Recently, the General Office of the State Council issued the "Notice on Implementing Domestic Product Standards and Related Policies in Government Procurement" (hereafter referred to as the "Notice"), which will take effect from January 1, 2026. "Acknowledging international best practices, the issuance of this Notice is a concrete step to implement the requirements of the People's Republic of China's Government Procurement Law. It represents a significant move to refine and strengthen the government procurement system, as well as a practical action to ensure national treatment for foreign-invested enterprises in the procurement sector. This initiative is crucial for accelerating the development of a unified, open, and competitively ordered government procurement market framework, safeguarding equal participation of all types of business entities in procurement activities, and continuously fostering a world-class business environment that is market-oriented, rule-of-law-based, and internationally competitive," said a senior official from the Ministry of Finance during a press briefing.

China's government procurement market is vast in scale. According to data disclosed by the Ministry of Finance, the national government procurement volume in 2023 reached 3.39296 trillion yuan. To build a unified, open, and competitively ordered government procurement system, as well as to foster a business environment that is market-oriented, rule-of-law-based, and internationally aligned, the Ministry of Finance has drafted relevant consultation documents and released them on December 5 last year.

The Notice clarifies that the domestic product standard in government procurement refers to products manufactured within China, with the cost of domestically produced components meeting a specified proportion requirement. For certain products, key components and critical processes must also be produced and completed entirely within China. This standard applies to goods involved in both government procurement of goods and service projects. During government procurement activities, domestically produced goods will receive a 20% price evaluation discount compared to non-domestic products. However, if international treaties or agreements to which the People’s Republic of China is a party or co-participant contain different provisions regarding domestic product policies in government procurement, those treaties and agreements shall prevail.

The "Notice" states that, within five years from the date of implementation, the Ministry of Finance, in collaboration with relevant industry authorities, will carefully advance the initiative through tailored measures and steady progress. This will involve determining, on a product-by-product basis, specific cost-proportion requirements for domestically produced components in China, as well as defining criteria for critical components and key processes applicable to certain products. Additionally, based on the unique development stages of different industries, a transition period of 3 to 5 years will be established to gradually establish a domestic product standards system and a dynamic adjustment mechanism for government procurement. Prior to the implementation of these component-cost proportion requirements for specific products, items meeting the domestic production criteria will be treated as domestically produced goods in government procurement activities.

The Notice emphasizes that government procurement support policies apply equally and without discrimination to all types of business entities, including state-owned enterprises, private enterprises, and foreign-invested firms. All regions and departments are urged to strengthen coordination and ensure that no policy measures are introduced that violate the provisions of this Notice. In government procurement activities, it is strictly prohibited to specify particular brands or impose restrictions on brand registration locations or owners. Additionally, suppliers must not be subjected to differential or discriminatory treatment based on ownership structure, organizational form, equity composition, investor nationality, or any other unjustified criteria.

According to Article 10 of the Government Procurement Law, government procurement must prioritize domestically produced goods, projects, and services. However, until now, China has lacked a clear definition of what exactly constitutes "domestically produced goods, projects, and services." "Without a standardized domestic product framework," explains Professor Jiang Aihua from the School of Finance and Taxation at the Central University of Finance and Economics, "this ambiguity could inadvertently exclude certain products—despite being manufactured within China with components accounting for a significant portion of their cost—from government procurement eligibility. At the same time, it might also inadvertently include products that are neither produced domestically nor have a high proportion of domestically sourced components, potentially leading to unfair competition in practice." Professor Jiang adds that the introduction of these new standards not only strengthens China’s legal framework for government procurement but also enhances the country’s policy system supporting domestically produced goods. This move aligns China more closely with international procurement practices while fostering greater synergy between domestic and global markets. Ultimately, it will empower both domestic and international suppliers to seize opportunities for growth and development as China continues to deepen its commitment to opening up to the world.

The introduction of the new standard means that domestically produced products will see a significant boost in competitiveness during future policy-driven procurement evaluations. At the industry level, sectors such as information technology equipment, medical devices, office equipment, transportation equipment, and engineering machinery already account for a substantial share of government procurement. With the implementation of this policy, these industries are poised to expand their market presence and enhance their competitive edge. As the policy is gradually rolled out, domestic equipment-related industries will unlock fresh growth opportunities. Moreover, driven by this initiative, we can expect notable advancements in technological innovation and product quality within the domestic equipment sector—ultimately strengthening the industry's overall competitiveness.   Wei Xiayi)