EU report: China shields $1 trillion market

[April 20, 2011]  BEIJING (AP) -- Opaque bidding laws, outright favoritism and other practices by China effectively bar foreign companies from winning public procurement contracts, a market equal to a fifth of the Chinese economy, a European business group said Wednesday.

A study by the European Union Chamber of Commerce in China adds to rising complaints from major trading partners that foreign companies are being treated unfairly in the huge and rapidly growing Chinese market. Public procurement is particularly important because government agencies play a major role in the economy, both as funders and arbiters of bids, the EU Chamber said.

In bidding on public contracts, "at every step of the process, you have flaws and difficulties and room for a non-equal playing field," chamber president Jacques de Boisseson said at a news conference. A European information technology executive cited in the study said the bidding process "can seem like pure protectionism and it's really frustrating."

Even after three decades of free-market reforms, the government and state-owned companies dominate vital parts of China's economy. The EU Chamber's study takes an expansive view of the state involvement, defining public procurement as encapsulating everything from infrastructure projects to some purchases by state companies and public institutions.

By that measure, the study estimates that China's public procurement totals $1 trillion, or 6.8 trillion yuan, a year -- about 20 percent of the total economy.

In trying to win public contracts, foreign companies often have difficulty getting information on bid requirements, the study said, while practices outlined in laws and regulations are implemented unevenly, often to the favor of local firms.

Public procurement has become one of several prominent irritants in China's relations with trading partners in recent years as the size of the Chinese market soared while developed economies tottered. The authoritarian government has used potential access to the growing market as leverage, crafting policies to persuade multinational companies to turn over technology and open up more factories and research facilities.

Preferences given to domestic companies through government procurement and policies have drawn complaints from major multinationals and the U.S., Japanese and European governments.

Washington filed a case in the World Trade Organization last year challenging subsidies China gives clean-energy makers that the complaint says allows them to sell solar and wind power equipment at unfairly low prices.

In an example cited by the EU Chamber study, wind turbine manufacturers face rules requiring that 70 percent of wind farm equipment had to be made locally -- a requirement some local governments interpreted so strictly that Chinese manufacturers from other provinces were sometimes excluded. Though Beijing scratched the requirement last year, some local governments seemingly continued to apply it, the study said.

The study doesn't name names. But Denmark's Vestas Wind Systems A/S, the world's biggest maker of wind turbines has had trouble elbowing aside Chinese competitors in China and increasingly faces them abroad.

"It seems we are never 'domestic' enough," the study cited a wind power manufacturing executive as saying.

[Associated Press]

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