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2011-04-27 | All chapters

Local govt sued for favoring foreign products
Global Times, 27th April,2011

With some Western economies targeting China for alleged bias against international companies in public procurement, a Chinese company has launched a counteroffensive by accusing local authorities in Shandong Province of breaking the law by favoring foreign products.

Xu Ding, a board member of Sinotech, based in the city of Qingdao in Shandong, appealed to the Jinan Intermediate People's Court recently and charged that the Jinan Finance Bureau had acted illegally in setting a threshold for foreign product purchases.

Sinotech was part of a bidding process, organized by the Jinan Urban Management Bureau late last year, to purchase impermeable membrane for the Jinan Second Garbage Treatment Plant.

"We visited the bureau after hearing nothing from them for a while, but an office director told me that they would only accept imported products, which is ridiculous," Xu told the Global Times. "They didn't even seriously test our product."

Xu said the bureau's actions went against China's Government Procurement Law (GPL), which stipulates that procurement should purchase domestic products, projects and services unless these cannot be acquired legally at home or if the procurement is carried out overseas as stipulated by other relevant laws and regulations.

To prove their equal quality with international products, Xu said that Sinotech's products have been sold to landfill projects in many cities such as Shanghai and Shenzhen, and even exported to Australia.

"Our products have been tested and our prices are lower than their foreign partners," Xu said, emphasizing that had the local government adopted his products, it might have halved its costs, saving as much as 8 million yuan ($1.21 million).

In the first trial, the court ruled in favor of the bureau, deeming it as a supervisor of procurement activities and therefore not being in a position to shoulder the blame for the procurement activities of certain departments.

The Jinan Finance Bureau could not be reached for comment on Tuesday.

Gu Liaohai, a public procurement expert with the Beijing Liaohai Law Firm, said that government organs must support domestic enterprises and their products as required by the 10th article of the GPL.

"If products from abroad and domestic equivalents have the same specifications, governments should prioritize Chinese products based on the law," Gu said. "The odds in this case are very big if evidence is provided to prove the same specifications and the government's biased requirements."

In two other bid invitations provided by Sinotech, governments in Qingdao and Jiaozhou wrote specifically that only imported impermeable membrane would be considered, Xu said.

The case runs counter to a recent complaint made by the EU Chamber of Commerce, which claimed that Chinese companies had gained an unfair advantage over foreign firms in the bidding process for government contracts and that European companies could not penetrate China's procurement market due to protectionism and discrimination.

In a latest development, the American Chamber of Commerce in China said in a report on Tuesday that 26 percent of its member companies responding to a survey believe they have been hurt by Chinese policies, including public procurement, which have sought to boost domestic technology supplies since the global financial crisis.

Xu's case, which echoes many others reported by Chinese enterprises, proved that there is no nationality bias in China's public procurement, and that, in contradiction to the EU accusation, foreign enterprises actually enjoy a privilege over their Chinese counterparts, Gu said, adding that there are pitfalls in the system.

Yang Hua, a procurement counselor for the Shanghai municipal government, told the Global Times that certain errors in government procurement are not punishable according to China's current GPL, which is not specific enough to cover all wrongdoings.

"Misdeeds in the procurement market include officials that tend to favor bidders with whom they had good relations. Some procurement officials tip off their favored companies prior to the bidding process or set up extra barriers against other companies," Yang said. "The supervisory scheme for government procurement is not perfect, even in Shanghai, which enjoys the most developed procurement system."

"Shanghai has just established a procurement supervisory board, but it's still under the municipal finance bureau like the procurement management center, making it hard to monitor procurement activities independently," Yang said.

Meanwhile, despite this discontent, Chinese businessmen voiced their dilemma in this process since they still depend on government authorities to win more orders and boost their bottom lines.

According to the EU Chamber of Commerce, China's public procurement projects have shot up to $1 trillion annually and are still growing.

However, only about 300 complaints have been reported by the finance ministry, despite loud criticism aimed at the system, according to the 21st Century Business Herald.