“Buy China” makes sense only in China

September 13, 2010

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 Sept. 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.

Comments

Fine analysis.

China is the first child of globalization, and isn’t it ironic that it is balking at any produce made elsewhere!

The simplistic premiss of globalization is proving to be cultivating infantilism at the collective level. China has been empowered way before it became mature, it sees its wishes as legitimate claims and the so-called trade partners that spoiled that “child” now have a problem on their hands.

Posted by Neander | Report as abusive
 

This Trade Imbalance is natural consequence of all our Deficit Spending both public and private. In the most understandable words, China buys our Govt Bonds. Last I heard they do not ship galleons of gold. Directly or indirectly they send either their goods or their currency. And what would you and your trader do with a closet full of yuan? You would buy the best value with it. And chain stores are full of the evidence, period. This will continue as long as we need China to finance our profligate deficit spending.
Our elected “-wake up” in November–

Posted by optimism | Report as abusive
 

Chinese government-related companies are also pragmatic. In a case I know, they paid retired but talented American engineers for the development of products in a catch-up strategy. It is discrete, it sounds like “R&D in China” and “Chinese product”, and it is successful.

Posted by jean-d.frey | Report as abusive
 

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