A Bloomberg Businessweek article earlier this year outlined the rapid rate at which western wind turbine makers such as GE of the US, Vestas of Denmark and Siemens of Germany are losing out to domestic manufacturers in China’s fast growing domestic market and the steps they are trying to take to keep ahead of the game.
Buoyed by $47 billion in stimulus spending for environmentally friendly power, the article states China installed more than double the number of wind turbines in 2009 than in the previous year. This year, the country plans to add 18 GW of wind capacity, the equivalent of 15 nuclear power plants. That’s double what’s expected in the US, the No. 2 market, according to estimates from New Energy Finance. By comparison, Germany and Spain, Europe’s largest wind energy markets, will add just 1.8 GW and 1 GW respectively in 2010. Chinese turbine producers are much cheaper, roughly two thirds of the price (MW for MW) according to a Reuters article, but western producers are trying to keep one step ahead by using more advanced technology that results in more reliable and larger turbines. Siemens plans to open a new $80 million factory this year in Shanghai that can produce 3.6 MW turbines. But with every step forward by western producers, Chinese manufacturers are right behind them.
When technology proves a hurdle, they simply import components such as electrical control systems for the first few models until they have mastered the technology. Meanwhile, Chinese producers in a whole range of clean tech energy areas are building critical mass on the back of their domestic market before gradually expanding into exports. Before wind power was solar panels, a surge in Chinese exports of which caused a collapse in world prices last year and the closure of many western producers.
So goes the way of manufacturing, you may say, in a long litany of industries that have closed or been dramatically scaled back as manufacturing has moved to China. Green tech is just another area in which ultimately the West cannot compete in a fair and open global marketplace. Well, not so, says an article in the New York Times. What China has done in solar energy and is doing in wind power blatantly breaks WTO rules and should be called to account. Building its argument by detailing the development of one Chinese producer as an example of all, the New York Times argues that a whole range of subsidies to solar panel manufacturers risks breaking international agreed-upon rules and the agreement China signed up to when it negotiated its entry to the WTO in 2001.
Hunan Sunzone Optoelectronics, a start-up manufacturer of solar panels just two years ago, ships close to 95 percent of its output to Europe. Next year it will have offices in New York, Chicago and Los Angeles in preparation for a push into the American market. The article states that to help Sunzone, the municipal government transferred to the company 22 acres of valuable urban land close to downtown at one third of the market price. That reduced the company’s costs and greatly increased its worth and attractiveness to investors. Meanwhile, a state bank is preparing to lend to the company at a low interest rate to help Sunzone double its production capacity, and the provincial government is sweetening the deal by reimbursing the company for half of the interest payments. Rather than being the exception, heavily subsidized land and loans for an exporter like Sunzone are the rule, for clean energy businesses across China, Chinese executives said in interviews to the paper over the last three months.
Such subsidy is clearly in breach of WTO rules that allow countries to subsidize goods and services in their home markets, as long as those subsidies do not discriminate against imports. But the rules prohibit export subsidies, precisely to prevent what Sunzone is receiving – government help to gain in world markets. Under WTO rules, countries are required to declare all national, state and local subsidies every two years. So that if one country’s exports surge suspiciously, other countries’ trade officials can easily check to see if that product is being subsidized. But China has apparently ignored the requirement since joining the WTO. Instead, they contend that it is still a developing country struggling to understand its commitments. China has filed just one list of subsidies, which were in place between 2001 and 2004, and that one list covered only central government policies while omitting local or provincial subsidies.
We will continue this post in a second part which will appear later today.