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Local buy move fair, experts say

By Wang Xu, Tong Hao and Ding Qingfen (China Daily)
Updated: 2009-06-19 09:36

The Beijing-Shanghai high-speed rail link under construction in Zhenjiang, Jiangsu province. China's 4 trillion yuan stimulus package has come at a time when multinational companies are seeing sluggish sales due to the economic downturn.[CFP]

A recent move by China's policymakers to encourage the purchase of domestic products for government procurement was fair and "reasonable", local industry insiders and experts have said.

The National Development and Reform Commission, the nation's top economic planner, along with other ministries, issued a notice in early June that said government-invested projects should make use of domestic products and services, unless they were unavailable in the country.

In an earlier press release posted on its website, the NDRC had said discrimination against domestic products has been the key issue during bids for machinery and equipment, with related industry associations and enterprises protesting vehemently about it.

"The government's move is quite reasonable," said Mei Xinyu, a researcher with the Chinese Academy of International Trade and Economic Cooperation, which is affiliated to the Ministry of Commerce. "It's a universal practice and every country has the right to offer some favorable measures to domestic enterprises in government purchases."

Mei also said the decision was largely a reiteration of existing laws. According to the Government Procurement Law passed in January 2003, domestic products and services should be favored in government procurement. The nation's roadmap for science and technology development also requires that domestic equipment should make up for more than 60 percent of the total investment in State-invested projects.

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Li Renqi, vice-president of the China Machinery Industry Federation, said some existing measures were actually putting domestic enterprises at a disadvantageous position. For example, buyers could often enjoy tax incentives while importing hi-tech machinery, while such favorable policies were not available to domestic products.

Li Haiyan, a senior economist with the China Machinery Industry Federation, said there was little discrimination against foreign enterprises in domestic projects and that foreign enterprises have enjoyed fast growth in China over the years. A number of major projects have also used foreign equipment, he said.

For instance, ABB Ltd, the Swiss-Swedish engineering group, reported orders worth $4.5 billion for 2008 and $4.1 billion in total revenue from China, its biggest market in the world. The company will invest $150 million this year to expand its operations in the country.

China's 4 trillion yuan stimulus package, intended to stimulate domestic demand and prop up the economy, has attracted the attention of global businesses, and has come at a time of flagging sales during the economic downturn.

Although data on the proportion, or the value, of foreign products purchased under the stimulus are unavailable, the NDRC's move has sparked concerns among foreign enterprises, which fear it could be a dangerous signal to protectionism.

The European Chamber, however, said earlier that it was concerned that over reliance on a policy advocating preferential treatment for domestic companies would send the wrong signal to the domestic and international business community at a time when international cooperation was key to sustaining economic recovery.