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Beijing quietly pushes localities to ‘buy Chinese’ in high tech

Written by Nikkei Asia Published on     3 mins read

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Procurement rules covering medical equipment to hit GE, Siemen, Canon.

China is instructing local authorities to “buy Chinese” products under procurement guidelines covering such high-tech items as X-ray machines and weather instruments as it pushes foreign suppliers to shift to local production, Nikkei has learned.

The local content rules, issued as part of auditing policies in May by China’s finance and industry ministries, apply to 315 items in 41 categories. These are grouped into four quota levels between 25% and 100%, though whether this is on a volume or value basis is unclear.

The new barriers, which were never officially announced, could cause headaches for foreign suppliers, and are likely to add fuel to the trade tensions between China and the U.S. Local authorities accounted for more than 90% of the USD 3.3 trillion (USD 509 billion at current rates) in government purchasing across China during 2019, official data shows.

Much of the list consists of high-tech products with security implications that President Xi Jinping has made a top priority, sources familiar with the document say.

Medical equipment makes up the lion’s share with nearly 200 items, including MRI and X-ray equipment and surgical endoscopes, as well as PCR testing gear.

Many other entries have defense applications, such as aircraft communications systems, maritime and geological surveying equipment, weather instruments, and tools to measure underground structures such as tunnels.

“Government procurement” is believed to include direct purchases of facilities and equipment by local authorities. If it also covers transactions by state-owned companies and hospitals with local government investment or management, the impact on importers will be even more profound.

The local content mandates for advanced medical equipment reflect the aim of encouraging companies to shift production to China. This change will hit the field’s “big three”—GE Healthcare, Siemens, and Philips—along with Japanese players such as Canon, Fujifilm Holdings, and Olympus.

It is uncertain whether this push extends specifically to technology-packed core components. Still, given manufacturers’ “fears that technology could leak to China, harming their competitiveness over the medium to long term, we want [authorities] to consider this carefully,” said an organization of foreign businesses in Beijing.

China since around 2018 has issued lists of recommended suppliers and products covering information technology items such as personal computers, servers, and copiers. These reportedly are limited to companies that meet certain domestic ownership and management requirements.

Like the auditing guidelines, these are not officially made public, and some cities and state-owned enterprises are believed to follow them. The Japanese Chamber of Commerce and Industry in China has asked the central government to make procurement criteria clear so that foreign businesses are not simply shut out.

These nonpublic internal documents freezing out imported products contrast with Beijing’s outwardly welcoming attitude toward foreign business. The new auditing guidelines in particular, with their emphasis on advanced medical equipment—an American specialty—risk further inflaming bilateral trade friction.

China is not currently a signatory to the World Trade Organization’s Government Procurement Agreement, which restricts countries from discriminating between domestic and foreign suppliers. Beijing is negotiating entry, but talks reportedly are deadlocked as the two sides struggle to agree on terms.

In the US, President Joe Biden in late July announced plans for stronger rules covering the government’s “Buy American” program that gradually would lift the local content requirement to 75% from 55% now.

This article first appeared on Nikkei Asia. It’s republished here as part of 36Kr’s ongoing partnership with Nikkei.

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