EU blinks first as China flexes its solar muscles

Premier Li Keqiang's personal intervention in Beijing's €20 billion (HK$202.7 billion) solar panel dispute with Brussels signals a more direct approach to trade diplomacy in key strategic industries.

Li's last-minute call to European Commission chief Jose Manuel Barroso on Monday secured a two-month window to further talks on a solution.

Jia Qingguo, a professor in international relations at Peking University, said the importance of the sector had likely triggered Li's intervention.

"Unlike other trade disputes between China and the EU that involved one or two particular products, the photovoltaic industry is [strategically] important to China," Jia said.

Energy security and clean energy expansion to cut air pollution are among Beijing's key policies. The central government has spent billions of dollars promoting the solar sector in a bid to ensure access to cheap, clean energy sources.

Critics say the subsidies - in the form of cheap land, loans and tax incentives - encouraged the overbuilding of production capacity, which led to losses and bankruptcies of producers in Western nations that used to dominate the industry.