The collapse of the USSR and the “liberalization” of formerly closed, socialist economies opened up the path to globalization, which, proponents wanted us to believe, would transcend longstanding political and economic differences and pave the way to a global, free market economy based on fair trade. Well, it hasn’t exactly turned out that way.
It’s abundantly clear, though much less often or openly discussed, just how wide the gap is and differences are between countries with economies based largely on free, open market principles and driven by private sector businesses and capital allocation and those where centralized government planning determines how much and where investment capital will be allocated and how much of what should be produced. Nowhere is this more publicly in evidence than in the recent trade disputes between the US and China regarding the manufacturing and export of silicon solar photovoltaic (PV) cells, panels and wind turbine towers from China to the US.
A Subsidy is a Subsidy is a Subsidy…Not
Now, the US government has been subsidizing the US solar and wind power markets and industries, and these incentives have been a critical driver of rapid growth in terms of “green” job creation as well as economic activity in both emerging renewable energy sectors. Not only are US subsidies dwarfed by those of China, they are fundamentally different in nature and in their results, however.
US state renewable energy/power standards (RPS) and state feed-in tariffs that require a certain amount of electricity be generated from renewable energy resources have been key to rapidly growing clean energy development in the US. So have federal investment and production tax credits and accelerated depreciation schedules.
These subsidies and accounting supports differ in crucial ways from those in China in that they stimulate adoption of and demand for clean, renewable energy– a long-term, socially, environmentally and economically beneficial outcome for US society as a whole– no matter where they originate. They do not favor solar, wind or other renewable energy technology, products, raw or intermediate materials or services from any one producer, manufacturer or country.
China’s subsidies, in contrast, do just that. Controlled and managed by the central government and carried out by state-controlled banks and “private-sector” enterprises, China’s economic, industrial development strategy is founded on a state controlled, 21st century form of mercantilism in which exports continue to play an extremely outsized role. That’s worked very well for the Chinese for twenty-odd years running now, but the system is now fraying and threatening to come apart at the seams as it’s lead to financial and economic imbalances in China and around the world.
Could you imagine the DOE setting mandatory targets for private sector industry to produce X amount of solar cells, panels, wind turbines and towers at Y cost with Z efficiency over the next five years? And directing banks and lenders, as well as materials producers and manufacturers to fall in line do all they can to make that happen? That’s exactly how China’s economy works. And that’s what US businesses and those in other Chinese trading partner countries have to compete against.
The Economic Irony of Chinese Solar PV Domination
It’s become widely understood and appreciated that a huge, worldwide glut of solar PV cells and panels has accumulated, driven primarily by increased production and export targets set by the Chinese government and carried out by Chinese manufacturers.
Of course, Chinese industry participants are willing to take on foreign partners and the government welcome foreign direct investment, so long as you build the plants and create the jobs in China. Seeing how the deck is stacked and the government subsidies on offer, US, German and solar PV industry players have been very willing to comply.
Want a better idea of just how much of a glut and industry overcapacity exists in the solar PV industry? China’s solar PV capacity alone is 32x greater than its own domestic demand. Guess what? That means pretty much all that capacity, if utilized, is heading to markets overseas.
To date, more than 90% of Chinese solar PV products have been exported. That’s in-line with China’s strategic “Going Abroad” program, another central plank in its broader economic plans. The result: the ongoing decimation of silicon solar PV manufacturing in countries outside China. That in no way can be construed as a recipe for a healthy, sustainable and competitive globalized industry or market.
While China’s massive manufacturing and export subsidies have led to an extraordinary drop in the price of silicon solar PV cells and panels that has fueled growth in installations, it’s also resulted in economic carnage among solar industry participants worldwide. They are now cutting a widening, deepening swathe that’s stretching across the entire solar PV industry supply chain, including producers of polysilicon and thin-film, as well as crystalline silicon, solar PV manufacturers.
Ironically, it’s been the demand side-oriented subsidies and incentives enacted by governments outside China– Germany, Spain, Italy and even the US, thanks mainly to state subsidy programs– that led solar PV and renewable energy industry participants to ramp up investments in plants, capacity and production. That rug is now being pulled out from under them, as subsidies are being scaled back and even eliminated.
The solar PV and wind tower manufacturing cases brought by US manufacturers against their Chinese competitors and the Chinese government are by no means the only examples. There has been a steady stream of such cases in recent decades. It’s just that solar, wind and renewable energy markets and industries are justifiably seen as a critical enablers of more sustainable, socially and environmentally economic and jobs growth for decades to come.
They’re also targets for politically well entrenched oil, gas and fossil fuel industry interests in Washington, D.C. and across the US. As a result, the anti-dumping and illegal subsidy cases related to them now under determination by the Commerce Dept. and International Trade Commission have taken on a much higher public profile.
Anyone interested need look no further than China’s latest Five-Year national economic plan to gain insight into the fundamental differences between the US and Chinese economic systems, and how different their respective subsidy programs are. Yet, US manufacturers and exporters are supposedly competing on something approaching a level playing field governed by mutually agreed upon WTO rules.
It’s clear from China’s 12th Five-Year Plan for the Solar Photovoltaic Industry that despite being a direct cause of bankruptcies and massive losses in its own solar energy industry, as well as those in the US, Europe and other countries, the Chinese government not only remains firmly committed to dominating the global market for solar PV cells and panels, it’s redoubling its efforts.
Solar PV and China’s 12th Five-Year Plan
The lead litigators for the Coalition for American Solar Manufacturing’s (CASM) silicon solar PV illegal subsidy and dumping petitions, Washington, D.C. law firm Wiley, Rein LLP yesterday publicly released their analysis of the solar PV aspects of the 12th Five-Year Plan.
“The plan to fuel China’s export-intensive solar-industry campaign calls for a number of government initiatives, including new policy, financial and price subsidies; more support in industry, financial and tax policy; and further aid with development and production of equipment used to produce polysilicon, silicon ingots, wafers, cells and panels within the crystalline-silicon solar industry,” according to Wiley, Rein’s analysis.
Watch out thin-film and polysilicon solar industry players, having decimated competition in silicon solar PV manufacturing, China’s now set its sights on you. “Moreover, the portfolio includes plans to support industrialization of China’s as-yet-undeveloped thin-film industry, specifically harnessing silicon and copper indium gallium diselenide (CIGS) solar technologies.”
“These plans significantly increase the government’s control over the development of the solar industry, permitting the government to manage virtually every aspect of the industry,” the analysis says. “Substantial government assistance is also mandated to carry out the goals identified in these plans.”
Viewed by the Chinese government as one of seven “strategic emerging industries,” some $1.5 trillion in solar PV subsidies and support will be directed into the sector by the Chinese government through 2015, according to the analysis. No matter that these allegedly violate mutually agreed-upon international trade rules.
CASM has identified more than 30 illegal Chinese subsidy programs, including ten that the Commerce Dept. has preliminarily sanctioned. Rather than striving to comply with international trade rules, China’s redoubling its efforts.
“The new 12th Five-Year Plan for the Solar Photovoltaic Industry unveils a host of new government initiatives to continue to fuel China’s export campaign.” Indeed, the law firm’s analysts note, “the plan covers virtually every detail of every phase of industrial development, including:
- Where new industrial siting should take place;
- Precise levels for environmental performance improvement; and
- Precise standards for cost and power-conversion efficiency improvement.”
“The Chinese government launched a trade war against the U.S. domestic industry, took over the leadership of the largest American industry trade association and began driving U.S. solar manufacturing pioneers out of business,” commented Gordon Brinser, president of SolarWorld Industries America Inc.. The largest U.S. solar manufacturer for more than 35 years, SolarWorld America has been the driving force behind CASM’s petitions.
“Our coalition of U.S. producers contested the illegal Chinese governmental interference in the U.S. market and sought enforcement of U.S. and international trade law. In response, China has rolled out a host of initiatives to further manipulate pricing, snuff out competition and solidify its domination – all on foreign soil. Needless to say, China allows no foreign competition on its own soil.”
“China is steamrolling American manufacturing and jobs and breaking its trade commitments in plain sight,” Brinser said. “No wonder the American public has grown increasingly anxious about the state of U.S.-China trade. China is scoffing at international trade rules.”
The U.S. International Trade Commission issued a unanimous preliminary ruling on December 2, that Chinese trade practices are harming the U.S. domestic solar industry. On May 17, the Department of Commerce is expected to announce the extent to which Chinese manufacturers have illegally dumped products in the U.S. market.