint venture brands. To gain the 4 trillion yuan investment, 100% domestic brands can not compete with these brands.

Take bus purchases for example, the China-made Geely and Chery produce upscale cars for public affairs, but on the government procurement list, are cars like Audi, Honda and Toyota.

Second, as a result of appreciation of RMB, it is not more expensive to buy foreign goods. Domestic products do not have much advantage in terms of price.

Third, some of imported equipment is encouraged in China. According to policies and regulations these products can enjoy duty-free, while many countries often set up import tariff barriers on imported products.

In view of this, to implement the 4 trillion yuan stimulus plan, it's particularly necessary to use government measures to grant domestic products favorable policies.

Attention should be paid while giving priority to domestic products in government procurement. It is international practice. We can not simply regard it as trade protection. Government procurement laws vary in different countries, but almost all of them benefit their domestic products.

At this time China has not made any terms or conditions to exclude foreign enterprises, even in government investment projects regarding the 4 trillion yuan stimulus plan. China allows Chinese and foreign enterprises to compete on the same platform.

In addition, the Ministry of Commerce has organized a government procurement delegation to Europe, which is the most powerful evidence that there is no trade protection.

By People's Daily Online

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