New “Buy Chinese” Policy Risks Tension, Protectionism

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Jun. 17 – Beijing has introduced a new “Buy Chinese” policy that could agitate foreign trade relations and encourage protectionism.

The new policy outlines that only Chinese products and services may be used for government procurement except when certain products or services are not available within the country or could not be bought on reasonable commercial or legal terms, reports the Financial Times.

The move is in response to reports from local industry associations complaining that local governments discriminate in favor of foreign suppliers for projects related to China’s RMB4 trillion stimulus plan.

China’s exports and foreign direct investment have been depressed in recent months but the economy is coping largely due to the deployment of China’s massive stimulus package that has increased subsidies, lending by state-owned banks and infrastructure spending. Retail sales of automobiles have been strong and China now overtakes the United States as the biggest car market in the world.

Despite this, the huge influx of graduating students every year with not enough companies to hire them has Beijing worried about the risks of social unrest.

“From a domestic political perspective this makes some sense because local governments do tend to favor foreign products in some categories,” Dong Tao, chief China economist for Credit Suisse told the FT. “But given how important free trade is for China’s economy this is not the right message for them to be sending to the rest of the world right now.”

It is ironic that China should implement this kind of policy when it criticized the United State’s “Buy American” clause in its stimulus package in February. On that subject, state-owned news agency, Xinhua, released a commentary: “History and economic theory show that in facing a financial crisis, trade protectionism is not a way out, but rather could become just the poison that worsens global economic hardships.”

Moreover, foreign companies doing business in the country say that they have been for the most part excluded out of projects connected to the stimulus package.

“We are puzzled by this discussion, especially since most European companies operating in China are locally incorporated and have not benefited directly from the government’s stimulus package,” Joerg Wuttke, president of the European Union Chamber of Commerce in China told the FT. “Requiring government procurement to favor Chinese goods and services certainly won’t help to address China’s trade surplus of €170bn.”