International Law

Greentech and Foreign Suppliers in China

By Stan

That post title is a bit ambitious. I only want to make one substantive point about foreign companies in China doing business in the greentech/cleantech area.

The topic came to mind when I read a great post (as usual) at CEL on the subject today. Charlie was passing along the following news:

The State Council on Monday demanded that local governments buy ?more energy-efficient products.?  Local governments have apparently been slacking in their obligations to go green (what else is new?), so the State Council is now insisting on ?the strict implementation of a compulsory green procurement list, instead of a ?preferential? list under the Government Purchase Law, which allowed government bodies to shop around for other products if they could justify them on cost and energy-efficiency grounds.?

With respect to foreign companies getting involved:

Federal, state and municipal purchasing agents when procuring products from a category appearing on the Energy Efficiency List, must give priority to the products on List.

Getting on the list can prove problematic for foreign companies.  First, China has not joined the WTO Government Procurement Agreement, although negotiations are ongoing[.]

Charlie is looking at this from the environmental and procurement law standpoints. What first came to my mind is the general experience of foreign companies selling products to local governments in China, which can be encapsulated in three words: fraught with danger.

Here is what I’m getting at. Even if cleantech products companies are able to get involved in this expanding market, I think many of them will really need to think very hard about whether they really want to do business with local governments. Among many problems, the most dangerous one is the issue of corruption.

I think that virtually all the clients I have had over the years that do business with local governments here have had to deal with payoffs to officials. This takes the form of kickbacks, gifts, jobs for relatives, etc. In some industries, clients have told me that without kickbacks and gifts, a company simply cannot be successful.

Now, I’m not saying that all local government officials are corrupt, or that the green technology sector is rife with corruption. It is undeniable, however, that the level of corruption in the local public sector here is relatively high, and as cleantech gets ramped up, particularly with stimulus money, corruption will be a big problem with implementation.

To the extent that procurement laws can be tightened up to reduce some of the worst excesses, this will go a long way to making it comparatively “safe” for the participation of foreign companies that have to deal with home country anti-corruption laws.

In the meantime, however, supplying products to local governments is a very tricky proposition for most foreign enterprises.

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Full post as published by China Hearsay on April 14, 2009 (boomark / email).