Domestic software developers beat Microsoft to win a 2 million yuan (US$240,000) deal with the provincial government of Shanxi, North China, the First Finance and Economy Daily reported yesterday.

It is another setback for the US software giant after a US$3.5 million deal with the Beijing municipal government was cancelled late last month amid complaints that local governments are not buying enough domestically developed software.

Sang Guoping, an official with the Shanxi Government Procurement Centre, was quoted by the newspaper as saying that four homegrown software venders shared the deal for 7,000 sets of operating systems, office and anti-virus software applications.

Sang said Microsoft's Windows and Office software took part in the bidding but all failed.

Microsoft officials were quoted by the newspaper as saying they were informed of the outcome of the deal in Shanxi Province, but refused to comment further.

"The price of Microsoft software is much higher than its domestic arch rivals. The quotation given by Windows was 990,000 yuan (US$120,000) for 1,000 sets, and that for Office was 1.2 million yuan (US$145,000), both of which are two to three times higher than that for domestic ones," said Sang.

"The price is an important factor. Besides, the government should give homegrown products preferential treatment in procurement according to law," Shang added.

China implemented its Government Procurement Law on January 1, 2003, setting out general principles to guide the choice between foreign and domestic products.

But the central government has yet to define exactly what domestic software is. It is expected to do so by the end of this year, according to a report on the ccidnet.com.

To qualify as domestic software, products and services probably will need to contain local added value of more than 50 per cent, says the report.

The government procurement of software is a touchy issue in China. Last month, the Beijing municipal government came under fire for damaging China's nascent software industry by giving Microsoft large software purchase orders.

The website of the municipal government publicized on November 17 that Microsoft won a 29.95 million yuan (US$3.5 million) contract which licenses the Beijing municipal government to use all of its software products for three years.

If the contract had not been cancelled 10 days later, it would have been the second major China procurement victory for Microsoft which just concluded an office software agreement with the Tianjin municipal government in October.

People who criticized government agencies for buying software from overseas companies argue that such behaviour deals a fatal blow to the development of the domestic software industry since government purchases are the lifeline of the infant industry.

However, some people say government procurement itself cannot save the domestic software industry and may harm homegrown software developers in market competition.

China Daily