China Programme • Volume 14 • Number 13 • 14th April 2010

China Relaxes Restrictions on Government Purchasing

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China announced over the weekend that it will be easing proposed rules that would have severely curtailed foreign firms’ access to the lucrative Chinese government procurement market.

The original “indigenous innovation” rules that Beijing introduced in November last year - but which were never fully enforced - stipulated that any firm hoping to sell high-tech products to the Chinese government had to prove that their goods used technology that had been developed and patented in China.

The measures, which were intended to spur technological innovation at home, triggered an outcry from foreign firms, who argued that they were being unfairly squeezed out of the Chinese market. In an open letter sent to three high-level Chinese officials in December, more than 30 Western business groups said that they were “deeply troubled” by the indigenous innovation rules, and urged the measures to be dropped. A report released last month by the Office of the US Trade Representative claimed that the rules unfairly discriminated against US companies.

Five months after introducing the measures, China has stepped back. The proposed rules that were announced over the weekend require that patents and trademarks that are used in government purchases simply be registered in China; the domestic innovation requirement has been dropped. The Chinese government has posted the draft rules on its website.

The indigenous innovation rules would have affected billions of dollars worth of government purchases of personal computers, software, energy-efficient equipment, and the like.

Signatories to the WTO’s Agreement on Government Procurement (GPA) are forbidden from implementing domestic purchasing requirements like the indigenous innovation rules. China has not signed the GPA, but it is currently negotiating its entry into the agreement. Forty-one WTO members, including the US and the EU, have already joined the deal.

Business leaders welcomed the recent announcement. “This is an important sign that policymakers in China recognise the role that fair competition plays in developing and enhancing China’s high-tech capabilities,” the European Chamber of Commerce said in a statement.

But John Neuffer of the Information Technology Industry Council, a group that represents many US-based tech firms, was somewhat less certain. “It’s clear that they’ve responded to criticisms and that’s positive, but it doesn’t address all of our concerns,” Neuffer told The Wall Street Journal. “We have to fully digest this. The language is still vague.”

ICTSD reporting; “Foreign firms are welcome in China,” XINHUA, 6 April 2010; “Beijing revises purchase policies,” THE WALL STREET JOURNAL, 12 April 2010.