Beijing orders 'Buy China' for stimulus projects

[June 17, 2009]  BEIJING (AP) -- China has imposed a requirement for its stimulus projects to use domestically made goods -- a move that could strain ties with trading partners after Beijing criticized Washington's "Buy American" stimulus provisions.

Projects must obtain official permission to use imported goods, said an order issued by China's main planning agency and eight other government bodies.

Even before the order, business groups worried that foreign companies might be excluded from construction and other projects financed by Beijing's 4 trillion yuan ($586 billion) stimulus. Foreign makers of wind turbines complain they have been shut out of bidding on a $5 billion stimulus-financed power project.

"Government investment projects should buy domestically made products unless products or services cannot be obtained in reasonable commercial conditions in China," says the order, dated June 1 and reported this week by state media. "Projects that really need to buy imports should be approved by the relevant government departments before purchasing activity starts."

Beijing's stimulus is aimed at insulating China from the global slump by boosting domestic demand through higher spending on construction of highways and other public works.

On Wednesday, Premier Wen Jiabao said the economy is showing "positive changes" but the basis of a recovery is not solid and the country should prepare for long-term difficulties, the official Xinhua News Agency said.

Wen has made similar comments several times this year, reflecting government efforts to reassure China's public and companies and encourage them to stimulate a recovery by spending more while also warning against complacency.

Wen cited rising industrial output, investment and retail sales, Xinhua said. It gave no new economic data and mentioned no new initiatives.

The communist government promised in February to treat foreign and domestic goods equally in stimulus spending and has appealed to other governments to support free trade and avoid protectionism.

China criticized Washington for a provision that would favor U.S. suppliers of steel, iron and manufactured goods in projects financed by its stimulus. China's main state news agency labeled such conditions "poison" to efforts to solve the global economic crisis. There was no indication the latest order was a response to Washington's stimulus provisions.

China's World Trade Organization commitments require it to treat foreign and domestic goods equally in commercial trade. But Beijing has not signed a WTO treaty that extends such requirements to government procurement, which might limit options for challenging Beijing's "Buy China" order.

Beijing has imposed similar requirements on government projects such as China's giant Three Gorges Dam to favor domestic suppliers of equipment and services.

The American and European Union chambers of commerce appealed to Beijing to make stimulus spending decisions on economic grounds and to avoid protectionism.

"Chinese and U.S. companies and workers have much to gain from strong engagement, and much to lose from protectionism," the American Chamber of Commerce in China said in a statement.

The European Union Chamber of Commerce expressed concern that preferential treatment for domestic companies "would send the wrong signal" at a time when international cooperation is needed to revive the global economy.

The American Embassy in Beijing, in a written response to questions, noted that Chinese government agencies already are required by law to buy domestically made goods and services whenever possible. The embassy did not immediately answer a question about whether Washington might challenge the order.

Foreign diplomats and business groups have appealed to Beijing to release more details of stimulus projects and how companies can win contracts.

Authorities are looking into complaints by Chinese companies that they were unfairly excluded from stimulus projects, the government announcement said.

"Bidding documents set a lot of discriminatory conditions to illegally limit Chinese-made equipment. This phenomenon is very obvious and in some cases very severe," it said. "It limits the improvement of the equipment manufacturing industry."

The order does not make clear whether domestically made products includes those of China-based operations of foreign companies. Spokespeople for the planning agency and the Commerce Ministry did not immediately respond to requests for more details.

The European Chamber of Commerce said in May that European makers of wind power equipment, even those with Chinese factories, have been eliminated from bidding for a $5 billion stimulus-financed power project.

"The criteria are done in a way that by definition will probably exclude foreigners from bidding," said the chamber president, Joerg Wuttke.

__

On the Net:

Chinese government notice (in Chinese)
(PDF)

[Associated Press; By JOE McDONALD]

Associated Press researcher Bonnie Cao in Beijing contributed to this report.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.