Nikkei Asia - 25 October 2021
China moves to ease rules on government procurement for CPTPP
By Iori Kawate
China has taken a step toward easing rules that all but bar foreign companies from lucrative government procurement deals as the world’s second-largest economy seeks to join a Pacific Rim trade deal.
Earlier this month, the finance ministry told local governments in an official notice that foreign-owned suppliers’ "right to participate fairly in government procurement must be assured" as long as their products are made in China.
The timing of the instructions, which came after China announced a bid in September to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), suggests Beijing is laying the groundwork for negotiations that will test how willing it is to open up its economy.
The stakes are high. The Chinese government nearly doubled in value over the five years to 2020, reaching roughly 3.7 trillion yuan ($579 billion), or 3.6% of gross domestic product.
Under the CPTPP, governments must not discriminate against goods and services from other member economies when awarding procurement contracts.
While China’s bid has been welcomed by some CPTPP members in Southeast Asia and South America, others have questioned whether Beijing has the political will to tackle difficult market access issues like government procurement rules.
"It is of the utmost importance that China meets the high standards" set by the CPTPP, a Japanese government source said. "There is no way there will be concessions, such as numerous exceptions for China."
According to the finance ministry’s notice, local governments must not restrict suppliers’ participation by setting conditions on the composition or location of their shareholders. Complaints about tenders or outcomes must be handled fairly, regardless of whether they come from foreign or domestic companies, the ministry said.
The ministry also ordered local governments to revise lists of supplier candidates that are seen as a de facto barrier to foreign participation.
China’s government procurement law stipulates that local authorities and state-owned companies buy Chinese-made products. Yet Japanese companies have complained of losing out on government tenders despite offering products made in China at prices comparable to those of Chinese rivals.
Members of the foreign business community in China have welcomed the notice as a step in the right direction but say they need time to see what happens in practice.
The notice allows exceptions to be made for "procurement programs related to state security or secrets," so how much improvement in market access these instructions will bring is unclear.
Chinese President Xi Jinping has espoused a "holistic view" of national security that spans 11 fields, including the economy, the military, culture, science and technology and information. This broad interpretation of national security has been built into an export control law that took effect in December 2020 and other legislation.
Since about 2018, the Chinese government has compiled lists of recommended manufacturers and products for personal computers, servers, multifunction printers and other information technology, industry insiders say. These lists are said to restrict suppliers by imposing conditions such as low ratios of foreign ownership and management comprising Chinese nationals, on national security grounds.
Even with the new guidance from the finance ministry, the vague boundaries of national security could introduce an element of arbitrariness to how authorities put the rules into practice.
China is also weighing legal changes on government procurement. Proposed amendments opened to public comment in December 2020 call for the creation of a security screening process for government contracts.
Meanwhile, the U.S. has taken steps to shut Chinese suppliers out of American government deals. Federal agencies were prohibited in August 2019 from buying products from telecommunications equipment maker Huawei Technologies and four other Chinese companies. In August 2020, any contractors using equipment or services provided by these five companies were barred from participating in government contracts.