China is drawing controversy over their new “Buy China” policy for stimulus spending. This comes as a surprise to many based on China’s criticism of the U.S. government’s consideration of a “Buy American” clause in the U.S. stimulus. See the following article from Money Morning on China’s controversial move.
After denouncing a U.S. effort to incorporate a “Buy American” clause in its stimulus package, Beijing has introduced a new “Buy China” policy as part of its $585 billion economic stimulus program. The move has sparked outrage among China’s trade partners and could lead to a surge in protectionist measures around the world.
“Government investment projects should buy domestically made products unless products or services cannot be obtained in reasonable commercial conditions in China,” says the June 1 edict, which was issued by the country’s chief planning body in conjunction with eight other government agencies. “Projects that really need to buy imports should be approved by the relevant government departments before purchasing activity starts.”
The order came as a shock to many of China’s trading partners, as Beijing has been one of the most vocal critics of trade protectionism. Foreign makers of the wind turbines used in energy-generating “wind farms” are already complaining that this edict shuts them out of $5 billion worth of business related to a Chinese energy project that’s being financed by the stimulus package. And the “Buy China” order is being viewed as especially egregious because China’s main state news agency just months ago referred to a similar “Buy American” clause in the U.S. stimulus package as “protectionist poison” that would undermine the world economic recovery.
“Some countries raised clauses to prioritise the purchase of products of their own countries in their economic stimulus packages,” Yao Jian, a Chinese commerce ministry spokesman, said in February. “We express deep concern about these [measures] … under the current financial crisis, measures issued by all countries should not cause negative impacts, and especially they should not send out wrong messages.”
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Criticism from China and other trading partners convinced U.S. President Barack Obama to excise the U.S. “Buy American” clause from the stimulus package.
“I agree that we can’t send a protectionist message,” Obama said in an interview with Fox News. “I want to see what kind of language we can work on this issue. I think it would be a mistake, though, at a time when worldwide trade is declining, for us to start sending a message that somehow we’re just looking after ourselves and not concerned with world trade.”
Also in February, China’s communist government assured its trade partners that foreign and domestic goods would be treated equally in stimulus spending – a statement that has since been challenged by foreign companies who claim they have been ostracized from Chinese stimulus spending.
The American Embassy in Beijing pointed out in statements to The Associated Press that Chinese government agencies already are required by law to buy domestically made goods and services whenever possible. Foreign officials have routinely appealed to Beijing to release more details about how companies can win stimulus contracts, but it is not clear whether or not they plan on challenging Beijing’s “Buy China” order.
China is required by the World Trade Organization (WTO) to give foreign and domestic firms equally in commercial trade, but Beijing has refused to sign a treaty that would give overseas companies equal rights when bidding for government procurement contracts. That agreement has been signed by the United States and most other major world economies.
“China has made such an issue about protectionism with the rest of the world, but it now appears that it can no longer hold itself up as ‘whiter than white’ on this issue,” Ian Crawford, the executive director of the British Chamber of Commerce in Shanghai, told The Telegraph. “The UK has maintained very open markets and we would urge and hope that China would do the same.”
This article has been reposted from Money Morning. You can view the article on Money Morning’s investment news website here.