Chinese Sanctions

Biting the Hand that Heats Us

A worker inspects solar panels at a solar farm in Dunhuang, 950km (590 miles) northwest of Lanzhou, Gansu Province September 16, 2013. China's solar panel industry is showing signs of booming again after a prolonged downturn - raising fears of another bust when the splurge of public money that is driving a spike in demand dries up. Lured by generous power tariffs and financing support to promote renewable energy, Chinese firms are racing to develop multi-billion dollar solar generating projects in the Gobi desert and barren hills of China's vast north and northwest. Picture taken on September 16, 2013. REUTERS/Carlos Barria (CHINA - Tags: BUSINESS ENERGY)
Lured by generous power tariffs and financing support to promote renewable energy, Chinese firms are racing to develop multi-billion dollar solar generating projects in the Gobi desert and barren hills of China's vast north and northwest.
  • Why it matters

    Why it matters

    Anti-dumping tariffs that the European Union imposed on Chinese solar-technology imports two years ago are set to expire Monday.

  • Facts

    Facts

    • Chinese leaders have indicated the country wants to shed its image as the world’s greatest climate offender.
    • Much of the machinery that produces solar cells in China comes from Europe.
    • China is wasting huge amounts of solar and wind energy because of mismanagement in its power grid structure.
  • Audio

    Audio

  • Pdf

Relations between China and Europe are being put to the test. On Monday, anti-dumping tariffs that the European Union imposed on Chinese solar-technology imports two years ago are set to expire.

The past two years have been marked by changes. China’s market for renewable energies is growing dynamically. The world’s second-largest economy is dependent on foreign technologies and expertise in many fields. But instead of systematically exploiting the opportunities, many in Europe are calling for the tariffs to be extended. Such defensive action is the wrong path to take.

At the ongoing climate summit in Paris, President Xi Jinping of China just committed to “green growth” and the fight against environmental pollution. The Chinese people have been shocked by the amount of smog in the nation’s major cities and the poisoned rivers and contaminated soil.

European producers most certainly won’t be able to compete in terms of prices. That battle was lost long ago.

Blind economic growth at the expense of the environment is supposed to be a thing of the past, according to the central government in Beijing. China no longer wants to be labeled the world’s greatest climate offender.

But for the Chinese leadership, such a stance isn’t so much a matter of international reputation but rather a demonstration to its own citizens that their government is doing something about environmental pollution.

China is already leading the world in wind energy; by the end of the decade, it could overtake Germany as the leader in solar energy. So far the two energy sources account for only 2 percent of China’s power mix. But Beijing plans to increase the percentage. The goal for solar power, for example, is to leap from 100 gigawatts to 150 gigawatts by 2020.

In addition, a reform of the energy market is intended to strengthen the importance of renewable energies. On Monday, China’s most powerful planning authority, the National Development and Reform Commission (NDRC), outlined the restructuring. Solar, wind and biomass energies are to receive preferential treatment in the future. What that means exactly is unclear. However, the NDRC is sending a strong signal to skeptics who feared a sharp reduction in government subsidies for renewable energies.

Naturally, the government wants to give relief via subsidy programs to domestic producers already burdened from high levels of overproduction. But Chinese producers won’t be able to shoulder the increase in regenerative energies on their own.

European producers most certainly won’t be able to compete in terms of prices. That battle was lost long ago. Instead, the Europeans can offer their expertise and technologies, such as in management of power grids. China is wasting huge amounts of energy because the production of electricity from solar and wind power isn’t being correctly managed and channeled. That’s where fully developed concepts from Europe are needed. Moreover, much of the machineries that produce solar cells come from Europe.

At the same time, European companies can set the standards in the next generation of solar energy. Thin-film solar cells have the potential to break the dominance of crystalline solar cells. And the development is primarily coming from companies in Europe and the United States.

If firms focus on building partnerships in China and also offer customers there large quantities at low costs, European producers will be able to earn profits from the next solar wave in China.

However, the correct framework has to be created. So far, firms from Europe haven’t played much of a role in the solar industry in China. That isn’t just because of the low prices of the Chinese competition; the Europeans also are at a great disadvantage in public tenders and access to research funds.

That must change.

When German Chancellor Angela Merkel visited  China in October, Premier Li Keqiang promised that European firms in China would be granted the same rights as local companies. Germany and the European Union should take him at his word. China’s companies expect fair competition in Europe. Accordingly, European companies should demand equal opportunity in China.

Free access to the Chinese market should be on the agenda for Europe. With developed technologies and solid concepts, Europeans can score points. Fighting defensively with punitive tariffs is a weak strategy of arrested development. Instead, the view must be forward to new fields of business.

 

To contact the author: scheuer@handelsblatt.com.

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