Local Governments Take Steps to Break Indigenous Innovation, Government Procurement Links

In recent weeks, provincial and local governments across China have taken concrete steps to implement key PRC government commitments to break links between indigenous innovation and government procurement at all levels of government. These moves are in keeping with a November 2011 State Council notice requiring governments at all levels to stop implementation of measures linking innovation and government procurement, and represent important progress
on indigenous innovation policy.

As part of its continued monitoring of this issue, the US-China Business Council has compiled and released a status report documenting the efforts of provincial and local governments to implement China’s pledges on indigenous innovation and government procurement. The report found 19 of China’s provinces and provincial-level cities that can show some kind of concrete action since early 2011 to implement pledges at the provincial or local level, with the majority doing so in direct response to the November 2011 circular.

Such provincial and local efforts illustrate the significant progress on indigenous innovation issues made in the last year and provide a basis for companies to get information on troublesome regulations in provinces and localities that have not yet announced changes to comply.

China’s “mixed record”
Breaking existing discriminatory links between indigenous innovation and government procurement is a priority for US-China commercial negotiations, and one which the USCBC has seen a mixed record of progress. Following the elimination of several key Ministry of Finance measures that had specifically linked indigenous innovation and government procurement in June 2011 and July 2011, a handful of provincial and local governments sought to comply by suspending or eliminating troublesome local measures. For example, Shanghai eliminated its catalogue of indigenous innovation products in July. Yet most provinces retained some or all of their measures linking innovation and procurement, and some continued to release regulations, policies, and documents that reinforced these links.

At the November 2011 Joint Commission on Commerce and Trade, the State Council announced that it had released a notice that would force provincial and local governments to stop implementing such measures by December 1. That notice, now public, specifically states that governments at all levels must halt implementation of any measures that link innovation and government procurement within regulatory documents. Notably, it does not require governments to eliminate these documents entirely, leading to some questions about how removing provisions and sections within these documents may affect their implementation.

Additionally, the notice requires governments to publicly announce which regulatory documents remain in effect, which are eliminated, and which are suspended. Governments must report their progress to the State Council before the end of December 2011. This clause provides companies and the general public greater opportunities to understand the impact of these regulatory changes, and also gives a legal basis for companies and others to request information from provincial and local authorities about their work to implement these requirements.

Local governments respond
Since that November notice, provincial and local governments in 13 of China’s provinces have publicly released notices or information about their efforts to review, revise, and eliminate measures. While the practical results of such efforts have varied considerably, a number of provinces and cities have eliminated key measures that impact companies.

• Tianjin  Four Tianjin governmental agencies—the Tianjin Finance Bureau, Tianjin Commission of Science and Technology, Tianjin Intellectual Property Office, and the Tianjin Development and Reform Commission—on November 30 released a circular halting implementation of two key catalogues of indigenous innovation products for government procurement as of December 1.
• Jiangsu  On December 27, Jiangsu’s Finance Bureau released a circular announcing that it would halt implementation as of December 1 of three provincial notices: the 2006 Jiangsu Provisional Administrative Measures Indigenous Innovation Product Accreditation, the 2007 Jiangsu Implementing Opinions on Indigenous Innovation Products and Government Procurement, and the 2010 Jiangsu Provisional Implementing Measures for Initial Government Procurement and Ordering of Indigenous Innovation Products.
• Hunan  On December 1, the Hunan provincial government released a circular requiring all government entities under its umbrella to stop implementation of measures linking innovation and government procurement by December 1. Government offices must complete reviews of existing regulations and report to the provincial government by December 31. As with many other provinces, Hunan’s circular was followed by similar circulars from several lower-level governments, including governments in the cities of Hengyang and Yueyang.
• Chongqing  The Chongqing municipal government announced on November 29 that all government entities at or below the municipal level must halt implementation of any measures that link innovation and government procurement within regulatory documents no later than December 1. It also calls on such government to submit specific lists of affected policies by December 15. Chongqing would formally report to the State Council by December 25.

Not all provincial and municipal governments have publically announced the results of their work, and concern remains that new policies could be introduced at various levels that persist in providing government procurement preferences to indigenous innovation products. In addition, further work remains on indigenous innovation issues at the central level, including finalization of the revised PRC Government Procurement Law Implementing Regulations and the Administrative Measures for the Government Procurement of Domestic Products.

USCBC and other industry groups continue to monitor implementation of innovation commitments, and will continue to make indigenous innovation issues a priority in advocacy with both the US and PRC governments.