As a settlement to avoid anti-dumping tariffs for Chinese solar panels exported to Europe showed signs of unraveling last week, a new report emerged that showed a more positive trend for a sector that has become the subject of nonstop trade wars over the last four years. That newer trend has seen a growing number of embattled Chinese solar panel makers set up overseas factories, helping them to avoid punitive anti-dumping tariffs imposed by the U.S. on their domestically produced goods.
Both Beijing and the west should welcome and encourage this kind of development, which not only can help diffuse trade tensions but also benefits everyone, including governments inside and out of China and the solar panel makers themselves. Most fundamentally, such a development greatly reduces the complaints of unfair state-support lodged by western governments, since such new factories lack access to many of the beneficiary policies that manufacturers receive in China.
At the same time, such overseas investment boosts jobs in economies of recipient countries, while also helping China by raising its outbound investment and extending its global influence. Despite experiencing some short-term pain, the panel makers themselves also benefit by becoming more diversified and efficient through competition with western rivals on a more level playing field.
The solar panel trade wars date back nearly four years, starting with a string of bankruptcies by western players that couldn’t compete with their Chinese rivals. The failed foreign companies complained that their Chinese peers enjoyed a wide range of unfair government support, from policies such as export tax rebates, low-interest loans from state-run banks and subsidized land supplied by local governments for factory construction.
The US responded by imposing anti-dumping tariffs. The EU threatened to follow with a similar move, but the dispute was resolved after the Chinese manufacturers agreed to raise their prices to levels similar to western rivals. That deal was showing signs of unraveling last week, as the European Commission investigated complaints that the Chinese manufacturers were using loopholes to avoid charging the higher prices stipulated in the settlement.
But amid the latest wave in heightening tensions, a new report showed that the Chinese manufacturers have quietly started building more factories overseas to make panels that won’t be subject to the U.S. tariffs, and possible new tariffs from the EU.
Mid-sized player JA Solar (Nasdaq: JASO) has become the latest to join the trend, contemplating construction of a factory in Southeast Asia capable of producing panels with up to 400 megawatts in annual power capacity. The company has said it might try to find a local partner to co-invest in the project, bringing multiple potential benefits to the recipient country of such a factory.
That move would come after JinkoSolar (NYSE: JKS), another mid-sized player, began construction last year of a plant in South Africa with up to 120 megawatts in annual capacity. Rival ReneSola is one of the most advanced, with overseas plants planned or already producing in Poland, Turkey, South Korea, Malaysia and Indonesia, the report said. Top-tier player Trina Solar (NYSE: TSL) also said earlier this month it is planning to build manufacturing facilities by itself or with partners outside China.
Analysts have pointed out that many of these countries offer similar advantages to China, including low-cost labor and some preferential tax policies, allowing the Chinese companies to keep prices low. But because they are outside China, such plants’ panels wouldn’t be subject to the punitive tariffs imposed by the U.S. They would also likely be exempt from future punitive tariffs implicitly threatened by the European Union if last year’s landmark settlement ultimately unravels.
This kind of market-driven movement is a far more constructive response to the western complaints than the angry war of words that has evolved between Beijing and its major trading partners over the last few years. A systemic change in Chinese policies is difficult to achieve quickly, since such policies occur at a wide range of governmental levels that have become pervasive throughout the nation over the last few years as the sector developed.
While the U.S. tariffs and similar moves in other major markets initially looked confrontational and counterproductive to the sector’s development, they could ultimately benefit everyone if they force the Chinese firms to diversify with new manufacturing bases outside their home market. That kind of development should be welcome and even encouraged by Beijing, which should be careful to avoid providing the kind of direct assistance in this new go-abroad movement that led to the original complaints from the west.
Bottom line: A new wave of overseas investment by Chinese solar panel makers should ease western complaints of unfair state-support and provide a more solid foundation for the sector’s longer-term development.
This blog was originally published on Young’s China Business Blog and was republished with permission.
Lead image: EU and China. Credit: Shutterstock.