“We have made remarkable progress—special organs dealing with government purchasing have been set up in central and local governments; a series of rules and regulations, including the Interim Provisions for the Administration of Government Purchasing, have been promulgated, thus marking the initial formation of a government purchasing system; a working pattern combining centralized and decentralized purchases has been put into place, while the volume and scope of government purchasing are increasing; and, the rough draft of a government purchasing information management system has been completed,” said Lou.

Commonly known as “deals under sunshine,” government purchasing began on a trial basis in China in 1996; was rapidly extended to more localities, commodities and services in 1998; and finally became a nationwide activity in 2000.

China’s achievements in government purchasing are notable. The nation’s total government purchasing volume jumped to 32.8 billion yuan (US$3.97 billion) in 2000, from 13 billion yuan (US$1.57 billion) in 1999 and 3.1 billion yuan (US$374.98 million) in 1998.

“Nevertheless, we still have a long way to go before the all-round completion of a government purchasing system with Chinese characteristics,” Lou emphatically concluded.

A Significant Reform

Ju Jiaren, Director of the General Office of the Finance and Economy Committee of the National People’s Congress (NPC), and also head of the team drafting the Government Purchasing Law, attributed the rapid development of government purchasing to its notable benefits in controlling government expenditure, raising government fund efficiency, ensuring purchase quality, facilitating fair competition, adjusting national economy operations, optimizing resource allocation, protecting key industries and preventing corruption.

“Its operation features openness, fairness, justice and transparency, which are in line with the demands of the market economy,” said Ju. “As a result, both central and local governments, government organs and enterprises, as well as deal makers and intermediary agencies, highly appreciate this mode, and make joint efforts to advance government purchasing.”

Experiments in previous years have convinced the public of the advantages of government purchasing. Since its implementation, government purchasing has helped reduce annual government purchase expenditures by 10 percent, and its positive influences also include improved administration and support for profitable domestic enterprises.

“Introduction of government purchasing means systematic reforms,” said vice-minister Lou Jiwei.

Over the 20 years of reform and opening-up, China’s financial system has undergone a series of reforms, and has established the basic framework for a financial and taxation system suited to the market economy. Nevertheless, the rate of reform in different fields has been uneven. On one hand, reforms in the revenue management system have been effective, as remarkable results have been achieved; on the other hand, reforms in the currently mismanaged expenditure management system have been slower. This expenditure management system is therefore bound to encourage corruption.

“Exercising government purchasing is an important part of the efforts to build a market economy-compatible public finance system, and is also an important step to reform government expenditure management, as well as a radical measure to prevent corruption,” Lou announced.

State Legislation

This October 23, the Draft Government Purchasing Law of the People's Republic of China was submitted to the NPC Standing Committee for the first examination.

At the 24th Session of the Standing Committee of the Ninth NPC, Vice-Chairman of the NPC Finance and Economy Committee, Yao Zhenyan, explained the draft law, which contains nine chapters and 75 articles that elaborates the responsible parties, methods and procedures of government purchasing, as well as related inquiries and complaint procedures, supervision and examination, and liability division.

Regarding law coverage, Yao noted, “Legally speaking, government purchasing refers to all commodity, engineering project and service purchases by government organs, institutions or organizations, as long as they are paid with financial capital.” He added that the Central Military Commission would formulate military purchasing rules.

Since China will begin negotiations to become part of the WTO Government Purchasing Agreement two years after its WTO accession this November, Yao stated that the opening of China’s government purchasing market will depend on these negotiations. “The drafting team has done its utmost to ensure that the draft law conforms to the WTO Government Purchasing Agreement and other international conventions.”

Yao added that the draft law has gone through several major revisions during its formulation, through regular discussions and the widespread solicitation of opinions.

The law is expected to be implemented next year.

Sharing the Pie

At the Fourth Beijing Hi-Tech Industries Week in May, a government purchasing order worth 400 million yuan (US$48.39 million) boosted the participating businesses, thus convincing the public of the strong connection between government purchasing and commercial opportunities.

Globally, government purchasing typically accounts for 30 percent of the financial expenditure of a market economy country, which means that China’s government purchasing last year should have amounted to 450 billion yuan (US$54.43 billion), instead of the mere 30 billion yuan (US$3.63 billion) it was, and should have also accounted for more than a mere 2 percent of the nation’s total financial expenditure. Government purchasing therefore has a large return potential.

The current scope of China’s government purchasing has expanded from commodities to engineering projects and services. An authoritative source said that the volume and scope of government purchasing will continue to increase over the next several years, and is expected to exceed 60 billion yuan (US$7.26 billion) this year and 100 billion yuan (US$12.01 billion) in 2002.

More and more domestic enterprises have tried sharing slices of this big pie. However, only a few have benefited. For the less fortunate enterprises in this respect, government purchasing is an unfamiliar field, and some of these enterprises do not even understand the concept of government purchasing, let alone the rules involved.

Yang Jinming, a member of the Government Purchasing Law Drafting Team and an official with the Ministry of Finance, said efforts should be made to strengthen the training of suppliers and disclosure of government purchasing information, in order to ensure the smoother market entry of the relevant enterprises.

Which enterprises will be appointed as official suppliers of government purchasing? The candidates must meet certain criteria.

“Generally, all products in line with industrial policies and the orientations of economic development, which also meet the demands of purchasers, are qualified to enter the government purchasing market,” said Yang. “Instead of an administrative act, the supplier admission system will be based on the enterprises’ registry in line with market demands, and rule-breakers will be blacklisted.”

Considering the differences between individual industries and enterprises, admission and administration of government purchasing suppliers takes time. Competent departments will therefore formulate administrative rules for different industries and varieties of products, both separately and in batches. These changes will initially be made in the computer products. “Before that, we will formulate a general rule to enforce some principle stipulations,” Yang stated.

Compared to the buyers—mostly government organs with administrative powers—suppliers usually have fewer decision-making powers in government purchasing deals. Protecting the interests and rights of suppliers is therefore important. Yang said the Draft Government Purchasing Law has, in line with current laws and government setup, clearly stipulated suppliers’ rights to inquire about purchasers, lodge complaints to appropriate authorities, appeal for administrative reviews and enter administrative lawsuits, all of which safeguard their interests and rights.

Government Purchasing Going Online

A high-level symposium on e-government and government purchasing was held in south China’s Guangzhou, Guangdong Province, in September. The symposium stated that a large part of next year's government purchases will be carried out via the web.

Online purchasing will help build an open information channel between government organs, customers, suppliers and the public, thus widening the operation of government purchasing.

China’s e-business has just begun and is currently advanced mainly by small B2C (Business-to-Consumer) transactions. The volume of B2B (Business-to-Business) deals, on the other hand, makes up 77 percent of the global e-business trade, while B2C deals account for a mere 23 percent. China still has a long way to go before it becomes a world giant in e-business field and advances its methods of information dissemination.

Industry insiders said that since online government purchasing is more practical than online purchases by businesses or individuals, the government plays a key role in stimulating China’s e-business trade.

They also pointed out that a lack of rules and regulations, especially those concerning the credit system, is still an obstacle in the advancement of online government purchasing.

The Draft Government Purchasing Law has focused on the standardization of the online purchasing system. China has so far had nearly 40 websites engaged in the government purchasing trade. Greater progress in this field is anticipated next year.

(Beijing Review November 21, 2001)