China defends government purchase policies

By Lucy Hornby and Alan Wheatley

BEIJING (Reuters) - China on Thursday defended its purchasing policies in the face of an international fuss over guidance for government bodies to source domestically when possible.

The National Development and Reform Commission, China's powerful planning agency, and other ministries issued a notice in early June saying government bodies should procure locally made products wherever possible for projects financed by the state.

"This position is in line with our 2002 government procurement law and therefore does not involve prejudice against foreign companies and goods," Chinese foreign ministry spokesman Qin Gang told reporters.

"This law was passed in 2002, before the financial crisis, before our economic stimulus package ever came out."

The most-recent circular attracted little attention until the China Daily, an English-language state-owned newspaper, wrote about it this week.

China has taken initial steps to join the World Trade Organization's agreement on government procurement, which allows member nations to bid on each other's government tenders.

But subsequent negotiations have made little progress.

Chinese familiar with the negotiations attribute the delay to ongoing changes in the terms of the GPA, which prevent them from finalizing a position.

Foreign firms selling to Chinese government bodies have had a fair amount of success, although in some sectors local firms have an advantage. Western executives complained recently at not being given a fair crack at China's booming market in wind turbines.

China's cozy ties between government and local firms mean that outsiders get little word of upcoming tenders and bidding regulations, but that disadvantage is not limited to foreigners.

Several provinces rolled out "buy local" programs earlier this year to capitalize on the stimulus package, favoring goods from their own provinces at the expense of goods from other provinces.

FOREIGNERS REACT

Ardo Hansson, the World Bank's chief economist in China, said he was surprised by the regulations because Beijing understood that, as a big exporting nation, China had more to lose than most countries by restricting procurement.

"China has earned an enormous amount of goodwill and is actually leading the charge globally to avoid protectionism," Hansson told a news conference on Thursday.

The American Chamber of Commerce in China said in a statement that any protectionist policies emanating from Beijing or Washington could prove "extremely detrimental" to decades of progress on promoting greater openness.

"It is critical that spending decisions related to the (stimulus packages) are made with economic and social, not political, rationales in mind," it said, without referring specifically to the notice.

The European Union is examining the Chinese guidelines to determine whether they breach World Trade Organization rules, a spokesman for the European Commission, which oversees trade policy for the 27-nation bloc, said on Wednesday.

Hansson said there was nothing in China's trade figures to suggest foreign firms were grabbing business from local rivals.

"While the economy is doing relatively well, imports are actually falling quite a bit and manufactured imports are not that high," he said.

"The share of imports in GDP currently is falling. If you would have thought that there was a big influx of foreign purchases, you would expect things to be the other way round," he said.

(Additional reporting by Zhou Xin)