China’s initiative on removing corruption in tendering for public contracts are a victory for transparency, says Paul French, China editor

I sometimes have a bit of trouble with this column. I hear about something interesting in China that sounds like a good story. I go after it hoping that it will be a positive story and not negative, but, of course, what initially appears positive in China often goes sour. Take the recent stories we’ve covered on the rise of charitable donations in the wake of the Sichuan earthquake last year and then the government siphoning of the cash – a positive became a negative with a bit of digging.

So this month something that really is positive. Ask anyone who’s been involved in tendering for a government contract in China how the process works and they’ll probably roll their eyes and shrug their shoulders, with good reason. For decades it’s been a murky world of backroom dealing and corruption involving senior Communist party cadres, corrupt local officials and rogue construction firms. More than one foreign company has found themselves (let’s be charitable here) unwittingly involved in a dodgy deal. But perhaps no more.

China’s ministry of supervision has introduced a new system of tendering for government procurement contracts that some are calling state of the art and far in advance of anything in Europe or the US, and it looks like they may be right.

Here’s an example from the city of Chengdu, though the same system is operating now in Beijing, Shanghai and half a dozen other Chinese cities with large infrastructure spending and plenty of cash to dole out.

First, all public tenders are now announced on the internet and in relevant journals so everybody knows about them. Tenders are then submitted to a sealed and guarded tender box under the care of the ministry of supervision. That box is then opened publicly in front of officials and all who tendered. All the tenders are read out, again in public, and recorded to prevent any late changes.

Secret deliberations

They are then removed, under guard, while a computer randomly selects a panel to judge the bids. All are pre-approved experts notified by text message to attend the tendering panel. They don’t know what the project is or who has bid. When they arrive at the tendering centre their phones are confiscated and they are sequestered in a secure room, much like a jury in Britain. During their deliberations they have no contact with anyone outside the panel; if the deliberations run overnight they’re moved to a hotel and guarded.

The panel eventually all privately record scores electronically for each tender; the computer then calculates them all to decide the winner. All tender applications are retained by the ministry of supervision for 10 years for public inspection.

The system seems to work. OK, so procurement is only a small part of total government spending but the system is now being rolled out both geographically across China and into more areas of government spending. Local officials – where so much of the problem resides – get no choice on whether the system is used.

Sharp-eyed readers will have noticed that some problems are not caught by the new system. Firms can still form pre-bid cartels and agree among themselves to bid high to allow one to win and then split the proceeds between them. This is a problem – and not just in China. In September 2009 some of Britain’s largest construction firms were fined by the Office of Fair Trading for just such practices.

China’s plan is to introduce two systems to beat cartelism. First, set target pricing for contracts estimating the cost in advance and so excluding anyone bidding ridiculously high. And second, establish whistleblower hotlines that guarantee immunity to anyone revealing details of cartelism. This may work – whistleblower lines established to report corrupt officials have been inundated, leading to a range of prosecutions since they were introduced several years ago.

Beijing appears serious about tackling corruption and raising transparency standards in public procurement projects. The government was embarrassed by myriad scandals of missing funds and corruption allegations linked to the 2008 Olympics and then the sub-standard work on schools that reduced them to rubble during the Sichuan earthquake last year. The truly corrupt will always seek ways round any system – the ministry of supervision will have to be vigilant – but the new tendering procedures are a major leap for transparency and the anti-corruption crusade in China.

Paul French is based in Shanghai and is a partner in the research publisher Access Asia.