Tighter Procurement Rules Give Small Printing and Packaging Firms a Clearer Path to Public Contracts

China's government procurement system has run for more than a decade since it was first piloted in 1996. From institutional exploration and nationwide pilot implementation to legally regulated management, it has made a historic leap and entered a period of comprehensive development. On June 29, 2002, the 28th meeting of the Standing Committee of the Ninth National People's Congress reviewed and adopted the Government Procurement Law and the SME Promotion Law in a single sitting, stipulating that government procurement should support and promote the development of small and medium-sized enterprises. In recent years, as reform and opening up have deepened, China's national economy — the non-public sector in particular — has developed fully, and the ranks of SMEs have kept growing, gradually making them an important force driving social and economic development.

Procurement as an SME Engine: Progress Alongside Gaps

According to the Ministry of Industry and Information Technology's Plan for the Growth of Small and Medium-sized Enterprises during the 12th Five-Year Plan Period, by the end of 2010 there were more than 11 million SMEs registered with industry and commerce nationwide together with more than 34 million self-employed industrial and commercial households. Relevant data show that SMEs now account for more than 99% of all enterprises in China; the final products and services they create are worth about 60% of GDP; they deliver roughly 65% of the nation's inventions, more than 75% of enterprise technological innovation and more than 80% of new product development; and they provide over 80% of urban jobs.

With competition intensifying at home and abroad, the state has rolled out numerous support policies covering taxation, credit and interest subsidies to keep SMEs on a healthy, sustainable path. Government procurement, an important fiscal support instrument, has likewise been written into relevant documents, regulations and laws. Article 9 of the Government Procurement Law requires that government procurement help achieve the state's economic and social development policy goals, including environmental protection, support for underdeveloped and ethnic minority areas, and the promotion of SME development. The SME Promotion Law, implemented at the same time, is equally explicit: the central fiscal budget should set up an SME account and earmark special funds for SME development; local people's governments should extend fiscal support to SMEs in light of local conditions; and government procurement should give priority to buying goods or services from SMEs.

Speaking at a series of publicity events marking the 10th anniversary of the Government Procurement Law, Vice Minister of Finance Wang Baoan noted that the scale of China's government procurement grew from 100.9 billion yuan in 2002 to 1,133.2 billion yuan in 2011, with its share of fiscal expenditure rising from 4.6% to 11% over the same period and cumulative fiscal savings of more than 660 billion yuan. As reform of the procurement system advances, SMEs are taking part in government procurement with growing frequency and enthusiasm, their scope of participation keeps widening, their competitiveness is strengthening step by step, and the contract value they win through bidding is climbing year after year.

Even so, SMEs still run into considerable difficulty when competing for public contracts. The legal framework for procurement-based SME support lacks detail and is hard to apply in practice, so SMEs often cannot actually enjoy the policy preferences available to them. Some procurement thresholds are set high, and certain buyers lean too heavily toward big enterprises and big brands, frequently imposing limits based on registered capital that artificially shut SMEs out. Many SMEs do win sizeable contract shares in bidding, yet they mostly act as agents for products made by large domestic and foreign companies and manufacture or supply relatively little themselves — a pattern in which the SME takes the contract while the large enterprise takes the profit.

Detailed Rules Take Shape: Support Becomes Actionable

To address these difficulties and further promote SME development, China's government procurement authorities have been actively advancing the regulatory framework and issuing supporting implementation rules.

In January this year, the Interim Measures for Government Procurement to Promote the Development of Small and Medium-sized Enterprises, jointly issued by the Ministry of Finance and the Ministry of Industry and Information Technology, came into formal effect. The measures set out clear provisions and specifics on reserving procurement shares, evaluation preferences, and encouraging consortium bidding and subcontracting, providing a legal safeguard for raising the share of goods, works and services procured from SMEs and broadening their participation.

On February 1, the Premier presided over a State Council executive meeting that studied and deployed measures to further support the healthy development of small and micro enterprises, noting that government procurement should earmark a certain proportion specifically for small and micro enterprises.

That same month, the Ministry of Finance issued the Key Points for Government Procurement Work in 2012, laying out detailed arrangements for the year and stating plainly that efforts would focus on expanding the scope and scale of government procurement, further improving procurement laws and regulations, vigorously pushing for the promulgation of the Regulations on the Implementation of the Government Procurement Law, issuing the Measures for the Administration of Non-Tender Methods of Government Procurement, and revising both the Measures for the Administration of Bidding for Government Procurement of Goods and Services and the Measures for the Administration of Complaints Handling by Government Procurement Suppliers.

In July, the Government Procurement Center of Central State Organs released the Specific Measures for Supporting the Development of SMEs (Draft for Comments), which set out explicit rules for SMEs on priority support projects, price deductions, encouragement of enterprise alliances, separate sub-package procurement, removal of procurement thresholds, mandatory procurement and reduction of enterprise burdens, and proposed that government procurement projects worth under 2 million yuan in furniture, software, printing and other categories be tilted toward SMEs. To make sure the support measures actually deliver, the draft calls for a "commitment system" when identifying SMEs during evaluation and supplier database entry review, so that smaller firms can capture more policy support.

Strength Inside and Out: Policy Alone Is Not Enough

Match bids to your capabilities. SMEs tend to be young and to struggle with outdated technology, thin capital, financing difficulties and weak independent innovation, so it is unrealistic for them to chase every government procurement project. They should instead assess their own strengths objectively, analyze the market in light of each project's requirements, and pick the projects that suit them for competitive bidding.

Build credibility. In government procurement, suppliers should put honesty first and report their basic information and track record truthfully; once a bid is won, they should do everything possible to deliver the goods and services, avoiding any substitution of inferior goods, falsification or supply of counterfeit and shoddy products — the surest way to dispel buyers' misgivings about SMEs and open up the public procurement market.

Know the procurement system better. Some SMEs still do not understand procurement procedures, are unfamiliar with the relevant regulations, and know very little about the policies that support them; a few even assume government procurement belongs to large enterprises and withdraw of their own accord, "knowing their place." Such firms should deepen their understanding of government procurement, study the relevant knowledge, laws and policies, and get familiar with its procedures and rules, so they do not rush in blindly and come away empty-handed.

For SMEs, development brings both opportunities and challenges. Faced with strong support through government procurement, smaller firms should work all the harder to improve themselves and secure healthy, steady progress in the public procurement market.

— This article is reposted from China Packaging Network (pack.cn). Original link: http://news.pack.cn/show-361998.html