In China, President Xi Jinpings' government is making significant efforts to fully domesticate and insulate key technologies as national security measures. This is the first installment of a new series exploring how Beijing's actions are affecting firms doing business with China.
In the past few local governments in China, such as Anhui, Fujian and Shanxi provinces, have issued notices to public hospitals that encourage the use of domestic medical equipment, saying, If functionality is basically the same, we recommend purchasing China-made products.
Large-scale medical equipment such as computed tomography CT and magnetic resonance Imaging MRI, among other items, will be strengthened in accordance with the laws, said a notice issued by Anhui Province in June 2022. China's media cites this as a good news for domestic manufacturers.
A 2022 notice issued by the province of Fujian province clearly prohibits the purchase of three types of foreign-made large-scale medical equipment. Foreign investment is being eliminated from government procurement, an industry source said. If the government recommends the purchase of domestically produced equipment, those further down the ladder will have no choice but to follow suit.
If foreign companies are removed from the Chinese market, overseas firms will be unable to penetrate the Chinese market if they form joint ventures with Chinese companies and switch to local production.
This will enable China to absorb key technologies that it couldn't create themselves. The XI administration's plan is to create a medical care system that doesn't depend on foreign nations.
In 2018, Beijing compiled a list of IT-related innovations that recommended specific products and companies for procurement, according to sources. The list also included such terms as, Local production with less than 20% foreign investment, and Managers and their spouses must be Chinese citizens.
The list, which has not been publicly disclosed, mainly deals with office-use IT equipment, such as personal computers and multifunction devices.
Companies must meet more than 100 conditions for inclusion on the list of recommended firms.
Some local governments and state-owned enterprises are said to have been selecting their suppliers based on this list.
Observers have said that domestic production is taking center stage. There has been a growing interest in China-based production in recent times, with plans to prioritize China-based production among those countries' businesses.
If we use domestic products, the authorities won't put us under scrutiny, said an official at a Chinese firm. The lack of foreign investment is seen as a result of this type of self-preserving mentality.
Other countries have been cautious to challenge Beijing's preferential treatment of local companies, as China is not a member of the World Trade Organization's Government Procurement GPA, which bans discrimination against foreign firms. But China has been negotiating for more than 15 years to join the GPA.
China's CPTPP, a comprehensive and Progressive Agreement for the Trans-Pacific Partnership, has similar provisions as the GPA.
If China wants to join the CPTPP, it should open up its government-related procurement, said a source close to the trade talks. The inconsistencies between Beijing's policies and actions are evident.
National security exceptions are a policy in the WTO, allowing signatories to breach their WTO obligations for reasons of national security. To avoid abuse, members are careful when applying the rules.
China should also be guaranteed such measures, too, but its national security concept is vague, and it seems to apply rules arbitrarily, a diplomatic source said.
China is working towards the introduction of national standards requiring that all manufacturing processes for multifunction devices be carried out domestically. At a WTO panel meeting in autumn 2022, China said it would not introduce such national standards. The nation, however, announced its plans to establish the standards in a statement about 10 days later.
When China joined the WTO, it had expected that it would accept international rules and align its domestic standards. China, however, has merely joined the WTO in order to skirt the rules.