China’s Wind Turbine Bidding Process Unfair, Say Foreign Firms

12 June 2009

Foreign manufacturers say they are being unfairly excluded from competing for state renewable energy projects resulting from China's economic stimulus package. But Beijing says because purchases for state investment projects count as government procurement, priority must be given to domestic products unless such a purchase is commercially unviable.

Joerg Wuttke, president of the European Union Chamber of Commerce in China, said recently that foreign companies were effectively shut out of the process when a US$7 billion package to manufacture 25 wind turbines was made available. "It seems that the central government has decided that this must be awarded to Chinese manufacturers and not foreigners who have invested big in China," Wuttke told the Financial Times.

Four of the world's top five wind turbine companies - Vestas Wind Systems (Denmark), GE Energy (US), Gamesa (Spain), and Suzlon Energy (India) - were rejected early in the bidding process. Companies engaged in alternative energy production have been anxiously anticipating the implementation of China's stimulus package. Investments in areas such as wind power are expected to be a high priority due to China's efforts to reduce its dependency on fossil fuels - Beijing has said that wind-generated energy in the country will increase tenfold over the next decade.

But foreign companies are calling foul over their exclusion from the process. Despite going to great lengths to meet the country's ‘localisation' requirements - rules requiring that a minimum of 70 percent of a given manufacturer's equipment be sourced and built in the country - foreign companies say they continue to be shut out of state wind energy projects.

Foreign companies also say that an initiative to eliminate sub-1 megawatt wind turbines from China is discriminatory to foreign firms as large capacity units are less common outside the country. But officials insist that this preference is based on local conditions, rather than an effort to buoy local manufacturers.

"The size of the turbine isn't a strict government policy, but it is a market decision made by enterprises," Shi Liyan, the head of renewable energies at the National Energy Administration, told Reuters. "It is about wind conditions and the use of land, and investors are willing to choose bigger turbines."

Beijing counters that Chinese companies are similarly blocked from major investment deals around the world. This sentiment was bolstered last week when the multinational mining company Rio Tinto abandoned talks with Chinese metals giant Chinalco, in favour of a deal with Anglo-Australian miner BHP Billiton.

China's wind power is not the only sector under scrutiny by foreign firms. These critics also charge that similar conditions were faced when US$2 billion in contracts were awarded to the rail sector and others have complained that the country's use of tax rebates is a veiled form of protectionism.

China is not a party to the WTO's Government Procurement Agreement - the plurilateral agreement designed to prevent discrimination against foreign companies when awarding state contracts. However, Beijing does have observer status.

ICTSD Reporting; "Protectionist fears over China stimulus ," FINANCIAL TIMES, 28 May 2009; "China's Raising the Drawbridge - Softly," WALL STREET JOURNAL, 11 June 2009; "Foreign companies blowing in the wind," ASIA TIMES, 11 June 2009; "Foreigners Swept Aside As Wind Power Blows Through China," REUTERS, 5 June 2009.

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