Economy

Home, sweet home

Provincial governments are told to buy Chinese products

The announcement of a ‘Buy Chinese’ policy was always going to generate a few splutters of indignation.

After all, it seemed to many of us that we were already buying Chinese goods by the container load, even if appetites may have dulled a little in recent months.

And what about the Chinese response to the efforts of the US Congress to inject similar sentiment into an American stimulus package earlier this year?

WiC vaguely recalls the headlines. Nation Says No To Trade Protectionism, announced the China Daily. ‘Buy China’ Not An Option, assured the Economic Observer.

At the time, government spokesmen were similarly offended by such narrow thinking. “We express deep concern…under the current financial crisis, measures issued by all countries should not cause negative impacts, and especially they should not send out wrong messages,” declared Yao Jian, a commerce ministry spokesman.

So what message is intended in the statement released jointly by nine government departments earlier in the month?

The decree covers government procurement, and requires the purchase of Chinese products or services, unless they are unavailable domestically or cannot be purchased on reasonable commercial or legal terms.

But the statement also reflects the complaints of domestic manufacturers fed up with “fat contracts” being awarded to foreign firms, says the China Daily. Li Renqi, vice president of the China Machinery Industry Federation, is typical in his gripe that homegrown firms are missing out because of the preferential terms on offer to foreign competitors.

Another common theme is that policies of this kind are run-of-the-mill internationally, and so should not be of any great surprise. The Global Times points to a recent announcement from the New South Wales state government in Australia, for instance, which it says restricts government spend to domestic made products.

And one more thing; the legislation is not even new, it’s a reiteration of procurement regulations passed in 2003. Strange that no one seemed to think this worthy of mention in February, when the Buy America provisions were in the line of fire.

How do the arguments stack up? Foreign firms manufacturing in China do enjoy some tax benefits. But when local officials show a preference for foreign products it is often on the basis of their quality, rather than any unfair advantage.

A salesman from local carmaker, Geely told the China Daily: “If the price of the two cars is the same, the officials always prefer the foreign brand.” Indeed, Germany’s Audi owes an incredible 20% of its China sales to cars procured for government officials. (It sold 119,598 sedans in China last year.)

Perhaps some of the comparisons to restrictive purchasing practices overseas are nearer to the mark.

After all, European politicians queued up to express their own concern at the proposed Buy America provisions earlier in the year, which required government projects to use only US-made steel and manufactured goods.

The message was not lost on the Chinese audience. Even so, the Global Times seems to miss the wider point when it links the recent slump in China’s exports to the “severe burden” of a new wave of protectionism. In fact, the export slowdown is primarily a result of a slump in demand, and not a restriction of trade.

Then there is the subtext to the debate. Does the Buy Chinese campaign suggest that job creation under the stimulus plan is not proceeding as well as hoped?

And is it not risky for an export-focused economy to ratchet up the volume of a protectionist debate?

Two questions that may be answered in coming months.


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.