China has proposed a new revision of its Government Procurement Law (GPL), the law that applies to the conduct of procurement at all levels of the Chinese government. The proposal appears to extend, for the first time, to the procurement of state-owned enterprises (SOEs). This post considers the significance of the coverage of SOEs and a new provision on international treaties.
On July 16, 2022, China’s Ministry of Finance (MOF) called for comments on a revised draft of the GPL, with a deadline of August 14, 2022. The new proposal revises MOF’s 2020 proposed GPL revision, which had not been implemented.
The GPL currently applies to purchasing activities conducted with fiscal funds by state organs, institutions, and organizations. The proposed GPL revision would extend its scope to other procurement entities that use fiscal funds or other state-owned assets to acquire goods, construction, and services under contracts for the performance of their own duties or the provision of public services (article 2). It defines “other government entities” as public welfare state-owned enterprises that engage in public utilities or operate public infrastructure or public service networks for public purposes (article 12).
The proposal's apparent application of the GPL, its primary procurement law, to SOEs would represent a significant change to China's procurement regime. Currently, the GPL does not cover SOE procurement or construction projects that are subject to China’s other procurement law - the Tendering and Bidding Law. The WTO Secretariat has referred to that law, in a Trade Policy Review, as the de facto law for SOE procurement.
Bringing SOEs under the GPL would provide for a more unified procurement system, which the new proposal seems to indicate is being added as one of the GPL's goals. That would also respond to concerns that the United States (US) and businesses - both in the US and Europe - have raised with respect to China's two disparate procurement laws. It could also facilitate the coverage of SOEs under trade agreements.
Another provision in the MOF revision that relates to International Treaties may be of particular interest to the international community. It provides that in government procurement, China will accord other contracting parties and participants most-favored-nation treatment, national treatment, and other treatment in accordance with the international treaties and agreements that it concludes or accedes to (article 118). That provision would appear to indicate China is preparing its legal framework to enter international agreements with procurement commitments, such as WTO Government Procurement Agreement (GPA), or the Comprehensive and Progressive Trans-Pacific Partnership. (To date, China has not undertaken any market access commitments in agreements.) Such a provision might provide the authority for the Chinese government to implement the procurement commitments in an international agreement, such as waiving the GPL’s ‘Buy China’ requirement for procurement covered under the agreement.
One area of concern with the new proposed revision is its retention of a national security review regime for government procurement, which was proposed in 2020. Under that regime, all government procurement activities determined to have national security implications would be subject to a review. This has raised concerns in the foreign business community due to its potential scope and uncertainty regarding its application.
Jean Heilman Grier
July 28, 2022
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