With 'Buy Chinese' edict, another nation tiptoes toward protectionism

A new Chinese government edict requiring that economic stimulus money be spent only on Chinese goods takes the world a step further toward a dangerous international trade war, foreign businessmen and some economic analysts here warn.

"It is a new sign of global protectionism," worries Xu Xiaonian, who teaches at Shanghai's China-Europe International Business School. "This will definitely hurt the global economic recovery."

The new regulations, dated May 26 and reported in the China Daily this week, say that "government-funded projects should purchase domestic products unless they cannot be obtained under reasonable business conditions."

Imports paid for from the government's $586 billion stimulus plan must be approved in advance, it stipulated.

The measure drew strong criticism from the European Union Chamber of Commerce here, which warned in a statement that giving local firms preferential treatment "sends the wrong signal to the domestic and international business community at a time when international cooperation is key to sustaining economic recovery."

Nations creep toward protectionism

Most economists agree that protectionist trade policies turned the 1929 United States stockmarket crash into the Great Depression, and since the current economic crisis began world leaders have repeatedly pledged to avoid repeating that mistake.

Nevertheless, the World Bank has accused members of the Group of 20 key world economies of imposing more than 50 trade restricting measures in the past seven months.

The US Congress attached a "Buy American" rider to President Barack Obama's stimulus package in February, ultimately requiring, after intense debate, that the money be spent on US-made goods and services as long as that is "consistent with the United States' obligations under international agreements."

At the time, Chinese officials complained bitterly about US protectionism and the danger it posed to the world economy.

Other signs of rising protectionism have emerged in the past few days.

On Tuesday, the government of the state of New South Wales in Australia offered local companies preferential treatment over foreign ones in bidding for government contracts. Earlier this month, the Federation of Canadian Municipalities approved a reciprocal boycott of American products in municipal procurement decisions.

The Chinese notice announcing the new rules, issued by the State Council (China's cabinet), the powerful National Development and Reform Commission, and seven other ministries, said they were necessary to correct a bias toward foreign suppliers.

For China, aim isn't to protect jobs

Although Chinese manufacturers often offer lower prices, explains Xiang Songzuo, an independent economist, "state-owned enterprises have a tendency to buy foreign goods because that offers executives an opportunity to travel abroad and to get commissions.

"The main purpose of this document is anticorruption," he argues.

Pressure for protectionist measures is building in China, says Mr. Xiang, but it is not coming from workers fearing for their jobs, as is generally the case in Western countries.

Instead, he says, "many companies, mainly private exporters, are complaining to the government because they are losing their foreign markets ... and they need more domestic demand. They see other countries' stimulus packages encouraging firms to buy local and hire local workers, and they ask why the Chinese government does not have a similar policy."