A new Chinese measure is unlikely to end protectionism debate, experts say

The war of words as to whether China is overly protectionist will continue. But from today the government took a major step toward opening its markets to foreign companies.

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In an announcement on June 28, China's Ministry of Finance relaxed indigenous innovation rules relating to overseas businesses being able to win government contracts.

For the past four years, European and other foreign companies in a number of sectors have only been able to win contracts if they develop their technology in China.

Now what was seen as a harsh protectionist measure - forcing foreign companies to transfer technology - has been removed and foreign companies will be able to bid for contracts even though their operations are based outside of China.

Shaun Rein, managing director of China Market Research Group, based in Shanghai, says the move will be beneficial to European and other foreign companies.

"The policy was seen as protectionist and made things very difficult for a lot of foreign companies," he says.

"It didn't really affect the really high-tech businesses such as Microsoft and Intel because they had bases here but it certainly impacted on many light industrial engineering businesses making things like engines and other goods requiring innovation."

The move, which was heralded on President Hu Jintao's visit to the United States in January, is unlikely to end the debate over protectionism, which both China and the European Union accuse each other of being guilty of.

Of major concern to the EU has not only been government procurement but also access to markets and an uneven playing field in terms of regulations, which appear to benefit Chinese companies.

The Chinese government and domestic industry leaders, however, say they have a right to protect strategic industries such as natural resources, banking and finance and telecommunications.

They insist China is a developing economy and if it was completely open to outsiders, foreign companies would go on a rampage and exploit the opportunities afforded by near double-digit growth to their own advantage rather than China's.