EU blinks first as China flexes its solar muscles

Beijing's new direct approach to trade wins reprieve in solar-panel dispute with Europe

PUBLISHED : Thursday, 06 June, 2013, 12:00am
UPDATED : Thursday, 06 June, 2013, 4:48am

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.

The EU imposes from today a temporary 11.8 per cent tariff on mainland-made solar wafers, cells and panels, citing results from its investigation that found mainland producers to have "dumped" its products at below-cost prices. It will rise to an average 47.6 per cent, which will stand for five years - if a mutually acceptable solution is not found.

Shares in Jiangsu-based GCL-Poly Energy Holdings, the world's largest maker of polysilicon and solar wafers, yesterday rose 6.1 per cent to HK$1.92.

The EU is also investigating alleged unfair subsidies by the Chinese government to the solar industry, and has threatened to impose a separate anti-subsidies duties.

In response, Beijing began in November last year a probe into alleged improper subsidies or dumping of Europe-made solar panel raw material polysilicon in the mainland market.

Despite worries of a trade war, analysts said it was unlikely as it would be harmful to both sides, but an "all-win" solution will remain elusive.

"It seems like the EU blinked but they don't want to admit it … thus the threat of a full-blown trade war is reduced," said CLSA head of sustainable research Charles Yonts. "The problem is that - two months from now - there still will not be any obvious solution that can also incorporate the fantastical French-backed notion that solar panels can and should be made in the EU at a competitive cost.

"The most likely scenario is that some sort of trade barriers are erected, but they are so full of holes [that] the status quo of Chinese panel dominance and continued decent demand in Europe [will be] untouched."