Posted by: Dexter Roberts on June 17, 2009
More evidence has emerged that China intends to favor its own companies as it spends money to boost its economy, including through its $586 billion stimulus package. As I blogged last Friday, there is growing concern amongst foreign companies that Beijing has been quietly instructing local governments and ministries to ‘buy Chinese’ as they implement new infrastructure projects. This issue was raised during the June 8 BusinessWeek Global Green Business Forum in Tianjin.
Now as reported in today’s Financial Times, front page for maximum impact, nine of China’s ministries and government agencies have issued a directive that states much more clearly the imperative of buying Chinese goods whenever possible. “Except for engineering, goods, and services that cannot be obtained under reasonable business conditions within China, domestic products should be purchased for the government investment program,” the notice states.
The directive, which was issued May 26 and posted later on June 4 on the website of the powerful National Development and Reform Commission, is a joint statement by the NDRC itself and the legislative office of the State Council, as well as industry and information, housing, railways, water resources, supervision, transport, and commerce ministries. The edict even goes further and claims that to date there has been discrimination against local brands in purchasing by local governments, a practice that will no longer be allowed. Foreign companies, for their part, claim that much the opposite is true. The “untenable distinction between ‘domestic’ and ‘foreign’ in government procurement practices negatively impacts the sustained growth and development of the domestic economy,” the American Chamber of Commerce complained April 27.
For regular observers of China, the latest directive could provide a bit of mental whiplash. That’s because Beijing officials have recently been on the anti-protectionism warpath, speaking out loudly and often about what they see (and probably rightly so) as examples of protectionist tendencies abroad. China’s commerce minister Chen Deming (his ministry is one of those that are now pledging to buy Chinese products whenever possible) even penned an editorial on the topic that ran in the Wall Street Journal:
“History tells us that the more serious a crisis becomes, the more committed we must be to openness and cooperation. Regrettably, however, trade measures by the U.S. against China are on the rise. Recently, American industries have petitioned the U.S. government for antidumping investigations, and for investigations under the World Trade Organization’s ‘special safeguard provision,’ which could restrict imports of Chinese products. This will seriously test China-U.S. economic and trade relations,” Chen wrote in the piece that ran on April 27. Fair enough—many trade analysts do see these measures as examples of protectionism by the U.S.
But then the whiplash: the minister continues by suggesting that both countries should see business opportunities in their respective stimulus packages: “Both governments have rolled out economic stimulus packages on a massive scale, which in turn are expected to become new growth areas for our trade and investment cooperation. For example, China’s demand for infrastructure, machinery and equipment, and environmental protection is huge. It is hoped that both countries would turn these opportunities into tangible outcomes.” To state the obvious: successfully turning these opportunities into tangible outcomes sure isn’t going to be easy when Beijing’s top ministries are ordering localities to ‘buy Chinese.’