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Beijing city slammed over Microsoft deal
Updated: 2004-11-26 10:44

The Beijing municipal government has come under fire for damaging China's nascent software industry by giving United States software giant Microsoft the lion's share of a large software purchase order.

Unsuccessful domestic competitors and some central government officials say the city failed to respect China's law on government procurement, which stipulates that when a local product is available it should receive preference over foreign products.

According to the official Beijing Times, Microsoft last week won a 29.95 million yuan (HK$28.14 million) contract which licenses the Beijing municipal government to use all of its software products for three years.

For Microsoft, it is the second major China procurement victory in less than a month. It concluded an office software agreement with the Tianjin municipal government at the end of October.

Li Wuqiang, vice-director of new and high technology development in the Ministry of Science and Technology, accused some local governments of ignoring the law's buy-Chinese-whenever-possible stipulation. Saying that he was expressing a personal view, Li strongly urged the authorities to "check the unhealthy tendency" of local governments to buy large amounts of foreign software.

Not only were they flouting the law, he argued, they were also hurting the Chinese software industry.

Industry insiders said the Beijing local government's "single source procurement" method was out of line with the procurement law.

The issue is a major headache for the industry. With no fewer than 20 other big and medium-sized cities about to make software purchases, local software companies hope they will not follow the example of Beijing and Tianjin.

Another influential figure to side with the Chinese software makers was Ni Guangnan, an academician with the Chinese Academy of Sciences.

In an article published on a website, Ni said government purchases were the lifeline of the domestic software industry and the harm done by local governments that violated the procurement law could not be under-estimated.

All in all, it has been a bad few weeks for the Chinese information technology industry. On Wednesday, Dell announced it won a 79 million yuan order from the Beijing municipal government to supply 16,000 personal computers to primary and middle schools. Dell beat out domestic vendors including Lenovo, the No1 mainland computer maker.

China implemented its government procurement law on January 1, 2003, but it is sketchy, setting out only general principles to guide the choice between foreign and domestic products.

The central government has still to define exactly what constitutes domestic software, though it is expected to do so by the end of this year.

To qualify as domestic, software products and services will probably need to contain local added value of more than 50 per cent.

According to to CCW Research, a market research company, the central government spent 34.5 billion yuan on IT procurement in 2003, including 5.05 billion yuan of software products and services.

This year, government purchases are seen rising by 15.9 per cent to 40 billion yuan.

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