Date
18 August 2017
China’s government procurement
China’s government procurement

China makes new offer on government procurement

China has made a revised bid to join the Government Procurement Agreement of the World Trade Organization, less than three weeks after promising the United States that it would do so some time this year.

Last month, at the annual session of the US-China Joint Commission on Commerce and Trade, US Trade Representative Michael Froman said China had “agreed to submit a revised offer in 2014 that would be commensurate on the whole with those of other GPA members”.

Previous Chinese offers, first made in 2007, were all rejected as far short of what was considered necessary by the United States, the European Union and other members.

“We are looking forward to seeing the offer and seeing whether it’s a system that would consider accession to the GPA,” Froman said in December.

The Government Procurement Agreement currently includes only 42 of the WTO’s 157 members, but it includes the world’s major economies, including the United States, the European Union and Japan.

China, the world’s second largest economy, is notable by its absence. Chinese membership would fill a major gap in the agreement. It would also give China access to the government purchases of other GPA parties.

Admission to the GPA depends on the current members’ acceptance of terms offered by China. The last Chinese offer, made in December 2012, was considered highly disappointing, covering only a tiny portion of the Chinese public procurement market.

Although procurement by sub-central government units accounted for more than 93 percent of total government procurement, the last Chinese offer included only eight provincial-level regions and none at the sub-provincial level, according to the European Union Chamber of Commerce in Beijing.

“As such, total coverage of the third revised GPA offer likely covers just 2 to 3 percent of China’s total public procurement marketplace,” said the group, a consortium of 1,700 European corporate members.

China argued at the time that it was up to local governments to decide on their own.

China’s preference for domestic products also has meant that few foreign companies are able to compete successfully where procurement is concerned. Foreign companies have pointed out that China’s promotion of “indigenous innovation products” also creates a bar to goods produced by foreign-invested enterprises in China, even though the GPA specifically forbids such discrimination.

China has also not included procurement activities by state-owned enterprises.

Last October, Liu Rui, a professor with the law department of the Chinese Academy of Governance, published an article in which he explained that China believes its SOEs should not be included in a GPA agreement because they are “in essence different from state firms in the west”.

“China has been pushing for a moderate opening-up of its government procurement market under the precondition that the foundation of its established public ownership system will not be rocked,” he explained.

While the details of China’s latest offer have not been made public, the Chinese goal clearly is to open up its procurement market to a greater extent than before in order for Chinese businesses to access international GPA markets.

“China aims to open up procurement market,” an article in the China Daily on Saturday declared. It said that a new offer – China’s fourth – had been submitted on Jan. 6 to the WTO and that China was now awaiting a response from current GPA parties.

Citing figures from the Ministry of Finance, it put China’s total government procurement in 2012 at US$230 billion, a 23.3 percent increase over 2011.

Gu Liaohai, chief legal counsel of the China Society of Economic Reform, was quoted in Global Times last February as saying that if projects such as those in education, healthcare, railways and government-subsidized housing are included, China would be “the largest public procurement market in the world”.

If China’s revised offer substantially open up its GPA market, it would mean a willingness to accept a more open economy and to expose its companies to international competition, forcing them to improve their quality and efficiency.

This would be in line with a decision made at the Third Plenum in November that the market will play a decisive role in the allocation of resources.

The plenum also centralized spending and the central government may now be in a position to make a more attractive offer regarding government procurement.

While less competitive Chinese companies may lose out, the exposure to foreign competition would prepare other Chinese companies to go global, as the government intends.

GPA membership will spur Chinese overseas investment, a major growth factor that will also enhance China’s international influence.

– Contact the writer at [email protected]

CG

 

Frank Ching opened The Wall Street Journal’s Bureau in China in 1979. He is now a Hong Kong-based writer on Chinese affairs.

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