Domestic Product Standards in China’s Government Procurement and Its Impacts

Domestic products will be entitled to a 20% price preference in government procurement tenders, as stated in the State Council’s Notice on Strengthening the Promotion of Domestic Products in Government Procurement (Guobanfa [2025] No. 34, hereinafter the “Notice”), issued on September 28, 2025, and effective January 1, 2026. 

This newsletter summarizes the core provisions, transitional arrangements, and practical implications for foreign businesses.

1.    Definition of “Made in China”

The Notice introduces the criteria for determining whether a product qualifies as a domestic product. The three core criteria are:

• Criterion 1: Local manufacturing: The product must be manufactured within China, resulting in the transformation of raw materials and components into a new product through manufacturing, processing, or assembly.
• Criterion 2: Proportion of local content: The cost of components produced in China must meet a specified percentage threshold, which will be determined on an industry-by-industry basis during a transitional five‑year period beginning on the Notice’s effective date (January 1, 2026, to December 31, 2030).
• Criterion 3: Critical components and processes for certain products: For certain products, essential components and key manufacturing processes must be completed within China, which is particularly significant for high‑tech and strategic sectors. This will also be defined during the transition period.
   

Although all three criteria must be met simultaneously, products fulfilling criterion 1 will be considered as “Made in China” during the transition period, as criteria 2 and 3 have not yet been formulated. Moreover, recognition as a “domestic product” is determined on a product‑by‑product basis, not company‑wide. Therefore, this time window allows foreign business to make necessary adjustments. 

2.    Price preference of 20% for domestic products considered as "Made in China"

• When both domestic products and non-domestic products participate in government procurement tenders, qualified domestic products are granted a 20% price preference during the evaluation phase. 
• For example, a domestic product priced at CNY 100 will be evaluated as CNY 80, providing a cost advantage over a non-domestic product priced at CNY 90.
• Additionally, if a tender package includes both domestic products and non-domestic products, and the costs of domestic products represent 80% of the total package, a 20% preference will be applied to the entire package.
• This preference is applied uniformly to all qualifying companies, including foreign-invested companies, to ensure a level playing field for all manufacturers that achieve domestic status.
   

3.    Practical responses 

The decision to localize and to what extent depends on various factors, such as the share and significance of sector-specific public tenders, competitive intensity, customer preferences in China, revenue base, and the scalability of a local presence. Nevertheless, for foreign companies that need to undertake or consider localization, there are three practical ways to qualify:

• Contract manufacturing: Engage an established Chinese factory to manufacture the product. This is the fastest and most cost-effective way to begin. The contract manufacturer manages production, and the finished goods are considered domestic products. The focus for this approach should be on a robust contract to protect intellectual property and ensure quality.
• Joint Venture (JV): As competition rises in China, Joint Ventures are increasingly popular again. The JV structure can leverage the Chinese partner’s local market expertise, existing relationships, and manufacturing capabilities, directly aligning the JV’s output with the policy's objectives.  The key is a clear JV agreement on management and how to work together.
• Wholly Foreign-Owned Enterprise (WFOE): Establish your own factory in China. This approach provides the greatest control and best protects your technology. Products from the WFOE qualify as domestic products and may receive all relevant benefits. Although setup costs are higher, this is a robust long-term strategy that allows flexibility in the degree of localization—from local final assembly to more extensive manufacturing.

To make an informed decision, businesses need a clear understanding of the legal framework for “Made in China”, sector-specific government tender practices in China, and a realistic cost–benefit analysis for varying levels of localization—from local final assembly to deeper manufacturing. It is also important to consider the advantages and disadvantages of each option (contract manufacturing, joint venture, or WFOE). 

We would be pleased to provide you with a briefing on these topics if you are interested.

Beijing, December 4th, 2025