On December 5, the Ministry of Finance issued the "Notice on Matters Related to Domestic Product Standards and Implementation Policies in the Field of Government Procurement (Draft for Comments)" to solicit opinions from the public. The circular clarifies the standards for domestic products in the field of government procurement, the scope of application of domestic products, and the support policies for domestic products, and intends to give domestic products a 20% price review discount compared with non-domestic products.

Promote the modernization of the government procurement market system

In order to build a unified, open, competitive and orderly government procurement market system and build a market-oriented, law-based and international business environment, the Ministry of Finance has studied and drafted the Notice on Clarifying Domestic Product Standards and Supporting Policies (hereinafter referred to as the "Notice") based on international experience and the actual situation of China. The policy aims to regulate government procurement, ensure that domestic and foreign-funded enterprises participate in government procurement activities on an equal footing, and maintain a fair and competitive market environment.

According to the Circular, "domestic products" in the field of government procurement must meet the following three conditions at the same time:

Domestic production: The product must be manufactured in China, and the change of attributes from raw materials to finished products must be completed within the customs territory of China, excluding products that are only OEM or simple packaging.

Cost ratio requirements: The cost of components produced in China must reach the specified proportion, which will be determined according to different product categories and dynamically adjusted according to the actual situation.

Key components and processes: On the basis of satisfying the first two conditions, a specific product also needs to ensure that its key components are produced in China and key processes are completed in China.

In addition, the "Notice" clarifies the support policy for domestic products. In government procurement activities, if there are both domestic products and non-domestic products participating in the competition, for domestic products that meet the standards, their quotations will enjoy a 20% price deduction discount, and participate in the evaluation process with the deducted price.

The Ministry of Finance stressed that the new policy treats all enterprises equally. Whether it is a domestic enterprise or a foreign-funded enterprise, as long as its products meet the above standards, they can enjoy the corresponding government procurement support policies. This will not only help enhance the competitiveness of domestic enterprises, but also provide a more fair and transparent market environment for foreign enterprises to develop in China.

Clarify the definition of "domestic products" to help more foreign-funded enterprises invest in China

How to define "domestic product" has always been an old problem that has plagued the industry. The most important contribution of the Circular is that it provides a clear definition, clarifies the concept, eliminates uncertainty and doubt, and provides clear guidance for the opening of the government procurement market.

At present, China is actively promoting institutional opening-up, of which government procurement is a very important field. However, the market has been looking forward to clearer guidance on how to specifically open up government procurement. Foreign companies are particularly concerned about market access, for example, whether their products can be considered "domestic", and there are many different interpretations in practice. Therefore, there is an urgent need for a clear definition of "domestic product" to ensure fair participation.

As an important part of promoting institutional opening-up and building a unified national market, government procurement not only needs transparency, but also needs to ensure that domestic and foreign-funded enterprises enjoy equal opportunities for competition. The 2024 government work report clearly states that "implement the national treatment of foreign-funded enterprises, and ensure equal participation in government procurement, bidding and bidding, and standard formulation in accordance with the law". In response to this requirement, the Circular further clarifies the definition of "domestic products" and provides a more stable expectation for foreign-funded enterprises to invest and produce in China.

According to the Circular, a standard system for identifying "domestic products" will be established step by step. The Ministry of Finance, together with relevant departments, plans to formulate requirements for the cost ratio of components produced in China for relevant products, as well as requirements for key components and key processes for specific products, in the next 3 to 5 years, after fully soliciting the opinions of domestic and foreign enterprises, industry associations and other parties. Prior to this, as long as the product is produced in China, it will be regarded as a domestic product in government procurement activities and enjoy corresponding preferential policies.

This is a big plus for foreign-funded enterprises that have investment and production in China. According to the standards in the Circular, as long as the product is produced in China, it can be regarded as a domestic product and enjoy preferential policies in government procurement activities. This will not only help attract more foreign-funded enterprises to invest in China, but will also promote fair competition and healthy development of the domestic market.

It also has an important impact on consumers

From international experience, many countries have already implemented similar protection policies to support their industries. For example, the United States has long adopted high tariffs on domestic products, aiming to promote the return and development of domestic manufacturing. This strategy can indeed effectively protect domestic enterprises in the short term, but in the long run, it may trigger trade frictions and affect international relations. Therefore, how to find the best balance between protecting domestic industries and maintaining the global trade balance is a question that policymakers must ponder.

The impact of this policy is not limited to the industry level, but also has an important impact on consumers. On the one hand, improving the competitiveness of domestic products can help expand their market share, which may lead to lower prices and ultimately benefit consumers. On the other hand, overly stringent protection measures may reduce market competition, leading some companies to ignore the improvement of product quality and service in the absence of external pressure. Therefore, policymakers need to carefully weigh the pros and cons to avoid adverse consequences.

In practice, the successful implementation of this policy relies on clear standards and effective monitoring mechanisms. First, ensure the fairness and transparency of the judging process. Second, the fairness and openness of government procurement is crucial, and only by competing on a fair platform can the value of price concessions be truly realized and the healthy development of the market can be promoted.

Understanding and adapting to new policies is also critical for businesses and consumers. Enterprises should do market research in advance, be familiar with the policy framework and evaluation criteria, and fully demonstrate their advantages in the bidding process. Consumers need to pay attention to the quality and cost performance of domestic products, and when enjoying the benefits brought by the policy, they should also give positive feedback to help the emergence of high-quality products in the market.