February 25, 2013 at 14:35 PM EST
Solar Panel Trade War
The European Union is considering an anti-dumping tariff on Chinese solar panels, but some believe a tariff could hurt the industry further...

This Article Originally was Published here: http://www.energyandcapital.com/articles/solar-panel-trade-war/3117

"The Chinese strategy is very clear. They are engaging in predatory financing and they're trying to drive everybody else out of the market. When you've got free money you can out-dump everybody below cost."- Bryan Ashley, Chief Marketing Officer of Suniva.

From The Guardian.

I was shocked when I heard that China had been flooding cheap solar panels on the European market, therefore decreasing the value of panels all over the world while causing the drain of coveted manufacturing jobs from the European economy.

China is overflowing a market with cheap products that no one can compete with?

Who would have thought?

Economic trends have shown that local manufacturers cannot contend with made-in-China products since consumers are always on the prowl for the next bargain. This ranges from cheap apparel found at Wal-Mart (NYSE: WMT) to the growing solar panel market.

The EU is currently proposing a tariff on imported solar panels from China for the purpose of protecting manufacturers from the influx of lower-priced goods. German companies like SolarWorld (PINK: SRWRY) believe that China is violating international trade agreements by subsidizing Chinese manufacturers to sell their products below market value.

According to the New York Times, Chinese panels were “45 percent lower than those purchased from some manufacturers in Europe.”

No manufacturer could afford to stay in business when the cost of making a product exceeds the market value. However, Chinese companies could stay afloat if they are receiving direct subsidies from the government. Under the circumstances, an EU tariff would seem like a logical choice; still, there are critics.

The Alliance for Affordable Energy maintains that such a tariff would force China to impose its own tariff against Europe—possibly crippling the solar market and further dragging the European economy into the trenches of economic downturn.

According to an article from EurActiv, there could be: “€8 billion [$10.6 billion] and 193,000 job losses alone this year,” and “242,000 European job losses in the next three years,” if an EU tariff were in place.

And even though a tariff would offset the price disadvantage, placing duties on China would not stop other Asian manufacturers from exporting cheaper panels. A tariff could also force China to take less of a stake in Europe’s economic future.

An article from Fox Business News states:

“EU leaders want to avoid following the United States’ decision last year to impose duties on Chinese solar power products , aware that Europe needs China to help it emerge from three years of economic crisis.”

In addition, an article from the New York Times touched upon Suntech (NYSE: STP) CEO Shi Zengrong, who inadvertently admitted in 2009 that his company had been pricing below cost of production in the United States. He later retracted his statement, saying he misunderstood a reporter’s question. Did Mr. Zengrong have a moment of unintended candidness?

Given Zengrong’s slip-up, it seems the U.S. was correct in imposing tariffs on China. That being said, what worked in the U.S. may not necessarily work in the EU since solar energy plays a greater role in the European economy. The EU is in a far more weakened state than the U.S. economy, and a tariff could isolate the Chinese.

Is China really making gains on the system by subsidizing manufacturers?

China was able to gain a strong-hold on the solar market by issuing credit and loans to solar companies through the Chinese Development Bank.

From The Guardian:

“The CDB was originally set up as a "policy bank," to operate as an arm of the Chinese central government, doling out public funding to support central government development programs. Now it is a "joint stock company with limited liability" that often reports to China's national cabinet on certain policy issues. This allows the Chinese government to get involved in CDB activities and direct loans toward projects officials want to support.”

“Unlike most regular commercial banks, CDB raises most of its money via long-term bonds. Funders cannot take that money back out until the term is up, so the bank can make longer-term loans to Chinese companies. CDB also gives borrowers very low interest rates, and, if the borrower cannot pay back the loan, it may be back-stopped by the Chinese government.”

No manufacturing plant from a small town in Europe can compete with Chinese plants backed by a centralized bank that acts as a credit wing for the Chinese government. Solar panel producers in Europe receive no financial support from their respective governments, and credit is very thin in a sluggish EU economy.

On the other hand, China is a rising, industrial economy with free-flowing credit. Since it is well known that China gained a vast reach in the solar market in such a short time span, it is only reasonable to surmise that China continues to help manufacturers make cheaper products.

Why is China helping its panel producers to sell cheap goods on the EU market?

China seeks a monopoly on the solar industry.

The Chinese are aiming to dominate the solar panel market by crushing overseas competitors with lower prices. However, the Chinese need to be careful in ruthlessly stamping out competition, mostly due to Europe’s already fragile economy.

China is lucky that Europeans are still committed to investing in solar energy during times of financial distress. In economically tough times, high-minded ideas of renewable energy and reducing pollution are usually the first few items on the budget chopping block— the U.S. being a prime example.

Monopolies devalue any given product because, once a monopoly is attained, there is no need for businesses to add value or fair prices to their products. If you are the only business in town, then why would you need to spend extra resources on a product when consumers will come to you anyway?

The last thing the solar panel industry needs is limited competition and investment. If solar energy is to grow in the future, there must be a competitive drive among solar companies that will keep prices lower for the consumer.

Price gouging and sub-standard products could follow if Chinese manufacturers gain a monopoly on the European market, and this could hurt the entire solar sector.

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How would China’s move affect the solar panel industry?

More solar company owners could file for bankruptcy or move their factories abroad. This would also have a devastating effect on the world market, and many investors would be hesitant in buying stock from struggling companies.

At a time when the solar industry is gaining traction worldwide, investors must believe that solar companies are here to stay for the long term. The closing of solar factories would begin to erode the interest, passion, and investment in renewable energy, and the solar field could enter into a state of dormancy on the world stage.

If China continues to dump the European market with cheap panels, buy-European fervor could sweep across the continent in the near future. If China managed to put most European manufacturers out of business, this would have long-term effects on the European economy, and the process of strengthening the solar field would be shelved for a long time. China should want to be careful in isolating the continent that includes a large base of their customers.

Solar by CountrySource: beforeitsnews.com

The chart above shows why many German companies are leading the helm against China’s underhanded trade policies. Germany is the top solar-optimized nation on the planet, and the central European nation is a primary importer of Chinese panels.

The Chinese and European solar markets go together like yin and yang; one cannot co-exist without the other, and both sides would end up damaged from the trade war.

There is no easy solution to a complex problem.

Since imposing tariffs may hurt the EU’s chances of economic recovery, then what is the solution? China has the advantage over Europe, and EU officials are scrambling for answers. Europe does not have the financial capital to help solar panel manufacturers.

The EU is in a tough spot, and only time will determine the next course of action.

Until then,

Jon Carter  

This Article Originally was Published here: http://www.energyandcapital.com/articles/solar-panel-trade-war/3117



Solar Panel Trade War originally appeared in Energy and Capital. Energy and Capital, a free daily newsletter, offers practical investment analysis in the new energy economy.
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