Opinion

Chinese solar panels – economics or politics?

Unless appropriately managed, the ongoing row on the proposed EU tariffs on solar panel imports from China has the potential to lead to a serious trade dispute between Brussels and Beijing. 

By: Date: June 6, 2013 Global Economics & Governance Tags & Topics

Unless appropriately managed, the ongoing row on the proposed EU tariffs on solar panel imports from China has the potential to lead to a serious trade dispute between Brussels and Beijing. The Chinese delegation to the EU has not only put out a tough response, it has also arguably mobilised as many as 18 of the EU’s 27 member states led by Germany to oppose the provisional and temporary six-month punitive tariffs averaging 47 percent proposed to be imposed on imports from Chinese solar producers to combat allegedly unfair competition from China.

Under EU rules, the Commission has the authority to determine whether the provisional duties are enacted. But opposition from member states would weaken Commissioner De Gucht’s hand as the investigation moves toward a conclusion in December, when they can ultimately block his proposal. The Commission is investigating alleged dumping of Chinese solar panels and also whether subsidies provided by the Chinese government to the Chinese solar industry amount to an unfair trade practice. The recent imposition of anti-dumping duties ranging from 18.32 percent to 249.96 percent on solar-energy cells imported from China by the U.S. Commerce Department supports the EU Commission’s case.

As in the case of any dumping dispute, reactions vary between the affected units bemoaning loss of competitiveness, profitability and jobs and those of consumers and producers benefiting from the lower priced imports; given the modern distributed production chains across countries, import content of exports is about 40 percent today while the share of intermediate goods in trade has risen to 50-60 percent of global merchandise trade.

The former group usually supports turning to trade instruments to offset the consequent competition effects in the affected economic sector, while the latter also fear economic consequences on other sectors and cross-sectoral efficiency issues. Furthermore, research on average efficiency and costs in the US/European solar manufacturing vis-à-vis production in Chinese facilities do indicate that about 18-30 percent of the price advantage in Chinese solar cells do emanate from cost efficiency of vertical integration, economies of scale, and negotiated discounts from vendors of intermediate inputs, and machinery and equipment. These are in addition to the advantages from lower Chinese labour costs and cheap trade credit availability.

But how, if at all, does this row impact the other Asian giant focused on renewable energy as a means of decarbonising its current and future GDP growth? Several analysts have bridged India into the picture by arguing that India will be a beneficiary as anti-dumping duties on Chinese manufacturers will lead India to become an “alternative manufacturing destination” for companies. The Commission is also assessing the dumping investigations by comparing the prices Chinese companies charge for their photovoltaic products in Europe with those they charge in India, where they are much higher than in China.

The expected gains for India are however contestable, as India’s ability to capture vacated Chinese manufacturing space is a function of ease of doing business in the country, physical infrastructure necessary for manufacturing and domestic policy environment (other than the much disputed labour laws), all of which are not yet amenable for large scale manufacturing processes and units a la China. Despite the local content requirements under the National Solar Mission (NSM), industry experts contend that it is the lack of direction and policy support from the Indian government that is currently holding back solar manufacturing in India.

Additionally, the said local content requirements under NSM are now being subjected to a US-led dispute consultation at the WTO (WT/DS456/1). According to the US, the benefits for solar power developers, contingent on their purchase and use of domestic solar cells and solar modules, would include subsidies through guaranteed, long-term electricity rates, and hence contravenes the TRIMS and SCM obligations of India to the WTO. This is sure to have implications for the NSM provisions as well as the domestic anti-dumping case that India initiated late last year on solar PV imports from Malaysia, China, Taiwan and USA. One also wonders whether the US request for consultation is a retaliatory measure against India’s anti-dumping investigations.

Thus, in view of the protracted slowdown in trade growth below their long-term average rates worldwide and particularly in Europe, it is unclear whether it is the economics or the politics that is motivating these safeguard actions. In fact, research has indicated that advantages from Chinese industrial policy and state subsidy account for only about 3-5 percent of the total price competitiveness. It is uncertain yet how the safeguard actions will redress the relative competitiveness and cost efficiency concerns which is essential for a longer term and viable resolution of the problem.  


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to communication@bruegel.org.

View comments
Read article More by this author

Opinion

Alicia García-Herrero

‘Old China’ bad, ‘New China’ good: Growing divergence in Chinese corporate health

Divergence in debt levels and corporate health in China is growing, with many state-owned companies still stuck in the past and new industries such as tourism and healthcare overtaking the old ones. While fiscal and monetary stimulus may temporarily cover up the problems of companies in the old industries, a restructuring of these sectors seems inevitable.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: July 26, 2016
Read article

Blog Post

Alicia García-Herrero
DSC_0160

Assessing China’s post-Brexit globalisation strategy

As the world comes to terms with the result of the UK's Brexit referendum, what will it mean for China? The authors suggest that the short-term impact will be smaller for China than for other regions. But there are important considerations further ahead.

By: Alicia García-Herrero and Jianwei Xu Topic: Global Economics & Governance Date: July 19, 2016
Read article Download PDF More on this topic

Working Paper

cover

The China-Russia trade relationship and its impact on Europe

This paper analyses empirically how increasingly close trade relations between China and Russia might affect the European Union.

By: Alicia García-Herrero and Jianwei Xu Topic: Global Economics & Governance Date: July 14, 2016
Read about event More on this topic

Past Event

Past Event

China-Russia relations and their impact on Europe

The economic ties between China and Russia are growing. How will this relation affect Europe?

Speakers: Marek Dabrowski, Zsolt Darvas, Alicia García-Herrero, Vasily Gavrilov, Eric Girardin, Matteo Governatori, Iikka Korhonen, Heli Simola, Laura Solanko, Mingxi Sun and Jianwei Xu Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 21, 2016
Read about event More on this topic

Past Event

Past Event

Will China's slowdown bring headwinds or opportunities for Europe and Central Asia?

After years of rapid growth, China's GDP is expanding more slowly. There are fears about the global impact, but could there also be opportunities for Europe and Central Asia?

Speakers: Maurizio Bussolo, André Sapir and Jianwei Xu Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: April 29, 2016
Read article More on this topic More by this author

Opinion

Alicia García-Herrero

Debt, not reserves, to constrain China’s cross-border buying spree

Despite an $800 billion drain on China’s foreign reserves over the last 20 months, Chinese firms have been on a buying spree that has only accelerated since the beginning of the year.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: April 27, 2016
Read article More on this topic More by this author

Opinion

Alicia García-Herrero

Chinese banks: the way forward

Despite the economic downturn the Chinese banking system continues its expansion. Concerns are rising about the institutions' strenght, as bad loans continue to grow. Heightened competition among fintech companies and low net interest margin are other causes for concern.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: April 19, 2016
Read article More on this topic More by this author

Blog Post

Alicia García-Herrero

China continues to focus on growth not reform

The central government will hold the National People’s Congress (NPC) meeting on March 5th. All the signs point to more monetary and fiscal stimulus, especially since the G20 gathering in Shanghai. The key is how to use the fiscal stimulus efficiently.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: March 4, 2016
Read article More on this topic More by this author

Opinion

Ashoka Mody

The market's troubling message

Amid one of the worst market routs on record, a chorus of reassuring economic commentators insists that global fundamentals are sound and investors are overreacting, behaving like a panicked herd. Don’t be so sure.

By: Ashoka Mody Topic: Finance & Financial Regulation Date: January 30, 2016
Read article More on this topic More by this author

Opinion

Alicia García-Herrero

China is running out of options as foreign reserves drop

The Chinese are watching a new storm unfold in their financial markets, only months after having been bombarded with news about China’s “historical victory” when the Renminbi was designated an official reserve currency under the IMF’s SDR regime in November.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: January 21, 2016
Read about event More on this topic

Past Event

Past Event

The new silk road: what is in it for Europe

How will the new Silk Road initiative affect the European economy?

Speakers: Jean-Francois Di Meglio, Pedro Nueno, Alicia García-Herrero, Elton Huang, David Gosset, Juan Carlos Martinez Oliva, Michael McCannon, Gary Liu, Edith Terry, Caspar Welbergen, Kar-yiu Wong, Jianwei Xu, Xu Sitao, Xue Li, Zhang Xiaoqiang and Zhao Jinping Topic: Global Economics & Governance Location: Shanghai Date: January 14, 2016
Read article More on this topic More by this author

Opinion

Ashoka Mody

Another slow year for the global economy

The factors that dragged down the global economy in 2015 will persist – and in some cases even intensify – in the new year.

By: Ashoka Mody Topic: Global Economics & Governance Date: January 5, 2016
Load more posts