Shining a Light on U.S.-China Clean Energy Cooperation

8/3/2019 Shining a Light on U.S.-China Clean Energy Cooperation

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1 Center or American Progress | Shining a Light on U.S.-China Clean Energy Cooperation

Shining a Light on U.S.-China

Clean Energy CooperationNew Approaches Needed to Ensure Chinas Global

Technology Ambitions Do Not Erode U.S. Clean

Energy Competitiveness

Melanie Hart February 2012

Introduction

Te U.S. Deparmen o Commerce nex monh is expeced o issue a criical ruling on

one o he bigges rade cases o hi he U.S.-China energy relaionship in recen years.

Seven U.S. solar companies claim ha he Chinese governmen unairly subsidizes

Chinese solar panel manuacurers o enable hose companies o sell heir producs a

below-marke prices and drive U.S. compeiors ou o he marke. Te seven companies

suppor subsidy and dumping peiions led by SolarWorld Indusries America Inc.

agains Chinese solar impors in Ocober ha ask he Commerce Deparmen o levy

riple-digi aris on solar cells and modules impored rom China.

Tis case highlighs a major challenge acing U.S.-China clean energy relaionships more

broadly: how o handle he Chinese governmens deploymen o massive resources

oward developing renewable energy echnologies, many o which are designed or

expor. Indeed, his is an issue ha bedevils U.S.-China rade relaions no jus in clean

energy, bu also in oher indusrial and services secors, which means ha how his com-

plain by U.S. solar manuacurers plays ou may well have much broader implicaions.

One o he bigges challenges acing renewable energy in he Unied Saes is ha radi-

ional ossil uels are cheaper here han hey are in almos any oher developed counry.

Tis is primarily due o he large supply o ossil uels such as coal and naural gas in our

naion, as well as a long hisory o ederal governmen subsidies or developing hose

energy sources. Te Unied Saes has also ailed o pu a carbon price on ossil uels, so

U.S. ossil-uel prices do no include he environmenal and public-healh damage rom

greenhouse-gas polluion. Relaively low ossil-uel prices make i paricularly hard or

renewable energy o compee agains convenional energy in he U.S. marke.
http://www.rechargenews.com/energy/solar/article300471.ece?WT.mc_id=rechargenews_rsshttp://www.americansolarmanufacturing.org/fact-sheet/http://www.americanprogress.org/issues/2011/08/china_energy_competitiveness.htmlhttp://www.ustr.gov/webfm_send/3189http://www.americanprogress.org/issues/2010/07/big_oil_spigot.htmlhttp://www.americanprogress.org/issues/2010/07/big_oil_spigot.htmlhttp://www.ustr.gov/webfm_send/3189http://www.americanprogress.org/issues/2011/08/china_energy_competitiveness.htmlhttp://www.americansolarmanufacturing.org/fact-sheet/http://www.rechargenews.com/energy/solar/article300471.ece?WT.mc_id=rechargenews_rss


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Noneheless, over he pas decade U.S. companies have goten much beter a manuac-

uring, deploying, and operaing renewable energy echnologies, and as a resul prices

are coming down rapidly. As prices decrease renewable energy gains marke share and

speeds our ransiion oward a more susainable energy economy.

Te problem is China is paricularly good a making hings cheaply. A he lower end o

he value chain, ha is primarily due o he counrys low labor coss and massive supplychains. Also advanageous are Chinas lax labor, saey, healh, and environmenal san-

dards. A he higher end, ha is oen because he Chinese governmen provides gener-

ous subsidies and oher orms o suppor or high-echnology research, developmen,

and commercializaion. Low-cos Chinese manuacuring plays a large role in driving

prices down or a wide range o producs, including renewable energy echnologies.

Chinese manuacuring also plays a large role in pricing some U.S. manuacurers ou

o business, wih many o hose manuacurers claiming ha he China price is driven

by Chinese governmen inervenion raher han naural marke orces. I he Chinese

governmen is inervening in a way ha breaks rade rules hen ha ype o rule break-

ing should be remedied in some way.

Deermining wheher China is playing by he rules requires aking a close look a heir

renewable energy policiesno only a he naional level bu also a he provincial and

local levels. Tose policies are oen dicul o parse because Chinas economic sys-

em is no like ha o he Unied Saes. I is a nonmarke economy wih a op-down,

command-and-conrol energy planning process ha is oen nonransparen wih even

more opaque ineracions beween he cenral governmen in Beijing and he provincial

and local governmens when hese policies are implemened. All his makes i very di-

cul o gure ou wheher he counry is abiding by inernaional rade rules.

Te Unied Saes has much o gain rom cooperaing wih China on clean energy. As he

worlds ases- and larges-growing energy marke, China is an ideal esing ground or scal-

ing up and commercializing clean energy echnologies. Combining our wo energy markes

increases economies o scale o bring down coss or consumers in boh counries.

Bu he China we are dealing wih odayis no he same China we were dealing wih 10

years ago. We are accusomed o China ocusing on low-end manuacuring and using

heir cos advanages o make U.S.-designed consumer elecronics and oher low-end

producs cheaper and aser. Now China is moving up he value chain o higher-end

echnology. Tey are aiming o compee wih us in highly engineered, capial-inensive

indusries such as solar phoovolaic, or PV, sysems, where he Unied Saes has long

enjoyed a comparaive advanage.

In shor, insead o serving as he low-cos workshop or U.S. companies, China is aiming

o capure he pars o he produc and services value chain ha we are used o dominaing.
http://www.smartplanet.com/blog/smart-takes/us-states-can-reach-grid-parity-by-2014-energy-experts-say/8551http://www.businessweek.com/magazine/content/04_49/b3911401.htmhttp://www.theatlantic.com/magazine/archive/2007/07/china-makes-the-world-takes/5987/1/http://www.ustr.gov/node/6227http://www.guardian.co.uk/environment/2011/sep/12/how-china-dominates-solar-powerhttp://www.huffingtonpost.com/steven-chu/uschina-clean-energy-coop_b_810709.htmlhttp://www.economist.com/node/21543160http://www.economist.com/node/21543160http://www.huffingtonpost.com/steven-chu/uschina-clean-energy-coop_b_810709.htmlhttp://www.guardian.co.uk/environment/2011/sep/12/how-china-dominates-solar-powerhttp://www.ustr.gov/node/6227http://www.theatlantic.com/magazine/archive/2007/07/china-makes-the-world-takes/5987/1/http://www.businessweek.com/magazine/content/04_49/b3911401.htmhttp://www.smartplanet.com/blog/smart-takes/us-states-can-reach-grid-parity-by-2014-energy-experts-say/8551


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Te Unied Saes should no shrink rom ha challenge. Our rms are generaing he

bes high-end echnologies in he world, and we have a skilledworkorce ha is hard

o bea. A rising China is no a reason or us o close o our clean energy markes and

orei he benes we can ge rom bilaeral rade and oher orms o collaboraion. Tis

relaionship is only a win-win, however, i we compee wih he Chinese on a level play-

ing eld, which is proving o be he bigges challenge.

Ensuring ha he Chinese play by he rules will require more policy coordinaion on

hese ypes o bilaeral rade dispues here in he Unied Saes. Te Obama adminisra-

ions new rade enorcemen iniiaive is a criical sep in ha direcion. Bu i is only a

rs sep. Tis issue brie will give an overview o he curren solar PV rade dispue o

highligh he larger challenges we ace.

Chinas energy economy is a massive command-and-conrol juggernau, and our energy

companies are oen orced o choose beween leting a variey o rade problems slide

versus squaring o agains ha sysem on heir own. Ensuring he U.S. governmen rec-

ognizes and addresses ha imbalance a he ederal level vis--vis China will be criicalor keeping he U.S.-China clean energy parnership moving in a posiive direcion.

Te Unied Saes will also have o do a beter job coordinaing rade enorcemen a

he inernaional level because mulilaeral pressure is increasingly needed o make he

Chinese governmen adhere o global norms and rules. Since Chinas rade policies are

also harming clean energy exporers in many oher counriesparicularly in Europe

he Unied Saes should have pleny o parners o work wih.

The global solar PV market and Chinas manufacturing rise

Te curren rade case ocuses on crysalline silicon phoovolaic cells and modules,

which conver sunligh ino elecrical energy. Te demand or hese PV solar cells and

modules is driven by he demand or solar panel insallaions. Solar echnology has

expanded rapidly in recen years due o he increasing ineres in low-emissions ech-

nology and he declining coss o solar cells. Since i is a newer echnology, however, i

is sill generally more expensive o deploy han naural gas or coal, a leas in he shor

erm. Mos counries already have exensive inrasrucure o suppor coal, bu solar

inrasrucure is sill underdeveloped so solar prices have o include inrasrucure devel-

opmen and capial coss. Due o hose addiional coss, he price dierenial or solar

panels over he pas decade has been driven primarily by governmen subsidies o boos

deploymen o solar energy.

In Europe many o hose subsidies are in he orm o a eed-in ari, which requires

uiliies o purchase solar energy a prices ha are higher han wha he uiliy is pay-

ing or convenional ossil energy. Germany launched he rs major naionwide solar
http://www.americanprogress.org/issues/2012/01/dww_sp_scitechworkforce.htmlhttp://online.wsj.com/article/SB10001424052970203436904577151273759279432.htmlhttp://www.iie.com/publications/testimony/subramanian20110921.pdfhttp://www.spiegel.de/international/business/0,1518,784653,00.htmlhttp://www.nrel.gov/learning/re_photovoltaics.htmlhttp://www.americanprogress.org/issues/2011/01/clean_contracts.htmlhttp://www.americanprogress.org/issues/2011/01/clean_contracts.htmlhttp://www.nrel.gov/learning/re_photovoltaics.htmlhttp://www.spiegel.de/international/business/0,1518,784653,00.htmlhttp://www.iie.com/publications/testimony/subramanian20110921.pdfhttp://online.wsj.com/article/SB10001424052970203436904577151273759279432.htmlhttp://www.americanprogress.org/issues/2012/01/dww_sp_scitechworkforce.html


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eed-in ari in 2004, and oher European counries ollowed sui. In conras he Unied

Saes has ended o pass renewable elecriciy sandards, which se an overall goal or

uiliies in a cerain sae or ciy o produce a cerain amoun o elecriciy using renew-

able sources. weny-nine U.S. saes

now have hese policies.

Beore 2004 global solar panel demandwas relaively low, and here were no

srong incenives o produce solar

equipmen or expor. Saring in 2004,

however, global demand increased

exponenially, paricularly in Europe,

which caugh he atenion o equip-

men manuacurers worldwide.

Chinese rms in paricular saw a new

expor opporuniy and sared manu-

acuring solar panels or Europe andoher overseas markes.

Chinese manuacurers enered he

global marke in 2004. By 2007 China

had become he worlds larges solar cell

producion counry. By 2008 hey were

he larges solar panel producer in he world. By 2010 hey conrolled almos halo he

global marke, up rom jus 15 percen in 2006. (see Figure 1)

As hey have in many oher secors, Chinese enerprises ook over he global solarmanuacuring marke by compeing on price.

U.S. trade allegations and Chinas response

Te China price is he ocus o he curren rade case. Te solar PV peiion claims

ha he Chinese governmen unairly subsidizes Chinese solar panel manuacurers by

providing land, elecriciy, maerial inpus, and nancing a below-marke raes, as well

as direc nancial suppor and oher preerenial policies. Te peiion says hose subsi-

dies are designed o aricially suppress Chinese manuacuring coss and drive oreign

compeiors ou o he marke.

China cerainly has a hos opolicies designed o spur indigenous innovaion across a

wide range o clean energy echnologies including solar.1 A he naional level Chinese

leaders dene clean energy as heir hisoric opporuniy o nally gain a dominan

marke posiion in a criical echnology secor. Green energy is one o seven sraegic

FIGURE 1

Chinas swift solar PV market dominance

Annual solar module production growth and China market share, 2000-2010

25,000

20,000

15,000

10,000

5,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

0

10

80

60

40

20

90

70

50

30

10

0%

Solar megawatts Market sh

Total global PV production

Total Chinal PV production

China global PV market share

Source: Earth Policy Institute
http://www.ucsusa.org/clean_energy/solutions/renewable_energy_solutions/renewable-electricity-1.htmlhttp://www.epia.org/publications/photovoltaic-publications-global-market-outlook/global-market-outlook-for-photovoltaics-until-2015.htmlhttp://www.epia.org/publications/photovoltaic-publications-global-market-outlook/global-market-outlook-for-photovoltaics-until-2015.htmlhttp://www.epia.org/publications/photovoltaic-publications-global-market-outlook/global-market-outlook-for-photovoltaics-until-2015.htmlhttp://www.businessweek.com/magazine/content/04_49/b3911401.htmhttp://www.solarworld-usa.com/news-and-resources/news/domestic-solar-manufacturers-petition-to-stop-unfair-trade-by-china.aspxhttp://www.gov.cn/jrzg/2006-02/09/content_183787.htmhttp://www.amcham-shanghai.org/amchamportal/InfoVault_Library/2010/What's_Next_in_China%E2%80%99s_Indigenous_Innovation_Program.pdfhttp://www.americanprogress.org/issues/2011/08/china_energy_competitiveness.htmlhttp://english.peopledaily.com.cn/90001/90778/90862/7170816.htmlhttp://www.earth-policy.org/indicators/C47http://www.earth-policy.org/indicators/C47http://english.peopledaily.com.cn/90001/90778/90862/7170816.htmlhttp://www.americanprogress.org/issues/2011/08/china_energy_competitiveness.htmlhttp://www.amcham-shanghai.org/amchamportal/InfoVault_Library/2010/What's_Next_in_China%E2%80%99s_Indigenous_Innovation_Program.pdfhttp://www.gov.cn/jrzg/2006-02/09/content_183787.htmhttp://www.solarworld-usa.com/news-and-resources/news/domestic-solar-manufacturers-petition-to-stop-unfair-trade-by-china.aspxhttp://www.businessweek.com/magazine/content/04_49/b3911401.htmhttp://www.epia.org/publications/photovoltaic-publications-global-market-outlook/global-market-outlook-for-photovoltaics-until-2015.htmlhttp://www.epia.org/publications/photovoltaic-publications-global-market-outlook/global-market-outlook-for-photovoltaics-until-2015.htmlhttp://www.epia.org/publications/photovoltaic-publications-global-market-outlook/global-market-outlook-for-photovoltaics-until-2015.htmlhttp://www.ucsusa.org/clean_energy/solutions/renewable_energy_solutions/renewable-electricity-1.html


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indusries ha Beijing srongly suppors wih sae nancial resources and oher preer-

enial policies such as ax breaks.

Since Beijing prioriizes clean energy developmen, provincial and local governmens

have a srong incenive o develop heir own suppor policies. Some local ocials

simply implemen naional direcives such as he Minisry o Finance direcives

calling on local nancial bureaus o raise and disribue green energy developmenunds. Oher local governmens see clean energy as a prime growh opporuniy and

go well beyond naional policy requiremens in an atemp o urn heir provinces ino

clean energy manuacuring hubs.

Case in poin:Jiangsu Province has paricularly aggressive solar developmen policies.

Jiangsus 2009 hree-year solar PVdevelopmen plan se ambiious arges or solar-

module producion and called on local ocials o culivae name-brand producs

and inernaionally compeiive enerprises by providing sae assisance or produc

developmen and supply-chain vericalizaion.2 Te resul is a province responsible

or wo-hirds o Chinas oal solar PV equipmen producion in 2010more han 90percen o hose producs were expored o overseas markes.3

Subsidy programs are no necessarily anicompeiive. Green energy is an emerging

echnology secor, and policy assisance is oen required o help new echnologies com-

pee wih exising marke alernaivesespecially when he exising alernaives such as

coal already receive explici and implici public subsidies. We have similar green energy

programs here in he Unied Saes.

Wha he U.S. rade peiion claims, however, is ha Chinas subsidies are designed no

jus o suppor inan indusries bu also o undercu compeiors so ha Chinas domes-ic enerprises can ake over a larger share o he global marke. Te solar PV rade pei-

ion claims ha he subsidies provided o Chinese manuacurers are counervailable,

which means hey aricially suppress Chinese manuacuring coss o enable Chinese

companies o sell heir producs a nonmarke prices ha U.S. companies canno mach.

I he Chinese governmen is indeed using subsidies or ha purpose hen i is a marke-

disoring acic ha violaes a hos o rade rulesno only World rade Organizaion

subsidy rules bu also domesic rade legislaion here in he Unied Saes.

Te solar peiions also include allegaions ha China is dumping in he U.S. marke.

Dumping is he pracice o selling goods in he Unied Saes a less han home marke

price or cos o producion. Dumping is also prohibied by he WO agreemens and by

U.S. law, i i resuls in maerial injury o a compeing U.S. indusry.

Te Chinese dispue hose allegaions. When inerviewed or his issue brie in Beijing

recenly, Chinese analyss all claimed Chinas low solar PV prices are due o a combina-

ion o Chinas comparaive advanages in manuacuring and, paricularly over he pas
http://english.peopledaily.com.cn/90001/90778/90862/7170816.htmlhttp://www.renewableenergyworld.com/rea/news/article/2009/03/china-announces-new-solar-incentiveshttp://ditan360.com/NengYuan/Info-98515.htmlhttp://www.chinahightech.com/views_news.asp?Newsid=931383936333http://china.org.cn/business/2011-11/17/content_23938653.htmhttp://china.org.cn/business/2011-11/17/content_23938653.htmhttp://cleantechnica.com/2011/06/20/wind-power-subsidies-dont-compare-to-fossil-fuel-nuclear-subsidies/3/http://cleantechnica.com/2011/06/20/wind-power-subsidies-dont-compare-to-fossil-fuel-nuclear-subsidies/3/http://www.americanprogress.org/issues/2012/01/renewable_energy_investment.htmlhttp://ia.ita.doc.gov/pcp/pcp-overview.html#A_2http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm8_e.htmhttp://www.aflcio.org/issues/jobseconomy/globaleconomy/intro301.cfmhttp://www.aflcio.org/issues/jobseconomy/globaleconomy/intro301.cfmhttp://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm8_e.htmhttp://ia.ita.doc.gov/pcp/pcp-overview.html#A_2http://www.americanprogress.org/issues/2012/01/renewable_energy_investment.htmlhttp://cleantechnica.com/2011/06/20/wind-power-subsidies-dont-compare-to-fossil-fuel-nuclear-subsidies/3/http://cleantechnica.com/2011/06/20/wind-power-subsidies-dont-compare-to-fossil-fuel-nuclear-subsidies/3/http://china.org.cn/business/2011-11/17/content_23938653.htmhttp://china.org.cn/business/2011-11/17/content_23938653.htmhttp://www.chinahightech.com/views_news.asp?Newsid=931383936333http://ditan360.com/NengYuan/Info-98515.htmlhttp://www.renewableenergyworld.com/rea/news/article/2009/03/china-announces-new-solar-incentiveshttp://english.peopledaily.com.cn/90001/90778/90862/7170816.html


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ew years, excess capaciy and marke-induced

invenory clearing. According o he Chinese

manuacurers, soaring demand growh

beween 2008 and 2010 (see Figure 2 below)

made solar manuacuring look like a golden

opporuniy, and as a resul hundreds o privae

Chinese enerprises dove ino he secorhroughou 2010 and early 2011.

Even Chinese leaher companies dove ino

he marke by opening up solar manuacur-

ing subsidiaries.4 Chinese energy analyss call

hese manuacurers bantu chujia, which

roughly ranslaes o halway monk, or

someone who akes up somehing new wih-

ou commiting o i compleely and wihou

acquiring he necessary experise.5

Ten he pace o global marke growh slowed signicanlyrom almos140 percen

growh in 2010 o around 17 percen in 2011. Chinese rms claim he muliude o

new enrans ooded he marke wih excess capaciy, and Chinese manuacurers were

orced o price solar modules below marke value o clear invenories, hus riggering a

seep price drop ha damaged pros no only in he Unied Saes bu also in China.

Unorunaely, parsing ou how much o he China price is due o marke orces versus

anicompeiive governmen subsidies is exremely dicul. Te reason: Chinas subsidy

programs are oen nonransparen, paricularly a he provincial and local levels. Iis very common, or example, or local ocials o provide land, elecriciy, and oher

resources a below-marke raes o atrac economic developmen (and he associaed

ax revenue) even when he cenral governmen does no suppor hose acics.

Loan subsidizaion is also common. Chinas ier-one manuacurers claim hey are pay-

ing marke ineres raes or heir massive and conroversial China Developmen Bank

loan guaranees, bu some local governmens reporedly reimburse hose companies or

mos o heir ineres paymens, hus reducing he eecive ineres rae o nearly zero

(or, depending on inaion, possibly even below zero). In many cases local governmens

provide hese supporive measures on a case-by-case basis insead o via clear develop-

men policies ha apply o all rms across he board. Tese measures can make Chinas

local level clean energy suppor programs very dicul o measure.

Chinas naional leaders oen sruggle among hemselves o ge an accurae picure o

wha heir local level ocials are doing. Indeed, naional level ocials complain ha

local level economic growh saisics are oen abricaed. When even Beijing has a hard

FIGURE 2

Soaring solar PV demand triggers Chinese market excitement

Annual global solar PV demand growth and forecast, 2008-2014

Source: Solarbuzz

GW demand Percent grow

2008 2009 2010 2011 2012 2013 2014

35

30

25

20

15

10

5

0

160

140

120

100

80%

60%

40%

20%

0%

GW demandPercent growth
http://www.chinanews.com/ny/2011/02-23/2861583.shtmlhttp://www.chinanews.com/ny/2011/02-23/2861583.shtmlhttp://solarbuzz.com/facts-and-figures/market-facts/global-pv-markethttp://www.digitimes.com/Reports/Report.asp?datepublish=2012/01/11&pages=PD&seq=205http://www.hagstromreport.com/news_files/120511_china.htmlhttp://www.businessweek.com/news/2011-11-02/chinese-loans-to-solar-companies-not-subsidized-trina-says.htmlhttp://www.guardian.co.uk/environment/2011/sep/12/how-china-dominates-solar-powerhttp://www.nytimes.com/2010/09/09/business/global/09trade.html?pagewanted=allhttp://blogs.wsj.com/chinarealtime/2011/06/10/chinese-gdp-data-how-reliable/http://58.64.153.139/Registration/2011SNECPPT/131.pdfhttp://58.64.153.139/Registration/2011SNECPPT/131.pdfhttp://blogs.wsj.com/chinarealtime/2011/06/10/chinese-gdp-data-how-reliable/http://www.nytimes.com/2010/09/09/business/global/09trade.html?pagewanted=allhttp://www.guardian.co.uk/environment/2011/sep/12/how-china-dominates-solar-powerhttp://www.businessweek.com/news/2011-11-02/chinese-loans-to-solar-companies-not-subsidized-trina-says.htmlhttp://www.hagstromreport.com/news_files/120511_china.htmlhttp://www.digitimes.com/Reports/Report.asp?datepublish=2012/01/11&pages=PD&seq=205http://solarbuzz.com/facts-and-figures/market-facts/global-pv-markethttp://www.chinanews.com/ny/2011/02-23/2861583.shtmlhttp://www.chinanews.com/ny/2011/02-23/2861583.shtml


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ime racking local aciviy, i is almos impossible or oreign observers o do so in a

sysemaic ashion, and ha can creae conusion here in he Unied Saes.

The bigger question

How to deal with Chinas ambitious green technology development policies

Te Deparmen o Commerce is invesigaing his solar PV case and will soon

announce wheher hey have ound sucien evidence o levy rade remedies.

Commerce invesigaors are racing he nancial and policy suppor he Chinese

governmen provides o Chinese solar manuacurers, and he U.S. Inernaional rade

Commission will ry o deermine o wha degree ha suppor decreases Chinese manu-

acuring prices and damages U.S. manuacurers.

Te Deparmen o Commerce is expeced o issue a preliminary subsidy deermina-

ion in early March and a preliminary anidumping deerminaion several weeks laer.I he ongoing invesigaions nd Chinese rade violaions, hen ha preliminary

announcemen will likely include a plan o levy aris agains Chinese impors. I is

possible ha once he Chinese governmen realizes aris are imminen hey will ry

o negoiae a setlemenhey may oer o hal he conesed subsidies or ake oher

acion o ge SolarWorld o drop he case.

Ta is how China responded o he Sepember 2010WO complain by he Unied

Seelworkers abou Chinese governmen subsidies o wind equipmen manuacurers.

Some U.S. solar companiesparicularly he companies ha already have purchasing

agreemens wih Chinese solar manuacurersare hoping ha his case will end in anegoiaed setlemen insead o impor aris.

No mater how his paricular dispue ends, however, here is a much bigger underly-

ing issue here ha we mus no overlook. Over he pas hree decades, Chinas role in

he global economy has primarily been as a low-value-added manuacurer. Now he

Chinese wan o move up he value chain o increase pro margins and play a more

dominan role in higher-end global echnology markes. Specically, hey wan o supply

he Unied Saes wih higher-value-added echnologies, paricularly clean energy ech-

nologies. And he Chinese governmen is dedicaing a huge amoun o sae resources o

help heir enerprises achieve ha goal.

Chinas echnology ambiions can be a good hing or he Unied Saes, paricularly

in renewable energy. Our wo counries are he worlds bigges energy consumers, and

open compeiion beween our massive energy markes can uel innovaion, bring

clean energy prices down, and speed boh o our counrys ransiions oward a more

susainable energy economy.
http://www.usitc.gov/trade_remedy/http://www.americansolarmanufacturing.org/news-releases/01-30-12-casm-critical-circumstances.htmhttp://www.ustr.gov/about-us/press-office/press-releases/2011/june/china-ends-wind-power-equipment-subsidies-challengedhttp://www.ustr.gov/about-us/press-office/press-releases/2010/october/united-states-launches-section-301-investigation-chttp://coalition4affordablesolar.org/http://www.chinadailyapac.com/article/innovate-or-slip-down-value-chainhttp://www.huffingtonpost.com/steven-chu/uschina-clean-energy-coop_b_810709.htmlhttp://www.huffingtonpost.com/steven-chu/uschina-clean-energy-coop_b_810709.htmlhttp://www.chinadailyapac.com/article/innovate-or-slip-down-value-chainhttp://coalition4affordablesolar.org/http://www.ustr.gov/about-us/press-office/press-releases/2010/october/united-states-launches-section-301-investigation-chttp://www.ustr.gov/about-us/press-office/press-releases/2011/june/china-ends-wind-power-equipment-subsidies-challengedhttp://www.americansolarmanufacturing.org/news-releases/01-30-12-casm-critical-circumstances.htmhttp://www.usitc.gov/trade_remedy/


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Bu heres he rub. China is a nonmarke economy wih a less-han-ransparen energy

planning process. Tis makes i very hard o ideniy when he Chinese cross he line

rom marke compeiion (which we wan o encourage) o anicompeiive behavior

(which we should gh back agains).

We already know ha he Chinese governmen someimes ries o skir rade rules.

When China joined he World rade Organizaion in 2001, he governmen pledgedo submi required repors on specic naional and regional subsidy programs every

wo years, bu i has no abided by ha pledge. Over he pas 10 years i has only

issued wo repors. Te rs, in April 2006, covered some subsidies rom 2001 o

2004, and ha repor was incomplee because i only included naional subsidies no

subnaional programs. Te Chinese governmen submited a second noicaion in

Ocober 2011, bu again did no include subnaional programseven hough China

has clear obligaions o do so.

Because China has no submited hese repors as promised, i makes i more dicul

or U.S. companies o examine Chinese policy programs and deermine wheher heyare rule-abiding or anicompeiive. Furhermore, since governmenransparencyis

a major problem in China across he board, even when U.S. companies are willing o

spend heir own resources o collec ha daa, i is exremely hard o do. Tis gives

China a lo o maneuvering room o enac programs ha erode U.S. compeiiveness.

Clearly he Chinese governmen needs o do more o comply wih hese rade rules,

and he U.S. governmenand he global communiy as a wholeneeds o do more o

enorce ha compliance.

We have wo dispue-resoluion sysems specically designed o handle companycomplains abou apparenly anicompeiive rade praciceshe anidumping and

counervailing duymechanisms here in he Unied Saes and heWO process a

he inernaional level. Bu ling a ormal complain is cosly in boh cases. Some U.S.

manuacurers may no be willing o inves in expensive legal ees, paricularly idue

o he ransparency issuehey hemselves are no cerain wheher he China price is

marke-based or governmen-induced.

For hose companies who are acually doing business direcly wih China, realiaion is

anoher concern. Ocials a U.S. Oce o he rade Represenaive, or USR, re-

quenly complain ha alhough U.S. companies share inormaion abou Chinese rule

breaking privaely, mos are unwilling o le ormal complains because hey suspec

he Chinese will realiae wih puniive marke access reducions. In he curren dis-

pue SolarWorld Indusries America Inc., he domesic uni o he German company

SolarWorld AG, was he only one o he seven solar comapnies willing o sae is sup-

por or he case publicly. Te oher six companies remainedanonymous due o ears

ha China would realiae.
http://ia.ita.doc.gov/esel/reports/seo2011/seo-annual-report-2011.pdfhttp://ia.ita.doc.gov/esel/reports/seo2011/seo-annual-report-2011.pdfhttp://ia.ita.doc.gov/esel/reports/seo2011/seo-annual-report-2011.pdfhttp://blogs.wsj.com/chinarealtime/2011/09/28/testing-chinas-government-transparency-sweet-talk/http://ia.ita.doc.gov/intro/index.htmlhttp://www.wto.org/english/tratop_e/dispu_e/dispu_e.htmhttp://www.cnbc.com/id/45712228/USTR_Kirk_Says_Troubled_by_Chinese_Trade_Retaliationhttp://www.nytimes.com/2011/10/20/business/global/six-complainants-in-solar-trade-case-are-unnamed.htmlhttp://www.nytimes.com/2011/10/20/business/global/six-complainants-in-solar-trade-case-are-unnamed.htmlhttp://www.cnbc.com/id/45712228/USTR_Kirk_Says_Troubled_by_Chinese_Trade_Retaliationhttp://www.wto.org/english/tratop_e/dispu_e/dispu_e.htmhttp://ia.ita.doc.gov/intro/index.htmlhttp://blogs.wsj.com/chinarealtime/2011/09/28/testing-chinas-government-transparency-sweet-talk/http://ia.ita.doc.gov/esel/reports/seo2011/seo-annual-report-2011.pdfhttp://ia.ita.doc.gov/esel/reports/seo2011/seo-annual-report-2011.pdfhttp://ia.ita.doc.gov/esel/reports/seo2011/seo-annual-report-2011.pdf


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Realiaion can also spread beyond he acual peiioners o harm he U.S. economy

more broadly. In he curren case, or example, rade remedies ha spark Chinese reali-

aion could also harm U.S. companies selling clean echnology inpus o China. Chinese

manuacurers have already argeed upsream solar suppliers by calling on heir own

Commerce Minisry o iniiae an invesigaion ino U.S. subsidies and dumping or

polysilicon expors o China.

China could realiae by blocking marke access as well. In privae conversaions many

U.S.-based polysilicon and solar manuacuring equipmen suppliers say ha in he

curren rade case, realiaory marke access limiaions are a major concern. Many

U.S. solar indusry suppliers ear ha i he Commerce Deparmen levies aris

agains Chinese manuacurers, hen hose manuacurers will immediaely sar buy-

ing upsream producs rom oher counries insead o rom he Unied Saes. Some

Chinese companies are apparenly already insering escape clauses ino heir purchasing

conracs o pave he way or ha swich.

I U.S. companies do ace realiaory measures rom he Chinese, ha would be a rade vio-laion, and hey can cerainly le anoher round o ormal complains. Bu realiaion can

be dicul o prove because i can be dicul o prove why a Chinese cusomer swiched

rom a U.S. supplier o a European one. Whas more, successive rounds o rade dispues

over swiching cusomers would be a massive economic drain on U.S. companies.

Te ip side o realiaion is coercionin he orm o required echnology ranser o

ener he Chinese markeplace and access he counrys cheap labor, is booming domes-

ic marke, and he many governmen subsidy programs ha are available o companies.

echnology ranser is requenly par o global rade deals, bu he Chinese governmen

oen carries i oo ar by blaanly pressuring oreign companies o share propriearyengineering inormaion or he ypes o high-end echnology producs Chinese rms

are sruggling o develop hemselves. Tis can lead o inellecual propery he, which

again harms U.S. companies and erodes U.S. compeiiveness.

o move orward he U.S. governmen will have o do a beter job a dealing wih hese

hreas o U.S. companies operaing in China or exporing here. We need o undersand

and hen ac upon he realiy ha he Chinese economy does no operae like ours. Te

U.S. economy is a decenralized, marke-based sysem wihou op-down economic

planning. Chinese leaders, in conras, run heir economy wih op-down develop-

men plans ha pu a lo o governmen suppor behind criical indusries such as clean

energy. Tose op-down direcives hen measasize a he provincial and local levels

ino myriad programs and policies ha are all bu impossible o discern.

Ta dierence can someimes mean ha when problems arise, individual U.S. compa-

nies and indusries are orced o choose beween leting apparen rule breaking slide ver-

sus squaring o agains Chinas massive adminisraive sae a he naional, provincial,
http://www.bloomberg.com/news/2011-11-21/china-s-solar-industry-seeks-u-s-polysilicon-imports-probe.htmlhttp://www.bis.doc.gov/defenseindustrialbaseprograms/osies/defmarketresearchrpts/techtransfer2prc.htmlhttp://www.nytimes.com/2011/09/06/business/global/gm-aims-the-volt-at-china-but-chinese-want-its-secrets.html?pagewanted=allhttp://www.chinadaily.com.cn/china/2011npc/2011-03/06/content_12122579.htmhttp://www.chinadaily.com.cn/china/2011npc/2011-03/06/content_12122579.htmhttp://www.chinadaily.com.cn/business/2010-10/28/content_11470240.htmhttp://www.chinadaily.com.cn/business/2010-10/28/content_11470240.htmhttp://www.chinadaily.com.cn/china/2011npc/2011-03/06/content_12122579.htmhttp://www.chinadaily.com.cn/china/2011npc/2011-03/06/content_12122579.htmhttp://www.nytimes.com/2011/09/06/business/global/gm-aims-the-volt-at-china-but-chinese-want-its-secrets.html?pagewanted=allhttp://www.bis.doc.gov/defenseindustrialbaseprograms/osies/defmarketresearchrpts/techtransfer2prc.htmlhttp://www.bloomberg.com/news/2011-11-21/china-s-solar-industry-seeks-u-s-polysilicon-imports-probe.html


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and local level. Boh opions erode U.S. company pros, bu in an era where China is a

global economic powerhouse, many U.S. companies decide ha he rs sraegyaci

accommodaionis likely o resul in he leas damage.

Over ime aci accommodaion can erode U.S. compeiiveness. o avoid ha we need

o nd ways o lower he coss o monioring his bilaeral relaionship o make sure

Chinese enerprises and ocials play by he rules and compee wih U.S. companies onan even playing eld. Doing so will require a shi rom he curren sraegy ha places

our primary enorcemen eors on he backs o individual U.S. companies, some o

whichlike many renewable energy companiesare in emerging indusries ha lack

he poliical leverage o do batle wih he Chinese.

Te bes way o address his problem is o improve rade policy coordinaion a home.

Beijing is very adep a divide-and-conquer acics. In he oreign policy realm,

Chinese leaders are well aware ha i hey can maneuver oher counries o deal wih

hem bilaerally, China will have more negoiaing leverage han i would agains a

unied mulilaeral group. China wans o use he same acics agains U.S. companiesmaneuvering hem o square o one by one agains he massive Chinese sae.

Te U.S. governmen needs o do a beter job making sure ha his approach is no

eecive. In 2010 he USR ook a criical sep in ha direcion wih a year-long

program o monior Chinese governmen suppor or Chinese companies compeing

agains he Unied Saes in clean energy. USR also surveyed Chinas subsidy programs

across he board, uncovering around 200 dieren programs ha violaed WO rules.

USR noied he Chinese governmen o hese alleged violaions and also submited

a lis o Chinese subsidies o he W O. Ta sep does no auomaically rigger a WOinvesigaion, bu i does require China o provide more inormaion abou he USR-

conesed subsidy programs. I also makes he USR ndings available o oher coun-

ries, which can help increase mulilaeral pressure agains his ype o rule breaking. I

he Chinese governmen ails o respond o USR noicaion by providing deailed

inormaion on heir subsidy programs, hen USR may escalae bysubmiting a com-

plain o he WO Subsidies Commitee.

Tese inormaion-gahering and noicaion procedures call inernaional and

domesic poliical atenion o Chinese rule breaking. Tey also lay he groundwork

or he Unied Saes o le addiional rade complains and levy addiional aris

agains Chinese impors, which should give he Chinese governmen sronger incen-

ives o comply wih he r ules.

I is imporan o noe ha he USR subsidy survey did no require specic U.S.

companies o le ormal peiions and ac as inermediaries, a role ha can oen
http://www.koreatimes.co.kr/www/news/opinon/2010/08/137_71235.htmlhttp://www.nytimes.com/2011/10/07/business/us-says-some-chinese-subsidies-violate-trade-rules.html?_r=2http://www.ustr.gov/about-us/press-office/press-releases/2011/october/united-states-details-china-and-india-subsidy-proghttp://ia.ita.doc.gov/esel/files/china-counter-notification.pdfhttp://www.nytimes.com/2011/10/07/business/us-says-some-chinese-subsidies-violate-trade-rules.htmlhttp://www.ustr.gov/about-us/press-office/press-releases/2011/october/united-states-details-china-and-india-subsidy-proghttp://ia.ita.doc.gov/esel/reports/seo2011/seo-annual-report-2011.pdfhttp://ia.ita.doc.gov/esel/reports/seo2011/seo-annual-report-2011.pdfhttp://www.ustr.gov/about-us/press-office/press-releases/2011/october/united-states-details-china-and-india-subsidy-proghttp://www.nytimes.com/2011/10/07/business/us-says-some-chinese-subsidies-violate-trade-rules.htmlhttp://ia.ita.doc.gov/esel/files/china-counter-notification.pdfhttp://www.ustr.gov/about-us/press-office/press-releases/2011/october/united-states-details-china-and-india-subsidy-proghttp://www.nytimes.com/2011/10/07/business/us-says-some-chinese-subsidies-violate-trade-rules.html?_r=2http://www.koreatimes.co.kr/www/news/opinon/2010/08/137_71235.html


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urn hem ino sacricial lambs. Insead he Obama adminisraion kicked o

his invesigaion proacively when i launched he Naional Expor Iniiaive in

early 2010. Ta iniiaive ordered USR and he Commerce Deparmen o pay

closer atenion o oreign governmen subsidies ha erode U.S. compeiiveness,

paricularly vis--vis Chinese manuacurers.

Ten here is he new rade Enorcemen Uni announced by Presiden Barack Obamain his recen Sae o he Union speech. Te presiden said he new uni willbring

ogeher key U.S. rade ocials rom he deparmens o he reasury, Commerce,

Energy, and USR (under Michael Froman, depuy naional securiy adviser or

Inernaional Economic Aairs) o beter coordinae U.S. rade acions agains China.

Ta uni will reporedly also consider asking he Commerce Deparmen o iniiae

counervailing duy and anidumping cases isel on behal o U.S. indusries raher han

waiing or companies o le individual peiions.

In heory his approach should go a long way oward balancing he ineress o U.S. com-

panies agains Chinese governmen involvemen in hese dispues, hereby eliminainghe burden on U.S. companies or iniiaing hese acions and reducing he possibiliy

o realiaion by he Chinese agains individual U.S. companies. I his uni also direcs

more ederal governmen ime and resources oward monioring Chinese governmen

behavioragging apparen rade violaions and raising ormal complains wih he

WOhen his approach may also enable he Unied Saes o beter enorce Chinese

compliance wih basic WO rules.

We also need o make sure we are invesing in he oundaions o innovaion here in he

Unied Saes o give our companies he policy environmen hey need o remain com-

peiive agains a rising China. I is ineviable ha here will be some global economicreshufing as China moves up he economic ladder, bu we can gain a lo o benes

rom ha process i handled well. Chinas growing domesic marke, or example, can be

a major new source o consumers or U.S. producs, bu we have o make sure ha we do

no cede criical American jobs o he Chinesein solar manuacuring as in oher U.S.

indusriesjus because we were lax on he policy side.

Conclusion

Chinas ocus on renewable energy and high echnology is here o say. Ta can be a

grea hing or he Unied Saes. Chinese compeiion can give U.S. companies sronger

incenives or innovaion and can help bring down renewable energy prices o beter

compee wih radiional ossil uels. Combining our wo markes can also increase

demand or U.S. clean energy producs and provide exacly he ypes o higher-paying

jobs ha we need o resore our economy o susainable, broad-based economic growh.
http://www.whitehouse.gov/the-press-office/executive-order-national-export-initiativehttp://trade.gov/nei/http://ia.ita.doc.gov/esel/reports/seo2011/seo-annual-report-2011.pdfhttp://ia.ita.doc.gov/esel/reports/seo2011/seo-annual-report-2011.pdfhttp://www.whitehouse.gov/the-press-office/2012/01/24/remarks-president-state-union-addresshttp://online.wsj.com/article/SB10001424052970203436904577151273759279432.htmlhttp://online.wsj.com/article/SB10001424052970203436904577151273759279432.htmlhttp://www.americanprogress.org/issues/2011/01/china_innovation.htmlhttp://www.booz.com/media/file/China_Consumer_Market_Strategies_2011.pdfhttp://www.booz.com/media/file/China_Consumer_Market_Strategies_2011.pdfhttp://www.americanprogress.org/issues/2011/01/china_innovation.htmlhttp://online.wsj.com/article/SB10001424052970203436904577151273759279432.htmlhttp://online.wsj.com/article/SB10001424052970203436904577151273759279432.htmlhttp://www.whitehouse.gov/the-press-office/2012/01/24/remarks-president-state-union-addresshttp://ia.ita.doc.gov/esel/reports/seo2011/seo-annual-report-2011.pdfhttp://ia.ita.doc.gov/esel/reports/seo2011/seo-annual-report-2011.pdfhttp://trade.gov/nei/http://www.whitehouse.gov/the-press-office/executive-order-national-export-initiative


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12 C t A i P | Shi i Li ht U S Chi Cl E C ti

Tis relaionship is only a win-win, however, i our companies have a level playing eld,

and more work is needed o achieve ha goal. Te Obama adminisraions new rade

enorcemen iniiaive is a grea sar in he righ direcion. Oher seps may be ideni-

ed once he new rade Enorcemen Uni is up and runningseps boh bilaeral and

inernaional in scope ha can help he Unied Saes and China beter manage his crii-

cal bilaeral rade relaionship or he bene o he global economy.

Melanie Hart is a Policy Analyst on China Energy and Climate Policy at the Center for

American Progress.

Acknowledgements

Tanks o Kae Gordon, Ed Paisley, Rudy deLeon, Sabina Dewan, Michael Etlinger, Adam

Hersh, and Sephen Lacey or heir commens on and conribuions o his issue brie.

Endnotes

1 Guo jia zhong chang qi ke xue he ji shu a zhan gui hua gang yao (2006-2020) (Guidelines or the National Medium- and Long-Term Science and Technology Development Program, 2006-2020), PRC State Council, February 2006, available at http://www.gov.cn/jrzg/2006-02/09/content_183787.htm.

2 Jiangsu sheng guang u a dian tui jin yi jian (Jiangsu Province Opinions or Advancing Solar PV Generation), Jiangsu ShengFagaiwei (Jiangsu Provincial Development and Reorm Commission), June 30, 2009, available at http://www.carcu.org/html/zhengceagui/20090702/2974.html.

3 Guang u chan ye zai wai shou zhi yu ren qi neng rang han dong leng le yang guang? (Solar PV Industry Sufering RestraintsAbroad: How to Shine Light on the Cold Winter?),Zhongguo Huanjing Bao (China Environment Report), December 31, 2011, avail-

able at http://ditan360.com/NengYuan/Ino-98515.html.

4 Xu Meng, Guo nei guang u chan ye cheng xian jing pen ren ren zheng gan tai yang neng sheng yan (Domestic Solar PVIndustry Becomes a Gold Rush: Everyone Rushing to Join Solar Energy Feast), Jiefang Ribao (Liberation Daily), February 23, 2011,available at http://w ww.chinanews.com/ny/2011/02-23/2861583.shtml.

5 Ibid.

Shining a Light on U.S.-China Clean Energy Cooperation

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