The government has invited comments from the public on a draft regulation for its procurement of domestic products, a move analysts said will have limited impact on foreign companies.

The draft clearly defines domestic goods as final products made in China with more than 50 percent local content in value, according to government sources and industrial analysts.

The move is considered controversial as it could potentially affect the interests of foreign companies, and has not been clarified in the previous guidelines either. The draft will be open for public comments till June 21.

Under the draft regulation, the priority for government procurement would be on domestic products. If domestic products cannot meet the criteria for local content, purchasers should give priority to foreign products assembled in China.

The regulation is expected to propel the development of domestic industries, of domestic and foreign companies in China, said Gao Zhigang, division chief of the Central Government Procurement Center.

According to the draft, bidders should provide a commitment from the producers that the final goods meet the local content requirements.

It will mainly rely on companies' honesty and supervision afterward, analysts said. It is a simplified mechanism compared with the existing complicated certification procedures, Gao said.

Though the "buy domestic products first" policy has sparked concerns that it will have the potential to disadvantage foreign-made products, in fact the draft regulation has "limited impact" on foreign products and foreign companies needn't worry too much about it, said industry insiders.

"China's government procurement market has largely opened up to foreign products. Imported products can win government contracts as well if they are in demand, and they just need to get the relevant approval from authorities," Gao said. Approvals would not be difficult if the products are in demand, he said.

Gao said the problem lies in that some projects need to purchase high-tech goods from developed countries such as the United States, but the restrictions on export of those products are yet to be lifted.

Gu Liaohai, a lawyer at Beijing Liao Hai Law Firm, said the impact of the regulation is limited to foreign companies as it only applies to fiscal-funded central and local government projects and excludes a large number of state-owned enterprises.

According to official statistics, China's government procurement increased to 700 billion yuan (US$102.5 billion) in 2009, including goods, engineering and services, compared with 599 billion yuan in 2008.

Buying domestic products is a common international practice in many countries, such as the US, but China did not make good use of it in the past, said Gu.

He said the regulation is necessary in China because unlike other countries, managers of many government-funded projects tend to give priority to imported products.

China agreed to submit a revised offer to join the World Trade Organization's government procurement accord (GPA) by July, as part of the Sino-US Strategic and Economic Dialogue agreement last week. "But it will take a couple of years for negotiations and final deals," Gu said.

(China Daily June 1, 2010)