Industry Expert Expects Procurement Market to Remain Closed Four More Years

July 3, 2006

Yu An, a professor at Qinghua University who participated in drafting China's Government Procurement Law (GPL), has said that there is a possibility that China's government procurement market could open to foreign companies after four years, Beijing Business Today reported (in Chinese) on April 27. According to the article, this step implies that "there remains only four years of protection in the government procurement market for domestic brands." In July 2002, the China Economic Times cited (in Chinese, via Xinhua) Zhu Shaoping, who was also one of the drafters of China's GPL, as predicting that the "period of protection" for domestic enterprises in China's government procurement market would end by 2005.

Yu An, a professor at Qinghua University who participated in drafting China's Government Procurement Law (GPL), has said that there is a possibility that China's government procurement market could open to foreign companies after four years, Beijing Business Today reported (in Chinese) on April 27. According to the article, this step implies that "there remains only four years of protection in the government procurement market for domestic brands." In July 2002, the China Economic Times cited (in Chinese, via Xinhua) Zhu Shaoping, who was also one of the drafters of China's GPL, as predicting that the "period of protection" for domestic enterprises in China's government procurement market would end by 2005.

When China acceded to the World Trade Organization (WTO) in December 2001, the government made several commitments regarding government procurement which, as set forth in the Working Party Report, included beginning negotiations for membership in the WTO Government Procurement Agreement (GPA) "as soon as possible." China became an observer to the WTO Committee on Government Procurement in February 2002, and China's government committed to commencing formal negotiations to join the GPA at the plenary session of the 17th U.S.-China Joint Commission on Commerce and Trade, held in Washington, D.C. in April 2006. Yu Guangzhou, vice minister of the Ministry of Commerce, announced on May 16 that China's government planned to start negotiations for its entry into the GPA before the end of 2007, according to a May 17 Xinhua article (via Ministry of Commerce).

In August 2005, Yu told reporters from the Economic Information Daily (in Chinese, via the China Finance and Economy News) that opening government procurement to foreign companies is not only an obligation of the Chinese government under its WTO commitments, it also offers advantages for China, including:

  • Increased access for Chinese companies to foreign government procurement markets once China becomes a party to the GPA;
  • Increased competition in China's government procurement market, which would lead to improved quality and lower costs; and
  • Increased regulation of competition in China's government procurement market, which currently lacks uniform administration of goods and services.

According to a November 2005 Xinhua report (in Chinese), officials are making procurements without prior authorization, and government agencies charged with oversight of procurement are not imposing sanctions. These practices in turn hinder the government's ability to make appropriate budget forecasts for procurement. The article also said that relatively little government procurement currently is open to competitive bidding, and that decentralized and individual agency procurement expenditures were growing much more rapidly than centralized government procurement expenditures.

China's government has launched a series of initiatives to address these and other problems. For example, the Ministry of Finance has launched a four stage program, scheduled to be completed by the end of this year, to address bribery in government procurement, according to an April 2006 Economic Daily report (in Chinese, via Xinhua). Also in April, the Ministry of Finance established a task force on commercial bribery and launched a hotline for reporting bribery in government procurement, according to an April 2006 Xinhua report (in Chinese).