New Regulation on Chinese Government Procurement and the lmpact

On September 30, 2025, China’s State Council officially issued the Notice on Implementing Domestic Product Standards and Related Policies in Government Procurement (Guobanfa [2025] No. 34, hereinafter referred to as the “Notice“), which clearly outlines major adjustments to the evaluation mechanism for domestic products in government procurement.

The policy takes effect on January 1, 2026, and its content remains largely consistent with the draft released for public comment in December 2024. A key provision states that products manufactured or substantially processed within China are eligible for a 20% price evaluation advantage in competitive government procurement. For foreign-invested enterprises (FIEs) already operating in China or planning to enter the Chinese government procurement market, this policy has far-reaching implications. It may alter FIEs’ eligibility for specific public projects, reshape supply chain layouts, and influence decisions regarding product localization

I. Definition of “Domestic Products”

A central feature of the new policy is the clear definition of “domestic products” that qualify for government procurement preferences. According to the Notice, a product must meet all three of the following criteria to be recognized as a domestic product:

• Substantial processing within China

The product must be manufactured within China’s customs territory and undergo processing that alters its attributes. Simple assembly, packaging, or labeling within China is insufficient to meet this standard.

• Local component cost ratio

The cost of components produced in China must account for a certain proportion of the product’s total cost. The specific ratio will be formulated separately by the Ministry of Finance (MOF) in conjunction with relevant industry authorities.

• Requirements for key components and processes

For specific product categories—especially those involving advanced technologies or national security—additional requirements apply. These include the requirement that key components and core manufacturing processes must be completed within China.

II. Scope of Application

The domestic product standards specified in the new policy apply only to government procurement projects related to goods. They primarily target tangible manufactured products with identifiable supply chains and component structures, and do not apply to services themselves, nor to immovable items, naturally occurring goods, or items that do not require industrial production.

To enhance the competitiveness of domestic products in government procurement tenders, the Notice introduces a price evaluation advantage mechanism:

For tenders involving the procurement of a single product, suppliers offering qualified domestic products enjoy a 20% price deduction during evaluation. This means the quoted price is calculated at 80% of the original for evaluation purposes; the actual contract price remains unchanged, but the product’s competitiveness is significantly improved. For procurement packages containing multiple products, if domestic products account for at least 80% of the total product cost offered by a supplier, all quoted items from that supplier are eligible for the same 20% price deduction.

III. Alignment with International Obligations

If international treaties or agreements to which China is a party contain provisions on procurement that differ from this policy, the treaty/agreement provisions shall prevail. This arrangement ensures the policy is consistent with China’s global trade commitments and avoids conflicts in cross-border procurement practices.

IV. Implications for Foreign-Invested Enterprises

Undoubtedly, China’s new government procurement policy presents new challenges for FIEs—particularly those whose products are not manufactured locally. The emphasis on domestic production, local component sourcing, and localized processes means enterprises heavily reliant on overseas supply chains may see reduced competitiveness in government procurement tenders.

However, the policy also enhances clarity and transparency of rules. By explicitly prohibiting discrimination based on an enterprise’s place of origin, registration location, or ownership type, it creates a fairer competitive environment for FIEs.

It is important to note that the policy aims to support domestic industries and curb the relocation of manufacturing overseas, not to exclude foreign investment. The Chinese government has strong incentives to maintain fair competition, especially in attracting high-quality foreign investment to strategic sectors. For foreign enterprises, the key to success lies in proactively promoting production localization, improving compliance systems, and adapting to evolving standards—ultimately integrating more deeply into China’s government procurement market.