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Microsoft has reportedly lost a contract to supply Beijing council with software. The $3.5m deal was announced last week and was heavily criticised by local software providers and government officials. They called on local authorities to do more to support local software companies. The contract is now on hold, Hong Kong business paper The Standard reports.

The Chinese government is now considering strengthening procurement rules to encourage more spending on "local" software rather than foreign imports.

Under new rules government departments must distinguish between domestic, non-domestic and preferred non-domestic software products. To qualify as "domestic", software will have to be 50 per cent developed in China, according to the Financial Times. Government buyers will need special permission to buy non-domestic products. The changes will bring software into line with guidelines for procuring other products.

A statement from the ministry of science and technology, quoted by the paper, said: "The departments responsible for procurement in many provincial and city governments pay no regard to national interest and security and buy foreign software on a large scale."

This month, Dell won a $10m contract to supply 16,000 Dell OptiPlex 170L desktop PCs to Beijing schools. According to reports, Dell is a major supplier to the public sector in China. ®

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