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The following article written by Ian Johnson appears in the Wall Street Journal.
BEIJING -- China, which has criticized protectionist moves elsewhere, is pushing ahead with efforts to ensure that its gargantuan economic stimulus package benefits domestic firms.
A recent directive issued by several central state agencies, including the powerful National Development and Reform Commission, appears to require that Chinese companies should receive contracts for government stimulus projects unless Chinese companies can't deliver certain technical goods at a reasonable price or time frame.
The notice, dated May 26 but only posted on the commission's Web site this month, is part of a broader buy-local push in recent months by authorities, who have quietly been indicating that most of the two-year four trillion yuan ($588 billion) in stimulus spending will be aimed at Chinese companies.
Apart from engineering goods or service that cannot be obtained under reasonable business conditions inside China, domestic products should be purchased for the government investment program," according to the official notice.
The American Chamber of Commerce in China, while not responding directly to the notice, issued a statement Wednesday warning against protectionism in stimulus spending in either the U.S. or China. "It is critical that spending decisions related to the stimuli are made with economic and social, not political, rationales in mind," the chamber said.
The government notice asserts that purchasing by local governments had actually been biased in favor of foreign suppliers. In a question-and-answer text that accompanied it, an unnamed government official said measures were needed to help China's machine-building sector. "We have to do something to stop the conduct of limiting the use of domestic products," the official said.
The notice comes as senior Chinese officials have complained loudly in international forums that Chinese companies abroad are victims of protectionism. The short-lived effort in Washington to insert a "buy American" clause in the U.S. stimulus package that Congress approved this year received wide play in China.
The formal codification of China's purchasing policy comes also as it faces several delicate trade issues abroad. China is in the middle of a dispute with the Obama administration over tire exports, which is widely seen as a test of how the new U.S. administration will deal with China trade issues.
China's desire to help Chinese companies came to light in recent months as government officials, such as at the Ministry of Railways, have stated in interviews that they would buy domestic. It came to a head last month when the head of the European Union Chamber of Commerce in China, Joerg Wuttke, said bidding procedures for a recent solar power contract were written to exclude foreign competitors. The main criteria of the bidding was the initial price, which favored Chinese companies, while Mr. Wuttke said standard international practice is the total life of the facility, which would have given a leg up to foreign products, which require less maintenance.
Since then, Mr. Wuttke has been attacked in the Chinese media, with his comments translated loosely into Chinese and then even more loosely back into English for government-run English publications. He has been criticized by the National Development and Reform Commission on its Web site, which has said that Chinese companies were actually the victims. The most recent announcement seems to match this new line.
Analysts say the root cause of the purchasing issue is China's unwillingness to ratify a World Trade Organization agreement on government procurement. This levels the playing field for all signatories -- so they can bid for other countries' government contracts. TheU.S. and most other major economies have signed up, but China hasn't.
The notice also comes as China has been criticized for trying to export its way out of the recession. China's stimulus spending has helped boost its imports of raw materials and commodities -- imports of copper more than triple d in May -- which has benefited nations that supply them like Brazil and Australia. But other countries have so far looked in vain for a broader boost from China's demand, as the nation's total imports are down 28% so far this year, and it continues to run a trade surplus.
Ben Simpfendorfer, China economist at Royal Bank of Scotland, said in a research note Wednesday that the new edict "will spur protectionist sentiment and is at odds with worries about the country's export sector." But he said that fears about the order's economic impact for China's trading partners are likely to be overblown, noting that the edict targets only public, not private-sector, procurement.
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