Tit for Tat: US-China Trade Dispute Continues

In response to US solar companies’ trade dispute with China, which is under investigation by the US Dept of Commerce, China says it will do the same – examine whether US renewable energy subsidies unfairly hurt China’s budding industry.

China’s Ministry of Commerce says it too has opened an investigation, but is looking beyond solar to subsides for all American renewables including hydro and wind. It will conclude the investigation by May 25, which gives it time to retaliate if the US decides to impose punitive tariffs on Chinese solar shipments.

A US Dept of Commerce decision on its anti-dumping investigation is due by mid-March and its subsidy decision is due by mid-May.

The government-controlled China Photovoltaic Industry Alliance, considered making an antidumping request regarding American exports of polysilicon to China.

American manufacturers exported about $873 million of polysilicon to China last year, nearly as much in dollar terms as the value of the solar panels that China shipped to the US.

Instead, the Commerce Ministry decided to accept a request for a much broader investigation from the China Chamber of Commerce for Import and Export of Machinery and Electronic Products (which represents the solar industry), and from the new energy chamber of the All-China Federation of Industry and Commerce.

American exports very little to China for hydro, solar and wind, however. Almost all hydro projects are built by state-owned firms who buy few foreign products.

Still the China Chamber of Commerce says it doesn’t intend to start a trade war with the U.S. solar industry:

"Chinese companies hereby avow that their fight in the investigations is directed against a few petitioners led by SolarWorld only, not the entire U.S. PV industry. Chinese PV companies have no intention to initiate a trade war in China against the U.S. PV industry."

"If trade restrictive measures are imposed, it will unavoidably cause serious impairment to the sustainable development of the green industries as well as consumers’ interests in both China and the U.S."

The association says Chinese solar companies actually receive less in subsidies than US and European counterparts. And the heads of major solar firms including Suntech, Trina and Yingli, say they receive no special treatment from government.

"Interest rates for Chinese firms’ domestic bank loans are much higher than those in Europe and the United States," Shi Zhengrong, Suntech CEO told Reuters. "Foreign criticism of China’s solar industry receiving large government subsidies is immoral."

The U.S. International Trade Commission makes the final decision on whether to impose duties against Chinese imports – it will vote December 5. If it votes to move head, the US Commerce Dept would make its preliminary decisions on duties in January and March.

SolarWorld Coalition Moves Forward

Meanwhile, SolarWorld, which filed the US trade complaint, is also filing one in Europe after it gets signatures from companies that produce about half of the capacity there.

The SolarWorld-led Coalition of American Solar Manufacturers (CASM) issued a statement that called out Jigar Shah, who started an opposing US solar coalition (CASE): "It is surprising that a executive of the Carbon War Room, an advocacy group dedicated to reducing carbon production, would lead the Chinese importers in championing their trans-world shipping of supposedly clean energy products, especially considering China’s abysmal environmental record on manufacturing, its low regard for labor and civil rights, and its general lack of transparency."

On November 28, CASM announced that 150 U.S. solar suppliers and installers, employing over 11,000 Americans, have joined CASM in support of the U.S. government investigation of China’s solar trade practices.

"Free and fair trade is an American value. The current policies of the People’s Republic of China are not examples of free and fair trade. Devalued currency and government-propped businesses that can sell their products at a loss are putting Americans out of work," says Mark Becker, president of Semper Fidelis Construction. 

But Chinese solar companies are also threatened by state banks providing easy loans. As part of its clean energy push, China’s state banks provide easy loans, which lead to over-production at a time of lower demand, forcing even lower prices which even Chinese firms can’t afford. 

"The longer and larger the Chinese bank lending bubble for solar inflates, the sharper and more unpredictable will the eventual fundamental correction be due to industry consolidation," Credit Suisse analyst Satya Kumar told Reuters.

"We need much sharper production cuts, which will only happen when the debt bubble bursts," he says. He told Reuters that unless China tightens lending, the industry could be in for a long period of depressed prices.

Some Chinese solar companies could default on loans and have to sell. Analysts say Canadian Solar, China Sunergy, LDK and Suntech are leveraged over 100%, making them vulnerable if prices continue to decline. 

They expect Poly Energy Holdings and Trina Solar to survive because of state shareholders and local governments that need to keep the plants going to support jobs.

Chinese banks says they are tightening lending, expressing concern for the industry.

"This is the decade of mergers and acquisitions," Jifan Gao, Trina Solar CEO told Reuters. "From now until 2015 is the first phase, when about two-thirds of the players will be shaken out."

By 2020, he predicts, there will only be about five companies in each of the three major solar manufacturing segments: polysilicon; ingots and wafers; and solar panels.

"Survivors will need strong technology, economies of scale, the ability to innovate quickly, and very strong financial performance, very healthy balance sheets," Gao says.

Mergers and acquisitions in the worldwide solar industry top $3.3 billion this year, up from $2.5 billion last year, according to Bloomberg. The record for M&A was $6.1 billion in 2009.

By 2020, however, vastly lower prices will expand the world solar market exponentially as solar becomes more affordable, says Fang Peng, CEO of JA Solar Holdings. "The industry has a very bright future even if right now we’re in winter." 

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Here’s background on the US solar trade dispute and on how it’s dividing the US solar industry.

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