Best to let the sunshine in without any harmful tariffs
Row over 'dumping' of solar power products could result in damage to whole industry
Beijing's threat to impose duties on solar power-related products from the European Union would harm its own industry, and appears more likely to be rhetoric in a dispute where both sides will gain from compromise.
The European Commission, the EU's executive, has accused Chinese firms of selling solar panels at below cost in Europe, a practice known as "dumping", and has announced plans to impose duties on the companies' products.
After Chinese reminders of its significance as a trading partner, however, most EU governments oppose the plan, a survey of member states showed on Monday.
Beijing has also wielded a stick, launching last year a study on imposing its own tit-for-tat duties on imports of European polysilicon, the raw ingredient of solar panels.
Officials ratcheted up their rhetoric this week, saying the country "would take necessary steps to defend its national interest". But polysilicon duties would raise costs for module makers in China, just as EU duties would make solar panels more expensive and so harm its downstream solar installation industry.
Compromise may favour both sides.
Polysilicon is the main input in the manufacture of solar panels or modules. It is melted into ingots and sliced into wafers which are then printed with electrodes to make solar cells.
China has steadily developed a domestic polysilicon industry, which may be aided further by import duties.
In February last year, the Ministry of Industry and Information Technology issued the next five-year plan for the photovoltaic industry, which specified goals by the end of 2015 that included promoting polysilicon producers with annual output of at least 50,000 tonnes.
In November, the Ministry of Commerce launched an investigation on whether duties should be levied on imports of polysilicon from the United States, South Korea and the EU.
The timing for a final decision is unclear but should be no later than the end of this year, while an interim judgment is expected at the end of next month, say producers.
Major polysilicon producers include Germany's Wacker Chemie, the US-based Hemlock Semiconductor, South Korea's OCI and Chinese producers GCL-Poly Energy Holdings and Daqo New Energy Corp.
Notwithstanding Beijing's attempts to build an industry, top module makers including Hanwha SolarOne Yingli and JA Solar, have contracts with Wacker and/or Hemlock. Both Yingli and JA Solar state that some of these contracts extend beyond this year. Trina Solar refers to contracts with German and US suppliers.
In their latest annual reports, Hanwha said it "may be adversely affected" by Chinese polysilicon import duties; Yingli said "a large portion of polysilicon is from the countries subject to investigation"; and JA Solar said "the prices of our raw materials may increase".
They have options for evasive action. One such would be a so-called tolling arrangement, whereby Chinese module producers continued to take delivery of Western polysilicon under contract, but only after this had been processed into an intermediate product by an offshore third party such as a wafer manufacturer in Taiwan.
Chinese import duties would have a wider impact beyond direct buyers of polysilicon from Western producers, if the effect was to raise prices for the raw material generally.
That risk depends on whether domestic manufacturers and tolling arrangements could keep pace with Chinese demand.
Limiting polysilicon costs is vital in an industry which is struggling with global overcapacity, weak power demand in developed countries and shrinking subsidies.
Partly due to China's anti-dumping and anti-subsidy investigations, polysilicon prices have rebounded slightly since December last year, although they remain below US$20 per kilogram, Yingli reported last month.
Polysilicon market prices declined especially sharply last year as a result of new manufacturing capacity and pressure from falling module margins, reaching a historical low of US$14 per kilogram in November, module makers report.
That has seen manufacturers globally cutting prices and mothballing capacity.
Chinese import duties would help local polysilicon producers. But the knock-on impact in higher costs for module makers may be more worrying, as consolidation sweeps the global industry, and as Beijing tries to grow a domestic market where more installed capacity will depend on greater competitiveness with fossil fuel power.
Tom Holland is on holiday