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Will the EU Kill China’s Solar Industry?

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Pacific Money

Will the EU Kill China’s Solar Industry?

Massive punitive tariffs on Chinese solar panels from the EU could be coming.

Every few weeks, it seems, a new twist takes place in the drama of China’s solar industry.  The latest news, however, emerges not from Wuxi, home of Suntech Power, nor from Xinyu, home of LDK Solar. In fact, the threat comes from the Brussels in the European Union (EU).

According to recent media reports, the European Union Trade Commissioner Karel De Gucht will recommend this coming Wednesday (May 8) that the bloc should slap massive punitive tariffs on Chinese solar panels. Reuters writes that such Tariffs would be proposed “to guard against Chinese production [capacity] that quadrupled between 2009 and 2011 to more than the entire global demand.”

The Financial Times reports that the proposed tariff could be as high as 40 per cent – a level which would probably be the final nail in the coffin for several of China’s struggling Photo-voltaic (PV) manufacturers.

As covered previously in Pacific Money, things have not been going well for China’s solar industry.  The trend continues unabated; last week Suntech reported that its revenue in 2012 had plummeted by 48% from 2011. It is no wonder that Suntech has already defaulted on bonds  and has been declared bankrupt by a Chinese court on behalf of several Chinese banks with exposure to the company.  LDK has also defaulted on a loan, whilst Chaori continues to struggle.

The recommended trade sanctions expected to be suggested by De Gucht this week are the result of a trade enquiry triggered by a complaint from German manufacturer SolarWorld.  IF they are backed by the EU, then they could come into effect by early June, and would outdo similar measures by the United States against China’s solar industry last year.

In even worse news for Chinese manufacturers, at the end of April the European Commission (EC) launched another investigation into China’s solar industry – this one aimed at illegal subsidies alleged to benefit Chinese makers of solar glass.

Some in Europe – companies which install panels and others which produce components used in PV cells in China – are unsurprisingly opposed to the measures. This time, however, it seems De Gucht and his trade commission are keeping their eye on “bigger picture” effects and sticking to their guns, even if there will be a period between June and December in which a negotiated solution can be reached before the measures are locked in for years.

The timing is very bad for China’s embattled solar companies.  The European market for solar panels in 2012 (and despite the partial phasing out of subsidies to buyers) was still worth about half of the global total of USD$77billion. Chinese solar firms had come from nowhere to take more than 80 percent of that market, yet were still unable to avoid the distress described above. Hence an EU punitive tariff will probably be the final straw that forces serious consolidation into the industry.

China of course opposes any such tariff, and will be sure to try to retaliate against the EU both within and beyond the solar related industries. The Chinese official position is that the EU lacks competitiveness, and this is the reason for EU problems.  However, the common findings reached by both the U.S. and the EU on the matter of solar panels leave China with a pretty difficult case to argue, and a potential united front between the top two economies in the world (if the EU is counted as one).

One bright point for China is that the failure to completely rescue Chaori, Suntech and LDK suggest that the government is indeed in favour of some consolidation – consolidation which would have been necessary eventually even without the EU and U.S. tariffs. At least now, the latter can be held up as scapegoats for the pain that has yet to come.