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Era of increased spending ends

By Wei Tian, Li Fangfang and Gao Yuan (China Daily)

08:32, January 29, 2013

Government procurement may have peaked last year as tougher regulations mean that huge increases in public expenditure are a thing of the past, a government official said.

The procurement budget will stay around 20 billion yuan ($3.22 billion), an amount similar to the 20.5 billion budget for 2012, said Wang Lida, director of the Central Government Procurement Center.

The 2012 figure represented a jump of 20 percent year-on-year, but such increases are unlikely in the future, Wang said in an interview with China Daily.

The procurement budget has grown nearly 30-fold from when the center was established 10 years ago.

Tougher measures on spending, especially regarding the purchase of government vehicles, are now in force, he said.

Procurement by government offices exceeded 1.13 trillion yuan in 2011, accounting for 11 percent of public expenditure, according to Cheng Yuanzhong, deputy director of the China Federation of Logistics and Purchasing.

Combined with spending for other purposes, such as education, healthcare, housing subsidies for low-income households, transportation and energy, the total figure exceeded 5 trillion yuan.

This figure made China the largest public procurement market in the world, Cheng said.

However, Cheng said, procurement has faced problems, such as a lack of information, and inefficiency.

Wang said public procurement accounts for about 10 percent of the world's total.

He promised that government agencies will increase transparency in the procurement process.

He also said the government procurement will prioritize energy saving and environmentally friendly products.

Party chief Xi Jinping has been campaigning against corruption and stressing the need to improve public services.

Following the example of government agencies, local authorities have announced a number of changes. Authorities in Gansu province have asked all offices to purchase cheaper domestic brands of vehicles, if they have to purchase any.

"The new leadership's support for a centralized vehicle procurement program will prevent government offices from lavishing public funds on luxury cars," said Liu Yuanrui, an analyst with Changjiang Securities.

"The government might set off a trend, in which the public might also turn to less expensive domestic vehicle brands."

However, industry experts said the tightening of the procurement budget is unlikely to have a major effect on the industry.

"The government accounts directly for no more than 2 percent of the car market. The proportion might be around 4 to 5 percent when all State-owned entities are taken into account," said Cui Dongshu, deputy secretary-general of the China Passenger Car Association.

IT purchases will not be reduced, analysts said.

In 2012, the government purchased 300 million yuan of certified software.

"China is investing more in intellectual property protection, so the government is unlikely to reduce this budget," said Wang Zhiqiang, vice-president of sales with Beijing Rising International Software, an Internet security service provider. Government procurement accounted for about half of the company's sales in 2012.

Adrian Chan, Greater China president of the world's second-largest data storage management company NetApp, also believed the government would not cut its IT investment. "Reining in costs might hit work efficiency. What we do is to help our clients reduce costs while raising efficiency — both are what the government is looking for," said Chan.


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