China: China’s government isn't protectionist: it will buy any product, so long as it's made in China. That was the message Premier Wen Jiabao delivered to conference delegates on September 13. The idea is conciliatory – namely, that China will treat foreign-invested companies and wholly home-grown ones equally. But trade partners may interpret this as a long-term commitment to an uneven playing field.
Foreign suppliers have long lamented China's "indigenous innovation" policy, announced in 2009, which encourages government bodies to buy home-made products, and impacts an estimated $100 billion of annual spending. Official calls to "buy Chinese" go back almost a decade. But when only low-end products were involved, foreigners were unfazed. Now that it's high-speed trains and green technology, hackles are raised.
Timing gives Wen's comments particular significance. They echo recent remarks by Xi Jinping, the man widely expected to become the next president of China. Extra resonance comes from the fact that China is due to reveal its 12th five-year economic plan this October. What those at the top say now is likely to become hard and fast policy.
From a Chinese perspective, asking for products to be made in the People's Republic makes sense. Beijing wants to create jobs and encourage scientific advances. Buying high-tech train parts from overseas does neither of those. But if a foreign manufacturer sets up shop in China, it achieves both. Foreign suppliers, concerned about their intellectual property, don't always agree.
It also makes sense to upgrade China's foreign investment. Foreign funds contributed to the creation of a manufacturing sector that helped pull 600 million people out of poverty. But more shoe and toy factories are the last thing China needs now. Foreign investment may pass $100 billion for the first time this year, but all too little of that goes into added-value activities. Preferential procurement may seem like a spur.
While that logic is attractive, it could be self-defeating. China's trade partners are not happy. The United States, its biggest, is simmering with populist plans to slap tariffs on Chinese products. Treasury Secretary Tim Geithner this week faces a panel of U.S. representatives, hoping to diffuse their anger over China's unfair play. Three months of $20-billion-plus trade surpluses, and a new commitment to "Buy China", do not help his chances.
