Key Points:

  • “Domestic products” are defined
  • “Innovative indigenous products” may be given priority for procurement

After the PRC Government Procurement Law (the Law) was passed nearly eight years ago, its draft implementing rules (the Draft Rules) were finally issued for public comment on January 11, 2010. The Draft Rules are supposed to give detailed and practical guidance on the Law, some clauses of which – for example, the definition of “domestic products” – have been the target of hot debate in recent years. The Draft Rules include several highlights that may be of interest to non-China-based manufacturers/service providers.

First, the Draft Rules define “domestic goods,” which are given priority in government procurement as final products that are produced within Mainland China, the domestic production costs of which exceed a certain percentage to be further determined by the Ministry of Finance. Domestic construction works and services are defined as construction works and services that are provided by China’s citizens, legal persons and other entities. This means that the products produced by foreign-invested enterprises and wholly foreign-owned enterprises will be eligible as domestic goods for the purpose of government procurement, as long as their domestic component meets a certain percentage. Nevertheless, the Draft Rules also provide that support and protection will be given to innovative indigenous products through priority procurement or compulsory procurement. This corresponds to the government’s earlier attempt at the end of 2009 to compose an Indigenous Products Catalogue to exclude products with foreign-owned brands and intellectual property, which has been extensively criticized among foreign manufacturers.

Second, the Draft Rules also explain that when the lowest quote from a domestic provider is at least 20 percent higher than the non-domestic quote, the relevant products/services/construction works are considered inaccessible on reasonable commercial terms where imported products may be procured. Purchase of imported products must be approved by the township government or a higher-level government.

Other important rules include:

  • Bidding invitation and other procurement documents must not specify suppliers or brands;
  • Suppliers may be excluded from government procurement for one to three years for misconduct including bribery and unauthorized assignment of contracts;
  • No commissions or free gifts should be given in procurement contracts; and
  • The government procurement process and documents should be transparent, and an online bidding platform will be developed to facilitate a transparent and efficient process.

We will continue to monitor the development of the Draft Rules.