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DE RUEHBJ #1177/01 1232247
ZNR UUUUU ZZH
O 032247Z MAY 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3778
INFO RHEHNSC/NSC WASHDC IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUCPDOC/USDOC WASHDC IMMEDIATE
RUEHOO/CHINA POSTS COLLECTIVE
RUEHGV/USMISSION GENEVA 2462

UNCLAS SECTION 01 OF 07 BEIJING 001177 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM FLATT AND EEB/TPP MAGDANZ, TOLLIVER 
STATE PASS USTR FOR STRATFORD, MCCARTIN, MAIN, GRIER 
DOC FOR KASOFF AND MELCHER (5130), HEIZNEN (6510), 
PRUITT (4420), SZYMANSKI (4310) 
TREASURY FOR OASIA/DOHNER 
GENEVA PASS USTR 
 
E.O. 12958:  N/A 
TAGS: ECON ETRD EFIN EINV WTRO PGOV CH
SUBJECT:  CHINA - STATE COUNCIL OPINION URGES 
ENHANCED TRANSPARENCY AND OVERSIGHT IN GOVERNMENT 
PROCUREMENT 
 
REFS: A.) 2008 Beijing 1567  B.) 2009 State 015625 
 
(U) This cable is Sensitive But Unclassified. 
Please protect accordingly. 
 
¶1. (SBU) Summary:  China's State Council issued a 
seven-point "Opinion" April 10 on "Strengthening 
Management of Government Procurement" that is a 
binding administrative prescription with quasi-legal 
force (unofficial translation at Paragraph 7). 
Local media portray the new guidelines as targeting 
corruption and waste by strengthening the Ministry 
of Finance (MOF)'s abilities to enforce and apply 
the existing China's Government Procurement Law (GPL) 
through all layers of government.  However, at least 
some foreign companies are concerned over references 
in the Opinion to "protecting national and public 
interests" through adherence to an array of existing 
State policies that favor purchase of domestic 
products in government procurement and  promote 
"indigenous innovation" (Ref A).  That said, the 
Opinion does not appear to include any obviously 
odious new measures, but it does reinforce China's 
longstanding policy of using government procurement 
expenditures to promote domestic goods and services, 
indigenous innovation, and other policy goals.  End 
Summary. 
 
¶2. (SBU) While the guidelines in the "Opinion" 
(Guobanfa No. 35) do not appear to deviate 
significantly from China's existing GP practices, 
they are a step towards tighter central government 
policy /fiscal control over GP expenditures at all 
levels (national through local).  Analysis suggests 
the key goals are to: 
 
* reduce opportunities for corruption and 
strengthen punishment thereof; 
 
* broaden the scope of coverage of China's 
existing Government Procurement Law by 
including some new areas of procurement 
financed with revenues outside the fiscal 
budget; 
 
* bring consistency to the previous 
checkerboard of local-provincial-national 
procurement regulations and processes; 
 
* encourage professionalism, transparency, and 
competition between centralized procurement 
entities through higher standards and 
training; 
 
* continue promoting State policy goals via 
government procurement.  These goals include: 
minimizing purchases of imported goods, 
promoting indigenous innovation and energy 
efficient or environmentally friendly 
products, and (less boldly) supporting small- 
to-medium sized enterprises (SMEs); 
 
* increase oversight and supervision of 
government procurement in all its phases from 
budgeting to bidding to evaluation and award 
of contracts; and 
 
* promote a vision for a national E-procurement 
system to cover the entire government 
procurement process 
 
[Note: China does not consider "public works" to be 
government procurement, as these activities are 
generally conducted under China's Bidding and 
Tendering Law (BTL), under the National Development 
and Reform Commission.  (Ref A contains a more 
detailed explication of the complicated procurement 
picture here.)  As a result of this unique situation, 
China's Government Procurement Law is estimated to 
 
BEIJING 00001177  002 OF 007 
 
 
cover only roughly half of China's actual government 
procurement, but opaque practices and budgeting make 
it difficult to reach solid conclusions.  For 
example, Vice Minister of Commerce Jiang Zengwei 
said February 9 that China won't implement "buy 
China" in its massive RMB 4 trillion stimulus 
package launched in November, his statement being 
apparently based on China's legislative view that 
"public works" are not considered government 
procurement (Ref B).  End Note]. 
 
¶3. (U) The initial three provisions of the document 
aim at increasing transparency, accountability, and 
efficiency in the expenditure of government funds. 
This is a key theme in China's government 
procurement effort to date.  The guidelines seek to: 
1) promote greater efficiency through increased 
central procurement, 2) separate procurement 
supervision functions from procurement activities 
(including competition in the use of procurement 
agents) and 3) ensure closer attention to accurate 
budgeting to ensure optimal price and quality in 
procurement. Chinese legal experts such as Zhou 
Guangquan, a professor from Tsinghua Law School, 
acknowledge that the current government procurement 
supervision system is problematic and vulnerable to 
corruption. 
 
¶4. (U) The fourth point of the "Opinion" emphasizes 
government procurement's role in reinforcing 
existing central government policy goals, thus 
giving Beijing greater resources "to promote 
economic and social development."  Furthermore, "Buy 
China" language contained in Article 10 of China's 
Government Procurement Law is restated in the fourth 
provision of the "Opinion": "procurement of 
imported products shall be strictly examined; if 
domestic products can meet the procurement needs, no 
imported products shall be considered." 
Encouragement is also given to existing policies 
championed by various ministries including 
indigenous innovation (MIIT), internal market demand 
(MOFCOM), and green procurement and energy savings 
(NDRC and others). 
 
¶5. (U) Final provisions in the guidelines advocate 
enhanced transparency, anti-corruption efforts, and 
the elimination of wasteful procurement practices -- 
longstanding cost-saving themes used by the central 
government in part to elicit public support for a 
centralized procurement effort.  (The government has 
claimed an overall cost savings of over ten percent 
in its GP programs to date.)  The guidelines also 
call for additional oversight in all areas of the 
bidding process, create a national e-procurement 
system, and improve professional qualifications and 
training for procurement officials. 
 
Comment: 
¶6. (SBU) China introduced regulation of government 
procurement and a catalogue of approved products for 
purchase on a trial basis in 1996 and the program 
has expanded steadily since.  However, because China 
has not acceded to the WTO Agreement on Government 
Procurement, "Buy China" and other domestic 
preference provisions in existing government 
procurement law and regulations do not run afoul of 
their international agreements.  While the newly 
issued Opinion clearly has a number of aims 
including greater transparency and efficiency in 
local-to-national government procurement, none of 
the policy-related provisions suggest any change 
from China's existing policy of using rapidly 
growing government procurement to promote domestic 
goods and services and "indigenous innovation".  End 
Comment. 
 
¶7. (U) An unofficial translation of the full text of 
the Notice, "The Opinions on Further Strengthening 
 
BEIJING 00001177  003 OF 007 
 
 
Management of Government Procurement" (Guobanfa No. 
35/2009), April 10, 2009, is reproduced below: 
 
Begin Text 
 
Opinions of the General Office of the State Council 
about Strengthening Government Procurement 
Management 
 
Document No. 35 (2009) issued by the General Office 
of the State Council 
 
The People's Governments of all the provinces, 
autonomous regions and municipalities directly under 
the central government, ministries & commissions and 
relevant authorities directly under the State 
Council: 
 
Over the years, the Government Procurement Law of 
the People's Republic of China (hereinafter referred 
to as the Government Procurement Law, or GPL) have 
been conscientiously enforced by various government 
organs and in various regions, and consistent 
efforts have been made to strengthen the 
institutional construction and regulate the 
procurement activities. These efforts have achieved 
remarkable results, and government procurement is 
playing an increasingly important role in improving 
funds utilization efficiency, protecting national 
and public interests, preventing corruption, 
supporting energy efficiency and environmental 
protection, and promoting indigenous innovation. 
However, a very small number of organizations have 
been found to evade government procurement 
procedures, or fail to follow standardized 
procurement procedures. Inadequate operational 
mechanisms and ineffective supervision and 
punishment have led to low procurement efficiency 
and exorbitant prices in some projects, as well as a 
number of breaches and corruptions, causing a great 
loss of state fiscal funds. To address these 
problems effectively, and deepen the reform of 
government procurement systems in an overall manner, 
the following guidelines are proposed with the 
approval of the State Council, for purpose of 
further strengthening government procurement 
management: 
 
¶I. Persist in implementing government procurement 
for all the items listed to further strengthen and 
implement law-based procurement 
 
The finance departments shall, according to 
government procurement needs and capabilities of 
centralized procurement agencies, improve the 
catalogue of products for centralized procurement by 
government organs and categorization of products. 
Various regions and departments need to increase 
efforts to promote the enforcement of government 
procurement, expand the application scope of 
government procurement, and carry out government 
procurement for all the items that are listed in the 
catalogue of government procurement products. 
Especially, the finance departments need to 
strengthen management over the procurement 
activities where departments and organizations use 
other funds subject to financial management and 
loans that will be paid back with fiscal funds. 
Strengthen the management over the procurement of 
engineering works, and GPL shall apply to government 
procurement of engineering works, except those 
engineering works for which public bidding activity 
is conducted. 
 
Various departments and organizations shall 
earnestly follow the procurement procedures and 
operation standards specified in government 
procurement law and regulations, reasonably 
determine procurement needs, timely sign relevant 
 
BEIJING 00001177  004 OF 007 
 
 
contracts, perform the contracts, carry out product 
acceptance, and make payment, and shall not 
interfere with or influence procurement activities 
in any way. For items listed in the centralized 
procurement catalogue, procurement can be conducted 
by a centralized procurement agency appointed by 
relevant purchaser. For items that meet the quota 
set for public bidding, other procurement modes 
shall not be adopted without the approval of finance 
departments. Procurement notice shall be published 
publicly according to relevant rules, to ensure an 
open and transparent procurement. 
 
II. Persist in separating procurement from 
management to further perfect oversight and 
operation mechanisms 
 
Strengthen institutional construction through 
separating government procurement supervision & 
management from procurement implementation, and 
further improve the mechanism under which the 
finance departments exercise supervision & 
management while centralized procurement agencies 
carry out procurement procedures independently. 
 
The finance departments shall develop specific 
standards and procedure requirements for compilation 
of procurement documents, public announcement, 
procurement evaluation, contract format and product 
acceptance; build a unified expert base and product 
information base, to gradually achieve dynamic 
management and impose punishment on violations; work 
with state secrecy authorities to develop specific 
standards, scope and work requirements for 
procurement of items that are kept confidential. No 
organization can evade or simplify government 
procurement procedures on the pretext of keeping 
procurement confidential. 
 
Centralized procurement agencies shall conduct 
procurement activities in line with the Government 
Procurement Law, standardize the operation of 
centralized procurement, and implement the 
centralized procurement catalogue seriously, 
scientifically and effectively. During the 
implementation process, centralized procurement 
agencies shall not violate relevant regulations to 
charge any agent fee or other fees, or assign any 
centralized procurement project entrusted by 
relevant purchasers to public procurement agents. 
Centralized procurement agencies shall build and 
perfect internal supervision and management systems, 
define power and responsibilities clearly for 
different links of the procurement activities, with 
each employee involved assuming only one key 
responsibility. Procurement agencies shall pay 
attention to strengthening professional capabilities, 
optimize centralized procurement implementation 
method and internal operation procedures, to achieve 
the goals of lower procurement prices compared with 
mean market prices, higher procurement efficiency, 
and good procurement quality and services. 
 
Competition shall be properly introduced when 
selecting agents for implementation of government 
centralized procurement. Traditional practices of 
selecting agents based on administrative 
relationship solely shall be rejected, and 
purchasers can select a centralized procurement 
agency based on their expertise and capabilities in 
the regions where they are located, to encourage 
moderate competition in centralized procurement 
activities. 
 
III. Persist in implementing budget control to 
further boost government procurement efficiency and 
quality 
 
Various departments and organizations shall, 
 
BEIJING 00001177  005 OF 007 
 
 
according to provisions of the Government 
Procurement Law and budget management requirements 
of the finance departments, put all the government 
procurement projects under department budget, and 
base the preparation of procurement plans on 
government procurement budgets, to ensure 
procurement plans are implemented according to items 
and amount of government procurement budgets. 
 
Effective measures shall be taken to strengthen 
coordination among oversight authorities, purchasers 
and procurement agencies, to continuously increase 
procurement efficiency through improving management 
capabilities and operation quality. The finance 
departments shall improve management method, 
heighten examination efficiency, reorganize and 
optimize the procurement system, develop 
standardized procurement procedures, build 
government procurement price supervision mechanisms 
and procurement results public disclosure systems 
under various procurement modes, to establish 
effective supervision and control over procurement 
activities and procurement results. Centralized 
procurement agencies need to improve their 
professional skills and operation capabilities, and 
through optimizing organizational structure for 
procurement, set price parameters and evaluation 
standards scientifically, perfect evaluation 
procedures, shorten the duration of the procurement 
process, establish a mechanism ensuring government 
procurement prices keep abreast of market prices, to 
secure best procurement prices and quality. 
 
IV. Persist in adherence to government procurement 
policies to better serve economic and social 
development 
 
Government procurement shall serve to facilitate 
achieving the state objectives of economic and 
social development. Strengthening the functions of 
government procurement policies is an objective 
requirement of building a scientific procurement 
system. Various regions and departments shall, 
aiming to make government procurement policies 
function better, support macro-economic control, 
carry out such economic policies as expanding 
domestic demands and adjusting economic structure, 
earnestly fulfill government procurement policies 
concerning energy efficiency, indigenous innovation 
and examination of imported products; shall further 
expand the scope of implementing government 
procurement policies, and consider developing new 
government procurement policies encouraging the 
growth of small and medium-sized enterprises. More 
measures shall be taken to ensure mandatory 
procurement of energy efficient products and 
priority procurement of environment-friendly 
products; in case products to be procured fall with 
categories of energy efficiency and indigenous 
innovation products, the list (catalogue) of energy 
efficient products and indigenous innovation 
products for government procurement published by the 
Ministry of Finance together with relevant 
departments must be followed. The procurement of 
imported products shall be strictly reviewed; if 
domestic products can meet the procurement needs, no 
imported products shall be considered.  The finance 
departments shall strengthen supervision over 
compliance with policies, and follow up the 
enforcement of policies, establish procurement 
effect evaluation system, to ensure relevant 
policies and regulations serve purpose. 
 
¶V. Persist in punishing violations according to law, 
to ensure strict enforcement of laws and regulations 
 
The finance, supervision, audit and anti-corruption 
departments at various levels shall tighten 
supervision and management over government 
 
BEIJING 00001177  006 OF 007 
 
 
procurement activities, carry out enforcement 
inspections, investigate legal responsibilities of 
violations of law, make violations public in proper 
ways, and give sanctions according to law in case of 
serious offences. 
 
A dynamic supervision system shall be set up to 
timely identify procurement organizations evasion 
of government procurement procedures or violation of 
other government procurement rules, and violating 
organizations and their employees shall be 
investigated for their responsibilities. Improve 
punishment rules for evaluation experts, and in case 
where experts breach government procurement 
regulations, evaluation procedures and standards, 
and perform their duties in an unsatisfactory manner 
or purposely influence the bid evaluation results, 
relevant experts shall be punished seriously. 
Accelerate the construction of a suppliers credit 
system, and in case suppliers are found to collude 
with each other in submitting quotations or have 
fraudulent conducts, such violation shall be handled 
according to law and made public. Take measures to 
accelerate the construction of the assessment system 
and misconduct announcement system covering 
purchasers, evaluation experts, suppliers, 
centralized procurement agencies and public 
procurement agencies, and introduce the public 
appraisal and social supervision mechanism. Conduct 
a strict assessment for centralized procurement 
agencies, and the assessment results shall be 
reported to the People's Government at the same 
level. Strengthen follow-up oversight to track 
reform of centralized procurement agencies, and any 
illegal behavior or violation of centralized 
procurement agencies shall be strictly punished 
according to law. 
 
VI. Persist in carrying out institution- building, 
to further promote electronic government procurement 
 
Furthering IT application [informatization] in 
government procurement activities is an important 
part of deepening the reform of government 
procurement system, and a means of exercising 
scientific and intensive management of government 
procurement. Various regions shall make vigorous 
efforts to accelerate IT application in government 
procurement procedures, and take advantage of modern 
electronic information technology to enhance the 
coordination of various links of the government 
procurement activities from management to operation 
& implementation. The finance departments shall 
effectively provide overall guidance for the IT 
application work, work out a scientific plan for 
electronic government procurement system development 
and construction, and build a nationwide unified 
electronic government procurement management and 
trade platform featuring robust management functions, 
open and transparent trade, unified and standardized 
operation procedures, and network security and 
reliability, to gradually achieve the government 
procurement trade information sharing and full 
electronic operation procedures. Attention shall be 
paid to making overall arrangement for increasing 
widespread application of information systems, and 
development of implementation plan featuring gradual 
and formulation of coordinated information system 
application plans. 
 
VII. Persist in personnel assessment and training to 
build a qualified government procurement personnel 
contingent 
 
Various regions and departments shall continue to 
give professional education, legal compliance 
education and skills training to government 
procurement specialists, aiming to increase their 
awareness of law-based administration and law-based 
 
BEIJING 00001177  007 OF 007 
 
 
procurement, and establish a systematic education 
and training system. The finance departments shall 
work with departments concerned to establish a 
certified qualification system for government 
procurement specialists, under which procurement 
specialists from purchasers, centralized procurement 
agencies and public procurement agencies as well as 
evaluation experts shall receive certified 
qualification certificates and professional 
assessment, so as to accelerate the construction of 
a contingent of career procurement specialists. 
Centralized procurement agencies shall develop 
internal duty standards and assessment measures for 
various jobs, form a robust mechanism for selecting 
the superior and eliminating the inferior, so as to 
consistently improve the professional excellence of 
centralized procurement agencies. Various regions 
and departments shall, according to new requirements 
for improving government procurement systems in the 
current context, further strengthen awareness of 
importance of deepening government procurement 
system reform, take robust measures to strengthen 
government procurement management, and strengthen 
leadership over implementation of government 
procurement activities, focus on addressing main 
problems existing in government procurement 
management through coordination, and promote the 
healthy development of the government procurement 
work. 
 
General Office of the State Council 
April 10, 2009 
 
End Text 
 
 
PICCUTA