On his inaugural visit to China just days ago, German Economics Minister Rainer Bruederle said that he and Chinese Trade Minister Chen Deming had agreed to fight the "sweet poison of protectionism."

But now China has drawn the ire of the international business community for doing exactly what it criticized other countries for: favoring home-grown products at the expense of global competition. On Thursday, 34 industry groups - representing some of the biggest technology companies from Europe, North America and Asia - sent a letter to Chinese ministers, urging them to cancel a government procurement catalog of "indigenous innovation", which they say shuts out foreign companies.

"Implementation of this system will restrict China's capacity for innovation," the letter stated. It added that the measures impose "onerous and discriminatory requirements on companies seeking to sell into the Chinese government procurement market, and contravene multiple commitments of China's leadership to resist trade and investment protectionism and promote open government procurement policies."

"Globalization is here, and going protectionist will not solve anything… It's not good for the economy," one of the letter's signatories, Pascal Kreis of the European Services Forum, told Deutsche Welle.

The national catalog lists products in six categories: software, computer and application devices, telecommunication products, new energy and equipment.

Foreign companies are allowed to apply for accreditation to appear in the catalogue, but critics say the requirements are nearly impossible to meet. For example, products must "have Chinese intellectual property and proprietary brands" to qualify, and intellectual property must be "totally independent of overseas organizations or individuals." The deadline for applications was Thursday.

Buy China Act round II?

"This legislation is in fact a tool to implement the Buy China Act," said Kreis, "But much more worrying is that for the moment we have only those five or six products (…) but it is strongly feared that that may only be a first step. They may expand this list to many other products."

The Buy China Act refers to the government's insistence in June that public bodies purchase domestic goods whenever possible. The US promoted a similar scheme earlier this year as part of its stimulus package with the Buy America Act; but President Barack Obama quickly toned down the rhetoric following EU criticism.

As China has not signed the World Trade Organization's voluntary Agreement on Government Procurement, it does not have "any obligation at all" to reverse its latest move, according to Kreis.

China's new ruling, which was posted on a government website, could spell trouble for the EU and especially Germany, which was the 27-member bloc's largest exporter to China in the first half of 2009. Of the total EU exports to China for the same period, 60% was machinery, computers, electronic components and vehicles.

The two sides of China

Concern over Chinese protectionism is nothing new. Although China's economic reform has been largely credited with lifting millions out of poverty and for transforming it into a global economic powerhouse, government officials have been called out several times by the EU for not providing sufficient access to its markets.

In September, an annual report by the EU Chamber of Commerce in Beijing expressed concern over China's preferential treatment of domestic companies over foreign ones, as well over its limited joint ventures with EU companies.

"China's experience in the last three decades has clearly proved that increased opening and reform has bred the greatest success," said chamber president Joerg Wuttke. However, he added that the chamber had observed "a gradual slowdown - and in some cases a partial reversal - in the economic opening-up process."

The letter's recipients, the Minister of Science and Technology Wan Gang, Minister of Finance Xie Xuren, and Chairman of the National Development and Reform Commission Zhang Ping, have not responded.

Author: Vanessa Johnston
Editor: Sam Edmonds