‘Buy Chinese' edict raises tensions

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China has introduced an explicit “Buy Chinese” policy as part of its economic stimulus programme in a move that will amplify tensions with trade partners and increase the likelihood of protectionism around the world.

In an edict released jointly by nine government departments, Beijing said government procurement must use only Chinese products or services unless they are not available within the country or cannot be bought on reasonable commercial or legal terms.

Beijing also said it was launching an investigation into complaints from domestic industry associations who accuse local governments of favouring foreign suppliers in procurement related to the country's Rmb4,000bn ($585bn) economic stimulus package.

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“From a domestic political perspective this makes some sense because local governments do tend to favour foreign products in some categories,” said Dong Tao, chief China economist for Credit Suisse. “But given how important free trade is for China's economy this is not the right message for them to be sending to the rest of the world right now.”

Just a few months ago Beijing was raging against a proposed “Buy American” clause included in the US economic rescue package.

“Some countries raised clauses to prioritise the purchase of products of their own countries,” Chinese Commerce Ministry spokesman Yao Jian told reporters in February. “We express deep concern about these (measures) . . . Under the current financial crisis, measures issued by all countries should not cause negative impacts and . . . send out wrong messages.”

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Most economists agree China's economy is starting to recover as a result of its aggressive stimulus package but unemployment remains a problem and there are fears that widespread lay-offs could lead to serious social unrest.

“The whole world is dying to see China spread its orders around and save their economies,” said Mr Tao. “But what this policy reflects is heightened anxiety about these job pressures and the potential for social unrest.”

The edict was issued jointly by the legislative office of the State Council, China's cabinet, the National Development and Reform Commission (the country's powerful state planning agency) and various ministries.

But foreign companies operating in China argue that they have been largely cut out of procurement related to the government's stimulus package.

“We are puzzled by this discussion, especially since most European companies operating in China are locally incorporated and have not benefited directly from the government's stimulus package,” said Joerg Wuttke, president of the European Union Chamber of Commerce in China. “Requiring government procurement to favour Chinese goods and services certainly won't help to address China's trade surplus of

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