By Richard van Ostende
The introduction of uniform national standards for ‘domestic products’ within Chinese government procurement as of January 1, 2026 marks an significant policy shift for foreign companies operating in China. With the new framework, the Chinese government creates greater clarity regarding the criteria used to classify products as ‘domestic’ in public tenders. At the same time, the measure aligns with broader ambitions in industrial modernisation, strengthening strategic supply chains, and further localizing production.
For foreign enterprises, the policy brings both opportunities and points of attention. Companies that already possess substantial production capacity and a strongly localized supply chain in China stand to benefit from clearer regulations and better access to procurement advantages. At the same time, enterprises that rely heavily on imported components or limited local production may need to rethink their localization strategy to remain competitive.
Furthermore, the new rules underscore the growing importance of local value creation within China’s rapidly evolving industrial landscape. For foreign investors, supply chain localization, strategic partnerships, and long-term investment planning are therefore becoming increasingly decisive factors for their position in the Chinese market.
Summary
• On January 1, 2026, China implemented a unified national standard for the definition of “domestic products” in government procurement. This strengthens regulations and consistency within procurement processes.
• A product is classified as ‘domestic’ if it is substantially produced in China, meets minimum requirements for local component costs and meets sector-specific requirements for critical components and production processes.
• Domestic products receive a 20% price reduction for evaluation purposes during tender evaluations. This strengthens their competitive position without changing the actual purchase price.
• The policy aims to support industrial modernisation, supply chain resilience and domestic demand, in line with China’s long-term economic objectives.
• State-owned enterprises, private companies and foreign-invested companies are treated equally, provided they meet the localization requirements. This emphasizes fair competition and national treatment.
• A phased implementation period of up to five years allows industries and suppliers to adapt production and supply structures, while introducing sector-specific standards gradually.
Definition of a ‘domestic product’
According to China’s Government Procurement Law, government procurement should prioritize domestic goods, projects, and services. However, a uniform definition has been lacking to date, leading to uncertainty for suppliers, contracting entities and regulators. The new regulations respond to this by establishing a clear three-part definition of ‘domestic products’.
First, products must be produced in China in a way that transforms raw materials or components into goods with new properties. This requires substantial manufacturing or assembly activities and explicitly excludes simple packaging, OEM activities, or minimal finishing – such as painting or polishing.
Second, the share of locally produced components must comply with a prescribed minimum percentage, which will be determined per sector.
Third, certain products must comply with additional requirements related to critical components and production processes, jointly established by the Ministry of Finance and relevant industry authorities.
This approach ensures that the qualification ‘domestic product’ is based on actual local value creation in China and not on superficial assembly or packaging activities.
Introduction of price advantages for domestic products
One of the most notable elements of the new framework is the introduction of price advantages for domestic products during tender evaluations. When domestic and non-domestic products participate in the same tender process, a price reduction of 20% is applied to the tender of the local products for assessment purposes. This adjustment does not affect the actual purchase price, but it does strengthen the competitive position of these products during the evaluation process.
Such policy instruments are used globally to stimulate industrial development, strengthen supply chains and ensure that public spending contributes to national economic objectives.
Alignment with international practice and long-term policy
The introduction of domestic product standards is part of a broader multi-annual policy agenda aimed at regulating the market, improving supervisory structures and promoting industrial modernisation within the public procurement ecosystem. The standards are also in line with the ‘2025 Action Plan for Stabilizing Foreign Investment’, which emphasizes the importance of clear procurement guidelines.
By establishing transparent criteria for the definition of domestic products, the policy aims to increase predictability, stabilise market expectations and stimulate industrial development. In addition, the new standards contribute to macroeconomic stability by strengthening domestic demand and stimulating investment in local production capacity.
Equal treatment of undertakings
The regulations emphasize that the new support measures within government tenders apply equally to state-owned enterprises, private companies and companies with foreign investments. Contracting entities may not prescribe specific brands, restrict participation based on the location of registration of brands, and discriminate on the basis of the ownership structure or nationality of investors.
According to market analysts, these clarifications strengthen the basis for fair competition. Foreign companies that have invested substantially in localization can participate under equal conditions and enjoy the same benefits as Chinese companies. According to the Ministry of Finance, the policy reflects China’s commitment to equal national treatment of foreign enterprises within the public procurement system.
Transitional period to support industrial adjustment
To enable a smooth implementation and give sectors sufficient time to adapt, the new rules will be introduced in phases. Over the next five years, the Ministry of Finance and the Ministry of Industry and Information Technology will develop sector-specific standards. For individual sectors, a transition period of three to five years will apply.
This phased approach recognizes the technical complexity of calculating local component ratios and evaluating critical manufacturing processes within China’s extensive industrial landscape.
During this transition period, products produced in China are considered domestic products The only condition is that the production really takes place within China, even if the specific requirements regarding component ratios and production processes have not yet been definitively established. This flexibility provides suppliers, including foreign producers, with sufficient time to adapt their production and investment structures to the new standards.
Strengthening the governance of public procurement
The implementation of uniform standards for domestic products is an important step in China’s efforts to further standardize and modernize government procurement. By providing clarity on definitions, evaluation criteria and implementation timelines, the policy supports a more transparent, fairer and more innovation-oriented procurement climate.
In the longer term, the standard system is expected to contribute to better quality governance, healthier market competition and a more efficient allocation of public resources.
With the further refinement of China’s procurement system, the new standards underline China’s ambition to strengthen domestic industrial capacity, while at the same time maintaining an open and equal business environment for all qualifying suppliers.
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This is the first article in a series of three by Richard van Ostende on the recent macroeconomic and policy developments that have a structural impact on trade with and foreign investment in China.
In part 2: Information about China’s foreign investment policy, and steps that entrepreneurs can take when they want to invest.
Part 3: ‘Made in China’: Naming the criteria that China sets for each industry (at the moment, June 2026, they have not yet been determined).
About The Author
Richard van Ostende is an economist with a PhD on foreign direct investment and market entry strategies of Dutch companies in China. With more than 18 years of professional experience in China, he has extensive expertise in international trade, investment, industrial policy, supply chains, and market development.
Throughout his career, Richard has held senior management and advisory positions within international companies and public organizations. He worked as an Economic Counselor at the Netherlands Enterprise Agency and as Chief Representative of the Netherlands Trade and Investment Office in Nanjing, where he supported Dutch companies in their strategic positioning and activities in China. In addition, he held management positions within multinational companies in the automotive, maritime and industrial sectors.
From his work for AMC China (https://aegis-group.org/), the Institute for China Studies (www.china-studies.org) and China Insights (https://www.china-insights.org), he regularly publishes analyses and market insights on Chinese economic developments, regulations, the investment climate and strategic trends relevant to international companies and policymakers.
