Foreign firms bidding for China contracts face uneven playing

By Michael Martina

BEIJING (Reuters) - Foreign companies bidding for public projects in China, valued at $1 trillion a year, face a sharply tilted playing field, a European Union business lobby said Wednesday, citing favoritism and corruption as influencing the award of contracts.

A study by the European Union Chamber of Commerce in China said that foreign companies suffer from delayed information about new projects, tenders announced via obscure channels, and unfair awarding and appeals processes.

Such complaints are nothing new in China, where multinationals have long seen difficulties such as intellectual property theft and unclear regulations as the price for competing in the world's second-biggest economy.

But fair bidding for public projects has taken on new urgency as China embarks on a massive spending binge on strategic industries such as high-speed rail and nuclear power that could equal $1.5 trillion over five years.

Major concerns for companies, the report said, include the challenge of finding out about tenders on time and the need to alter bids based on standards that vary by municipality.

"The procedures are all roughly similar but some require different forms and certificates than others -- you never know," the report quoted a European medical device manufacturer as saying.

"These sound like small differences, but when each municipality has its own rules, the time involved in bidding in all these municipalities can multiply."

The problem is acute for small- and mid-sized foreign companies, said Gilbert Van Kerckhove, chair of the EU Chamber's Public Procurement Working Group, since it can be too costly for such businesses to know when tenders will be announced in local newspapers and websites.

"For small and medium-sized companies it is a matter of size and politics. Large companies have the ability to sniff around in advance," Van Kerckhove said.

Bids on China's government projects, from rail to roads and stadiums, are often tendered at sub-central government levels, a murky regulatory space where relations with local-level officials can come into play in the awarding of contracts.

"The systems are becoming more clear and standardized, but -- and it's a big but -- the decision on who to buy from is often made before the official process even begins," a senior manager at an international wind power equipment manufacturer told Reuters on condition of anonymity.

The EU Chamber suggested China establish central and electronic platforms to coordinate nationwide tenders in the vast public procurement market, which it values at more than 7 trillion yuan ($1 trillion) a year.

That figure is an approximation, the EU Chamber said, but one that illustrates the state's large role in China's economy and public tendering processes.


The study also highlights foreign companies' concerns that China's "indigenous innovation" polices continue at the local level despite assurances from top leaders that they would not be discriminatory against foreign firms.

"They say they are de-linking indigenous innovation policies from the procurement catalogs, but in reality it is not always easy for the central government to control local entities," Van Kerckhove said, referring to the lists of items government entities consult when making purchases.

Top Chinese leaders, including President Hu Jintao during his meeting with U.S. President Barack Obama in January, have said China would separate its quest to promote Chinese innovation from public procurement opportunities.

U.S. Commerce Secretary Gary Locke, due to assume the ambassadorship to China, scolded China just two weeks after Hu's visit on the gap between the Chinese government's promises and actions.

Multinational companies have worried that China's use of indigenous innovation policies would give procurement preferences to domestic firms or force foreign companies to transfer technology in order to win contracts.

(Editing by Don Durfee, Ken Wills and Sanjeev Miglani)