On 5 December, 2024, the Ministry of Finance issued the Notice on Issues Related to Standards and Implementation Policies for Domestic Products in the Field of Government Procurement (Draft for Comments), inviting public feedback. The deadline for comments is January 4, 2025.
This document primarily targets industrial products listed in the Government Procurement Item Classification Directory. It proposes that in government procurement activities where both domestic and non-domestic products compete, a 20% price deduction be applied to the quoted prices of domestic products, and the adjusted prices will be used for evaluation. This means that domestic products will effectively enjoy a 20% price advantage over foreign products in government procurement bidding.
The document narrows the scope for defining domestic products. Previously, any product manufactured within China was considered a domestic product for government procurement purposes. Under the new rules, only products manufactured in China with domestically produced components comprising a certain proportion of the total cost will qualify as domestic products. The Ministry of Finance, together with relevant departments, will determine this proportion based on industrial development needs and product categories. For specific products, additional requirements may be imposed, such as key components being manufactured in China and critical production processes being completed domestically.
In terms of calculation rules, the document includes the Rules for Calculating the Cost of Domestically Produced Components in China. It stipulates that the cost of components produced in China is generally calculated based on the cost of secondary components. (Primary components refer to those directly comprising the product, while secondary components are those that constitute the primary components. If a primary component cannot be broken down further, it is treated as a secondary component.) The full cost of secondary components produced in China is counted as the cost of domestically produced components. However, costs of secondary components not produced in China are excluded from the calculation.
Given the significant impact this policy may have on overseas products participating in government procurement, it is recommended that relevant enterprises actively provide feedback. The Ministry of Finance is expected to seek opinions when determining the cost ratio and clarifying the classification of primary and secondary components for specific products. Overseas enterprises are advised to closely monitor related announcements from the Ministry of Finance.
