Economy

'No discrimination' over China contracts

By He Wei (China Daily)
Updated: 2011-05-16 13:26

A public procurement sign in Chinese beside the gate of a wholesale market in Yichang, Hubei province.  [Photo/China Daily]

SHANGHAI - Set amid lush foliage, and only a short stroll from the Bund, the city's landmark, HASSELL China's headquarters building in Shanghai looks more like a tranquil resort than an office complex.

The relaxed atmosphere inside the spacious open office, well lit by natural light beaming through tall glass windows, belies the hectic pace of a flourishing design studio run by Australian designer Peter Duncan.

An old China hand, Duncan, managing director, Asia, of the Australian design firm, has been working in China for more than 20 years. Although he has built many connections in this "highly relational" society, he admits, his Chinese has remained "elementary".

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His connections, nevertheless, have helped open doors, enabling him to land many government projects. "I don't see discrimination against the foreign in government tenders," he said.

That is a reassuring statement to many foreign suppliers and contractors who are keen on securing a share of the huge government procurement pie.

A recent study by the European Union Chamber of Commerce in China estimates that China's public procurement totals $1 trillion, or 6.8 trillion yuan, a year - about 20 per cent of the total economy.

But the report adds to rising complaints from major trading partners that foreign companies are being treated unfairly in China's huge and rapidly growing public procurement market.

Efforts by foreign companies to secure Chinese government supply contracts are actively supported by their respective governments. For instance, German Chancellor Angela Merkel visited China in 2010 and market access was number one on her list of discussion topics with the Chinese leadership.

Duncan and some other foreign business people who have been working closely with their Chinese partners and clients have a rather different perception. They say they suspect the perception of "unfairness" stems from a misunderstanding of the rules and the less obvious nuances of doing business in a different culture.

Duncan says that the experience of his company in China can help ease foreigners' concern about the complicated rules.

As one of the largest planning and design consultancies in Australia and the Asia-Pacific region, HASSELL began undertaking projects related to the Chinese mainland from Hong Kong back in the early 1990s. The catalyst for expanding the business came in 2003 when it established a Wholly Foreign-Owned Enterprise and launched the first working studio in Shanghai.

"We won our first government bid through an invited international design contest in 2003," Duncan recalled.

Involved in many commercial projects beforehand, HASSELL has gained experience and a reputation in architecture interior design and landscape design, and therefore was "recommended to take part in the competition", said Duncan, even if "we did not know specifically anyone from the government".

HASSELL, along with other tendering parties, was given three months to fulfill a draft design for the new town of Ningbo, a fast-growing city in East China's Zhejiang province.

"Like in all cases, the government always included both international firms and local institutes to take the bid. Still, all we do is focus on our design and not get distracted by anything else," Duncan said.

After winning the contest, HASSELL and a consulting company were appointed by the Ningbo Urban Planning Bureau to develop urban design principles to guide the expansion of the city to the east encompassing a new urban core and a surrounding 39-square-kilometer urban precinct.

Duncan can be forgiven for forgetting the exact number of government programs HASSELL has undertaken over the past eight years. As its large-scale urban planning projects sprawled across the country, Duncan estimates the figure is "up to hundreds".

In late 2008, China launched a 4-trillion-yuan ($586 billion) stimulus package that generated a large volume of procurement projects.

Commerce Minister Chen Deming said 2009 was a year when 55 percent of the 12,439 tenders for procurement of electromechanical products went to foreign enterprises. "China has followed strict tender rules to ensure a level playing field for both Chinese and foreign companies," Chen said.

Foreign enterprises' complaints are mainly focused on issues of intellectual property rights and market access, including government procurement and indigenous innovation. Initially, in order to be considered "indigenous innovation", a product must have had a trademark that was owned by a Chinese company with full ownership of the product's intellectual property (IP) in China.

But in April 2010, the country modified the rules so that "a product would be eligible for indigenous innovation accreditation as long as the applying party has exclusive rights to the product's trademark in China and is licensed to use the IP in China", said Wang Zhile, director of the research center under the Ministry of Commerce.

For instance, the Joint Venture Changchun Bombardier Railway Vehicles Co Ltd (CBRC) was awarded by Shanghai Shentong Metro Group Co a contract to supply 306 MOVIA metros for Shanghai's Line 9 and Line 7, said Marie-Lucie Spoke, director of Canada China Business Council's Shanghai office.

Another testimony to foreign firms' engagement in China's public procurement projects is the Qinghai-Tibet Railway, where the diesel locomotives used on the Golmud-Lhasa section were made by General Electric, and Bombardier Sifang Transportation (BSP) made carriages on some trains.

When asked the secret of winning contracts from the government in China, Zhang Jianwei, president of Bombardier China, said Bombardier's success lies in the excellence of its technology, quality and service, not in maintaining government relations.

"With our sales, we do not use agents or middlemen. We do not even have a government relations position in our China organization," Zhang said.

Government offers in China also takes the form of co-sponsoring pilot programs.

Criticism of China for allegedly favoring local industry at the expense of foreign companies has gone too far, according to Sandy Cutler, chief executive of Eaton, the US industrial conglomerate.

"There might be some political pressures inside China to favor local companies when awarding government contracts, but this is not the same as saying that the climate is acting to discourage companies based outside China," Cutler told the Financial Times.

Tong Zhiguang, former vice-minister of commerce, told China Daily in an earlier interview that "what makes the foreign companies really uncomfortable and unhappy is the growing competitiveness of Chinese enterprises".

Duncan echoed Tong's remarks. He believes the Chinese market has created an equal footing for success, and the only difference is perhaps the increased competition.

"I would say the business environment here is even more open than in some other places. Being here, working here, the very existence here in China is important. In this intense market, we have to work hard and be wholly focused on our designs," said Duncan.