01

In the past two days, the Ministry of Finance has solicited opinions on the “domestic product standards” in the field of government procurement.

This time, the standard of “domestic products” is quite strict:

1. The products are produced in China;
2. The proportion of component costs produced in China has reached the specified proportion, and the proportion is to be determined. The component costs are accounted for as secondary components;
3. The key components and processes of the product are produced and completed in China;

Why do you want to make this standard?

1, “government procurement law” there are principles, domestic products are preferred;

2. There are preferential policies to support the recognized domestic products;

In the competition between domestic products and non-domestic products, domestic products enjoy a 20% price deduction and participate in the evaluation with the deducted price.

For example, if the products meet the standards of domestic products and are quoted in 100 yuan, then they will participate in the evaluation according to 80 yuan, which means that non-domestic products need to be quoted in 80 yuan to be on the same starting line as domestic products, and the price competitiveness of domestic products will be improved at once.

This 20% is definitely good:

For small and medium-sized domestic brands, this 20% can eliminate the cost difference caused by scale, so that it can compete with foreign brands in government procurement; For big-name domestic products, it may directly mean an increase in gross profit margin.

This thing is really not a conspiracy, but an open plan.

In 2023, the market size of government procurement in China was 3.39 trillion.

This part of the market is not unattainable. We have standards. What should we do if we fail to meet them?

This standard does not distinguish between ownership, mixed ownership or even foreign capital. As long as you meet the standard, you can participate in the competition and have the same advantage of 20%.

Then move closer to the standard. So, first of all, is your production line coming to China? Then, can the parts on the production line be produced in China? Then, can the key components and key parts be transferred to China?

More production, more employment, we do not engage in coercion, purely profit-driven, “Made in China” needs and welcomes foreign investment.

Let’s also have a wave of manufacturing return.

02

In fact, domestic experts have repeatedly called for the establishment of a “domestic product standard.”

The Government Procurement Law has been more than 20 years, which stipulates that “government procurement should purchase domestic goods, projects and services”, but what is domestic goods is not said.

Generally speaking, how to judge “domestic products”?

1, “customs standards”, whether the products enter the country through the customs;

2, the enterprise location standard, whether the supplier is registered in China, the main standards of the European Union;

3, domestic value-added standards, whether the product value-added occurs in the country, and there are proportional requirements for domestic factors in the total product value.

The standard we used to use is the customs standard, “As long as the products are produced in China, they are regarded as domestic products in government procurement”, while the new standard is biased towards domestic value-added standards.

For example, Tesla once entered the government procurement catalogue of Jiangsu Province, and the controversy was quite big. However, according to the current standards, other people’s products meet the standards, and the cars produced by Tesla’s Shanghai factory really belong to “domestic products”.

However, according to the new standards, Tesla may not meet the requirements. When the origin of components needs to be refined to secondary components, supply chain enterprises also need to prove the origin of their products.

In fact, as early as 2010, China will unify the standards.

Four ministries and commissions, including the Ministry of Finance, the Ministry of Commerce, the National Development and Reform Commission and the General Administration of Customs, once solicited opinions on the Measures for the Administration of Government Procurement of Domestic Products. At that time, the standard of domestic products was that domestic costs should account for 50% of the total costs.

However, later, this method was not implemented.

If it is used as a reference, then the localization ratio of the new domestic product standard should be no less than 50%. If it is based on the standard formulation period of 3-5 years and then refers to foreign cases, such as the United States, then this ratio should be 70%-80%.

03

It is estimated that this matter will be labeled as “trade protectionism”.

But it really doesn’t count:

1, our standards, in line with WTO standards;

2. If China joins the Agreement on Government Procurement (GPA) and the Agreement on Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) under the WTO, the products of the participants can be exempted according to law.

This thing is quite wonderful.

GPA has 22 contracting parties (27 EU countries are one), and the United States is one of them. Let’s see how it works.

In fact, the principle of “American priority” was not initiated by Trump. In 1933, the United States had the Buy American Act (BAA), which required the federal government to buy local products.

Subsequently, all kinds of “BAA” were hidden in various related bills.

The Biden administration has a similar bill, “Build America, Buy American Products”.

American companies have priority in infrastructure construction funded by the federal government, and the steel, finished products and building materials used in these infrastructure construction must be produced in the United States.

And this construction service field is the field that GPA needs to open.

The procurement qualification required by BAA is that the products are made in the United States, and that more than 65% of the cost of spare parts is made in the United States.

This ratio is gradually increasing. In 2024, the standard is 65%, and by 2029, it will reach 75%, but the products that really can’t reach this ratio still have a threshold of 55%.

With the blessing of various baas, the market that the United States can open up is actually not big.

The United States once had a report of its own. In 2015, they gave 12 billion US dollars of contracts to foreign markets, including 5 billion to GPA signatories and Mexico (based on the North American Trade Agreement) and 7 billion to other countries in the world.

It looks like a lot, but it only accounts for 4% of the total contract in that year. Moreover, one third of this $12 billion was given to American enterprises overseas, and it is really difficult to make money from the US government.

BAA is getting stricter and stricter, which basically kills foreign countries in government procurement, but neither WTO nor GPA has much response.

We are not a party to GPA, so it is definitely not trade protectionism to use policies that conform to GPA parties.

There is a saying in the United States that is quite good:

Strengthening the “Made in America” policy will send a clear market signal to convince suppliers that it will bring more opportunities with the help of American workers.

It would be more applicable if the products made in the United States were replaced by those made in China.

After all, even anti-China lawmakers in the United States know that China’s manufacturing and supply chain are really awesome.

There are plenty of opportunities, depending on whether we can seize them.