Laying hypocrisy on with a trowel over 'Buy China'

PUBLISHED : Wednesday, 24 June, 2009, 12:00am
UPDATED : Wednesday, 24 June, 2009, 12:00am

Over the past week, we've heard a lot of complaints about Beijing's 'Buy China' policy. We've also heard quite a few complaints about those complaints.

Most of both have carried more than a whiff of hypocrisy.

Outlined last week in a decree from the State Council, the National Development and Reform Commission and a clutch of ministries, the Buy China policy stipulates that central government procurement programmes should purchase mainland-made goods wherever possible in order to support Beijing's stimulus efforts.

The command has provoked howls of outrage from politicians and media pundits around the world.

Yesterday, for example, German Economy Minister Karl-Theodor zu Guttenberg said he viewed Beijing's policy 'with great worry' and warned that protectionist measures would impede economic recovery.

In making his complaint, he added his voice to that of Australia's Trade Minister Simon Crean, who said last week that Beijing's move risks starting 'a tit-for-tat trade war'.

Meanwhile, any number of commentators in the United States have fulminated against the Buy China policy, condemning it as naked protectionism.

Beijing, in turn, has sought to defend its stance. A commentary carried by Xinhua on Monday argued that last week's enjoinder was not aimed at shutting out foreign companies but rather at levelling the playing field for mainland suppliers that otherwise might find themselves discriminated against by officials.

Not one of these positions - neither the complaints nor the complaint about the complaints - stands up to scrutiny.

Let's take Xinhua's defence of the Buy China policy first. Although officials' preference for buying luxury foreign car brands like Audi, Mercedes and BMW for their own use over domestically owned competitors is well known, it hardly counts as discrimination against local manufacturers. All three German brands are built in China by joint-venture companies.

But where officials' personal comfort is not involved, protectionism is rife on the mainland, and it is nothing new. Even though Vice-Minister for Commerce Jiang Zengwei vowed as recently as February that there would be no Buy China rule for government stimulus projects, Beijing has long required state procurement programmes to favour locally made goods where possible.

And that discrimination doesn't just apply at the national level. Local governments have enthusiastically embraced protectionism, too. Last month's infamous edict from Gongan county in Hubei that decreed smoking quotas for civil servants was not intended to shut out foreign cigarette brands but to protect local manufacturers against competitors from elsewhere in China.

But if China's protests at being accused of protectionism smacked of hypocrisy, the original complaints look equally questionable.

Consider Mr zu Guttenberg's concerns. Far from being shut out of China's procurement process, some German businesses are enjoying a bonanza from the mainland's stimulus efforts. According to reports, specialist technology company Siemens has won contracts worth billions of euros as a result of Beijing's ramped-up investment in railways.

Nor have the economic benefits of this windfall escaped German politicians. Back in November, Mr zu Guttenberg's predecessor, Michael Glos, even boasted in parliament about how other countries' stimulus efforts would support German industry by generating lucrative export orders.

Australian complaints about how the Chinese government is shutting foreign companies out of its procurement process are equally flimsy. Last week, the state governments of both New South Wales and Queensland ordered official agencies to give preferential treatment to local suppliers.

And US commentators are hardly in a position to complain about the Buy China policy either. In February, US legislators tacked a 'Buy America' clause on to President Barack Obama's stimulus package that would have barred the use of foreign-made steel in government-funded infrastructure projects, a move Xinhua described at the time as 'poison'.

Obviously, when it comes to government stimulus packages, protectionism is widespread and hypocrisy universal.

There's a simple reason for this. The domestic impact of stimulus spending is heavily diluted if the money goes to pay for imports rather than being used to procure locally made goods, which supports employment at home.

As a result, governments tend to do everything they can to ensure their stimulus cash gets spent domestically rather than on imports, while also trying to promote their export industries by vigorously castigating any foreign governments that attempt to do exactly the same.

In short, governments everywhere publicly preach the virtues of free trade while privately seeking to practise protectionism.

Some, however, will find it harder to get away with this double standard than others.

Like Hong Kong, the US and the European Union are both signatories to the World Trade Organisation's Agreement on Government Procurement, which bans discrimination against foreign suppliers in government purchase programmes.

In contrast, China - like Australia - has not signed up, which means that despite all the protests, Beijing is perfectly entitled to operate a Buy China policy if it wants to - no matter how hypocritical that may be.