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Govt curbs may fail to deter Chinese companies from large public infra projects

India last week restricted effectively Chinese companies from participating in bids for government procurement without approval from relevant authorities on the ground of defence and national security

Chinese companies may still have unhindered access to a large chunk of public sector infrastructure projects in India as government has exempted infrastructure projects funded by multilateral agencies from the restrictions imposed on Chinese companies. Many of the large infra projects in India are now funded by Asian Development Bank (ADB), World Bank and Asian Infrastructure Investment Bank (AIIB).

“In projects which receive international funding with the approval of the Department of Economic Affairs (DEA), Ministry of Finance, the procurement of guidelines applicable to the project shall normally be followed, notwithstanding anything contained in this order and without reference to the competent authority. Exceptions to this shall be decided in consultation with DEA," the public procurement order notified on Thursday said.

India last week restricted effectively Chinese companies from participating in bids for government procurement without approval from relevant authorities on the ground of defence and national security. To be eligible to participate in the bidding process, Chinese companies now have to register with a “competent authority" to be notified by Department for Promotion of Industry and Internal Trade (DPIIT) and also seek security clearance from Ministry of Home Affairs and Ministry of External Affairs.

Most of the multilateral agencies mandate international competitive bidding for all projects funded by them where the contracts amount is a minimum $3 million. “International competitive bidding (ICB) is the most appropriate method of procurement under ADB financing in most cases. This provides an executing agency (EA) with a wide choice in selecting the best bid from competing suppliers and contractors. It gives prospective bidders from eligible source countries equal opportunity to bid on goods and works that are being procured under ADB financing," ADB’s procurement policy says.

Chinese companies usually are very competitive in large transport projects such as Metro projects and they aggressively bid in these projects, said an official of a multilateral agency working in India under condition of anonymity. For example, CRRC Dalian, an affiliated company under China's top train manufacturer CRRC Corporation, has delivered train coaches for the Nagpur Metro and Kolkata subway while Shanghai Tunnel Engineering Co (STEC) has won contract for an underground stretch of Delhi-Meerut Regional Rapid Transit System funded by ADB. A host of Chinese companies such as STEC, China Railway Tunnel Group Co Ltd (CRTG) and Continental Engineering Corporation (CEC), SJEC Corporation, China Harbour Engineering Company Ltd have won contracts for ongoing infra projects in Mumbai city including in the Mumbai Metro.

“If Chinese companies are not allowed to participate in the competitive bidding process funded by multilateral lending agencies, it would violate the principle of equal treatment to all their member countries," the official added.

Samir Kanabar, partner at EY India said in order to retain trust and confidence from a long term perspective, government has to adhere to the terms which have been agreed for certain projects financed by the multilateral agencies. “From that perspective, the government has to always ensure that it extends adequate protection to such institutions for the projects which are approved by India," he added.

Chinese imports and investments have been facing intense scrutiny in India after a tense border standoff that left 20 Indian soldiers and an unspecified number of Chinese troops dead. India is aiming at limiting trade links with China as part of policy to cut dependence on the country. The DPIIT in April notified changes in its foreign direct investment (FDI) policy by mandating government clearance for all FDI inflows from countries with whom it shares land borders.

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