Self-sufficiency or Protectionism? The Impact of China's New Public Procurement Policy on Global Trade

The recent publication by the Chinese State Council of the Notice on the Implementation of National Product Standards and Related Policies in Government Procurement (国办发〔2025〕34号), effective from January 1, 2026, represents yet another measure favoring domestic companies and imposing significant limitations on foreign enterprises, thereby distorting the principles of the free market.

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The 20% Price Advantage: The New Non-Tariff Barrier

The core provision of the new regulation introduces a 20% advantage in price evaluation for qualified national products in competitive government procurement tenders.

In practice, a product officially recognized as "Made in China" can cost up to 25% more than a foreign alternative and still win the bid based on the estimated price (the offered price is "discounted" by 20% for evaluation purposes).

The Strict Definition of "National Product"

To benefit from this advantage, a product must meet three cumulative criteria, making it difficult for many Foreign-Invested Enterprises (FIEs) to qualify without a major restructuring of their supply chain:

1. Substantial Transformation in China: The product must be manufactured within Chinese customs territory and undergo a process that changes its attributes. Simple assembly, packaging, or branding is not sufficient.

2. Local Component Cost Ratio: A specific share (yet to be announced, but to be determined by the Ministry of Finance) of the product’s total cost must be represented by components produced in China.

3. Requirements for Key Components and Processes: For technologically advanced or sensitive products (e.g., IT, high-end equipment), key components and critical production processes must be completed in China.

While the regulation explicitly prohibits discrimination based on brand origin or ownership structure (an FIE can qualify if it meets the criteria), the emphasis on local production, component sourcing, and key process localization is clearly aimed at supporting domestic industry and discouraging reliance on foreign supply chains. This effectively compels foreign companies to proactively localize production to remain competitive.

China's Predatory Economy: Market Access Restriction as a Tactic

The new government procurement policy is part of a broader pattern of predatory and mercantilist economics pursued by Beijing. Far from being an isolated incident, this measure is a concrete example of how China uses economic leverage to achieve geopolitical goals and global hegemony.

The Chinese economic model, based on state capitalism, allows the Chinese Communist Party (CCP) to direct resources and enterprises (both state-owned and private) toward strategic objectives, even at the cost of distorting international trade rules. The goal is not only to modernize industries but also to implement the "Dual Circulation" strategy, which aims for self-sufficiency in resources and technology, and reduced reliance on the West.

Tactics of Economic "Liminal Warfare" and Predatory Mercantilism

One of the central tactics of this "warfare on the limits" (or Liminal Warfare) is the tightening or limiting of access to the domestic market for foreign companies, as exemplified by the new procurement rules. These are complemented by other distorting practices that complete the picture of Chinese predatory mercantilism:

• Illicit Acquisition of Intellectual Property (IP): Beijing uses various means (industrial espionage, forced joint ventures, localization requirements) to illicitly acquire vast amounts of foreign Intellectual Property (IP) and technology. This accelerates domestic innovation at zero cost to Chinese companies.

• Currency Manipulation: Although less evident in recent years, currency manipulation is employed to gain an unfair price advantage in foreign markets, making Chinese exports more competitive.

• Subsidies and Unfair Advantages: The provision of massive subsidies and market benefits to State-Owned Enterprises (SOEs) and "national champions" creates an uneven playing field for FIEs.

• Localization Coercion: By imposing strict thresholds for local content and key process origins (as in the procurement rules), China forces FIEs to transfer technology and know-how within its borders.

The "Hidden Cost" for the West

These market-limiting and predatory mercantilist policies are not accidental. They are the cause of the "China shock" the West has experienced in recent decades: job losses, critical dependence on supply chains controlled by Beijing, and the transfer of industrial and technological capabilities.

In conclusion, the new procurement rule, while formally non-discriminatory regarding company origin, is de facto further confirmation of China's strategy to use economic leverage to enforce self-sufficiency and limit access to vital markets for foreign competitors, all within a framework of unfair and predatory trade practices. Foreign companies wishing to compete have no choice but to accept Beijing's terms and deepen their integration (and effectively their dependence) into its regulated production system.