China Analysis: Solar panels

A crisis “made in China”

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What do Chinese experts think about the future of the Chinese and the global solar industry? This special issue of China Analysis looks at the main challenges of China's solar panel industry. 

On June 4, the European Commission announced that it would impose an initial anti-dumping levy of 11 percent on solar panel imports from China, a rate that is set to rise after two months if talks between China and the European Union do not resolve the issue. This has sparked an immediate and angry response from China.

After threatening to take anti-dumping action against Belgian chemical firm Solvay, China has opened one inquiry on red wines from Europe and another on high-end automobile imports. China Analysis considers the views expressed by Chinese experts in the past few months on the state of the country’s solar panel industry. Clearly, the production glut created by a top-down policy of subsidies has spilled over to Europe, and Chinese industry experts are aware of the mismatch between production and demand within their own market. Some of their own market statistics remain doubtful: given the visibility of individual solar panels all over China, a 2GW market size that puts China behind Italy and on a par with France is hardly believable. That makes Chinese prime minister Li Keqiang’s plan to increase the Chinese solar panel market to 35GW within two to three years more plausible. Some progress may be possible simply through carrying out more realistic statistical accounting.

The sobering analysis from China does not solve the European or, indeed, the global dilemma. Even assuming a big drop in price, solar energy requires subsidies either to the producer or to consumers in order to be competitive. Solar panel production is not labour-intensive, but it relies on economy of scale. Europe and China would be well advised to cut a deal, since solar panels are only one element in a solar industry chain that starts with polycristalline silicon and ends with installators working for end users. If we want cheap solar energy, we need the cheap Chinese solar panels that have been made possible by huge government support. But a Chinese monopoly on this sector presents the same dangers as, for example, the stranglehold on rare earths that China has achieved in recent years. Chinese negotiators should recognise that this crisis is made in China and begin responding to their foreign partners. They should do away with export tax rebates. They should start to foster alliances between Chinese and European firms, which have very different strengths, instead of trying to build a wholly Chinese supply chain.

The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of their individual authors.

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