Tech firms complain about new Chinese procurement rules

Trade groups are protesting an "unprecedented" new Chinese policy that gives local IT products preference for government contracts there, arguing that the rules will actually hamper innovation in China.

The Chinese government's Indigenous Innovation Product Accreditation Program, detailed in a Nov. 15 notice, would create a national catalog of products that would get preference in government contracts, according to the Business Software Alliance (BSA), one of 34 trade groups signing a letter protesting the new policy.

Six product categories would initially be covered: software, computer and application devices, telecommunication products, new energy and equipment, highly energy-efficient products and modern office equipment.

The Chinese government's new rules are "really unprecedented" in terms of blocking foreign products, said David Ohrenstein, BSA's director of public policy and emerging markets. "It doesn't look like almost any American companies would be able to qualify, given the criteria that they set," he added.

The 34 trade groups, in a letter sent to Chinese government leaders Thursday, said the new policy would drive up Chinese procurement costs and slow technological development there.

"Implementation of this system will restrict China’s capacity for innovation, impose onerous and discriminatory requirements on companies seeking to sell into the Chinese government procurement market, and contravene multiple commitments of China’s leadership to resist trade and investment protectionism and promote open government procurement policies," the letter said.

"The Indigenous Innovation Product Accreditation Program will hinder, rather than promote, China’s own goals of advancing its science and technology capabilities."

Among the groups signing the letter were the Consumer Electronics Association, the Software and Information Industry Association (SIIA), the Semiconductor Industry Association and the Telecommunications Industry Association. Several Japanese, South Korean and European trade groups also signed the letter.

The new Chinese rules require that products on the procurement preference list contain only Chinese intellectual property, the BSA said. Companies were given a deadline of Thursday to apply for their products to be listed in the procurement catalog.

Foreign IT companies face the prospect of being frozen out of the Chinese government market, or turning over some of their intellectual property to companies there, Ohrenstein said. "I don't know which companies are going to be willing to do that," he said.

Ohrenstein didn't have an estimate of the amount of IT spending the Chinese government does each year. But the Chinese government is the largest legal market for U.S. software in the country, he said.

China committed to pursue open trade policies during meetings with U.S. officials in July, noted Mark Bohannon, SIIA's general counsel and senior vice president.

"China has benefitted from access to the best products and services from around the world,” Bohannon said in a statement.

“This policy will make it virtually impossible for any non-Chinese company to sell to government customers in China. It is not only unworkable, it is restrictive and discriminatory."

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