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2011-04-22 | All chapters

Trillion-dollar China deals bypass us, say foreign firms
South China Morning Post, 21st April,2011

European companies are barred from much of the estimated US$1 trillion public procurement market on the mainland due to poor implementation of regulations, the Beijing-based European Union Chamber of Commerce in China said yesterday.

It called for information to be released more freely and a fairer bidding process.

The call follows an unprecedented wave of complaints from foreign companies last year.

Rules on government procurement are disjointed and inconsistently implemented, causing "substantial missed opportunities" for European businesses, the Chamber of Commerce said in a study released yesterday after interviewing more than 50 member companies as well as officials and academics.

In the latest scandal involving public procurement, the central government has discovered irregularities in some railway tenders and is investigating further, according to Li Changjin, chairman of China Railway Group (SEHK: 0390), one of two dominant state-owned rail construction firms. Former railways minister Liu Zhijun is under investigation for corruption.

The Chamber of Commerce study estimated that China had a seven trillion yuan (US$1 trillion) public procurement market in 2009 - about 20 per cent of gross domestic product - in which governments at all levels and state-owned enterprises bought vehicles, office equipment and plant and machinery for public projects.

"It is vital that this enormous market be regulated in a transparent and non-discriminatory way," said Jacques de Boisseson, president of the Chamber of Commerce.

Some European companies providing medical apparatus, information and communication technology and wind-power equipment said they had difficulty in obtaining timely and accurate information about upcoming projects. They also complained about a lack of detail on the evaluation criteria for projects, according to the Chamber.

Gilbert Van Kerckhove, chair of the European Chamber Public Procurement Working Group, said: "European companies could contribute more to support Chinese government plans, especially in areas of expertise such as transportation, civil engineering or renewable energy."

Commerce Minister Chen Deming said last month that China's policies to encourage indigenous innovations applied to all companies registered in the country.

He added that open and comprehensible measures would be adopted to ensure fairness in the government procurement area.

Premier Wen Jiabao last year vowed to give equal treatment to foreign companies, reassuring hundreds of executives at the World Economic Forum that the world's second-largest economy still welcomed them.

China scrapped preferential income tax rates for foreign-invested companies in 2008. Multinationals are concerned that as China's need for foreign capital is reduced by having the world's largest foreign reserves, they may be sidelined.

Meanwhile, state-owned enterprises are growing stronger, especially after the global financial crisis when a considerable part of the government's stimulus efforts was directed to infrastructure and other sectors where they dominate.

However, foreign direct investment in the mainland surged by almost a third last month to US$12.5 billion from a year ago, as fast growth and prospects of further appreciation in the yuan boosted confidence. For the first quarter, investment was up 29.4 per cent to US$30.3 billion.