BRIGHT PROSPECTS: U.S. beverage maker Coca Cola Co. earlier this year announced it would invest more than $2 billion over the next three years in the Chinese market as a source of growth (ZHOU HENGYI)

Nine Chinese ministries, including the National Development and Reform Commission (NDRC), jointly issued a notice on June 4 that government procurement officials should give priority to domestic companies in awarding contracts arising from the country's economic stimulus package unless the goods or services required are not available in the country or cannot be acquired by reasonable commercial and legal terms. Since then, the policy has come under heavy fire from the Western media, which deem it protectionist.

EXPANDING IN CHINA: Wal-Mart Stores Inc., the world's largest retailer, has defied the ongoing economic downturn by opening a number of new stores in second- and third-tier cities in China (Xinhua)

In a recent interview with the Financial Times, Joerg Wuttke, President of the European Union Chamber of Commerce in China, accused the Chinese Government of shutting foreign suppliers out of the bidding process for projects under its 4-trillion-yuan ($586 billion) spending plans. As an example, he cited the failure of top global wind-turbine makers, including Vestas Wind Systems A/S of Denmark and General Electric Co. of the United States, to even pass the first bidding round for a 5-billion-euro Chinese contract. In setting the bidding criteria for the wind projects, the Chinese Government emphasized turbine unit price over other factors such as lifecycle costs and rates of return in favor of local suppliers, Wuttke added.

About the truth

So is China discriminating against foreign companies by excluding them from bidding on government contracts? Some domestic experts say no.

For both domestic and overseas companies, the prospect of participating in China's lucrative infrastructure spending programs is truly a powerful incentive. But the snag in the government bidding process is a bias against domestically made products, instead of the so-called foreign ones, said the NDRC in a statement on its website. The problem is especially pronounced in the equipment-manufacturing sector, where relevant associations and enterprises are already protesting discriminatory regulations that clamp down on use of domestic products, it said.

It is understandable that foreign investors want to carve a slice of the big China pie for themselves, but it is the Chinese players who really lack the chance, said Lu Renqi, Vice President of the China Machinery Industry Federation, in an interview with China Economic Weekly.

Some government projects lock domestic suppliers out of the bidding process because of their inexperience in equipment manufacturing and services, which has been a heavy blow to the sector, Lu said. There has even been rampant prejudice in the industry against made-in-China equipment at prices comparable to foreign ones, he said. For example, automakers would continue to prefer imported assembly lines and models, he added.

Lu attributed the preference to two major factors. First, the appreciation of the renminbi has made imports less expensive, eroding the price edge that Chinese products used to have. Second, some foreign equipment has received an extra lift from import tax waivers and government subsidies for buyers.