March 8, 2021

European Union and China Settle Solar Panel Fight

The settlement essentially involves setting a fairly high minimum price for sales of Chinese-made solar panels in the European Union, so as to prevent them from undercutting European producers. Those producers had accused Chinese manufacturers of benefiting from massive loans from state-owned banks and other government assistance so as to charge prices that would otherwise by uneconomical.

The accord “will remove the injury that the dumping practices have caused to the European industry,” Karel De Gucht, the European Union’s trade commissioner, said in a statement. “We have found an amicable solution that will result in a new equilibrium on the European solar panel market at a sustainable price level,” he said.

Mr. De Gucht’s decision in June to carry out his threat to impose tariffs on solar panels from China generated significant fears within the Union about retribution from China. Chancellor Angela Merkel of Germany had called for further negotiations to avoid harm to German exporters, and European importers of solar products from China also expressed fury over the tariffs.

At the time, Mr. De Gucht said he had been left with no choice to impose the tariffs since his investigators found a systematic effort by Chinese companies to sell solar panels in Europe below the cost of making them, a practice known as dumping.

On Saturday, officials at the European Commission, the European Union’s executive agency, said they could not give details of the deal, including the price that Chinese exporters would pay to sell their panels in Europe, until the arrangement had been formally approved by the commission. But an official from the bloc, who spoke on condition of anonymity because the deal had not yet been formally approved, said the two sides had agreed a minimum price of 0.56 euros per watt ($.74), which would base any potential surcharge on the amount of electricity generated by each imported panel.

The deal immediately met with ferocious criticism, including a promise to sue, from the European solar manufacturers who have strongly lobbied in favor of tough action against the Chinese exporters.

The agreement “is contrary in every respect to European law,” Milan Nitzschke, a vice president of SolarWorld, a German manufacturer, and the president of EU ProSun, an industry group. A minimum price of between 0.55 euros and 0.57 euros was at the level of “the current dumping price for Chinese modules,” EU ProSun said in a statement.

The arrangement would cover exports from about 90 of approximately 140 Chinese exporters that were examined during the bloc’s investigation, and that represent about 60 percent of the panels sold in the Union, the bloc official said. Those 90 companies would no longer face tariffs that were put in place in June.

Chinese exporters that do not agreed to the terms of the deal still face tariffs that are set to rise to 47.6 percent on Aug. 6 from the current level of 11.8 percent, the official said.

The Chinese government had been hoping from the start of the trade case with the European Union for a negotiated settlement instead of a legal battle, so Saturday’s deal comes as a relief, said He Weiwen, the co-director of the China-United States-European Union Study Center at the China Association of International Trade in Beijing.

“This is what China expected because at the very beginning, we said we would proceed in two ways, one is with the legal dispute and one is with bargaining,” Mr. He said. “China and the European Union have had the desire to settle this case through negotiation rather than a trade war.”

The European settlement with Beijing in some ways complicates a current similar dispute between the United States and China. The United States Commerce Department imposed final anti-dumping and anti-subsidy tariffs last spring on imports of solar panels from China.

China retaliated on July 18 by announcing that it was preparing to impose tariffs exceeding 50 percent on polysilicon, the main material for solar panels, on imports from the United States and South Korea.

James Kanter reported from Brussels and Keith Bradsher reported from Hong Kong.


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Economix Blog: Answers to Questions About China’s Economy

David Barboza

On Wednesday, Economix asked readers to submit questions for David Barboza, who has reported for The Times from Shanghai since 2004. Mr. Barboza’s article, “Entrepreneur’s Rival in China: The State,” was published on the front page of Thursday’s paper.

Below are his responses.

From Michael Hauge, of Huangshan City, Anhui Province

In light of your experience conducting extensive due diligence in the past on corporations such as Enron, what are the biggest mistakes foreigners can commit when examining companies for investment in China? Genuine balance sheets? Government influence on industry? Trustworthy executives? I’d love your take on the issue.

Michael, great question. And a really tough one.

Few would argue that investors should avoid China. Many of the hottest initial public stock offerings during the past decade have been Chinese companies. And today China has two Internet giants — Baidu and Tencent — whose market capitalizations top $40 billion! But the risks are considerable. China has a weak rule of law, and has struggled to contain rampant corruption and accounting fraud. There is also a lack of transparency in government operations and the way many companies operate here.

I am not an investment adviser, but based on my experience on the ground, I would suggest caution and counsel investors that there are many hidden risks here.

Also, looking at your recent ‘Entrepreneurship’ article through the lens of a writer experienced in Chinese MA (referring to the Lenovo-I.B.M. deal here), could you see a trend of Chinese nationals such as Cathay’s Mr. Liu getting frustrated in China and taking their business abroad via MA? While reverse mergers have been common in the past few years, it seems as though many Chinese companies are trying to unwind their abroad positions and return home, but as your most recent article depicts, the grass might not be greener for them at home…

The executives at Cathay have told me they have considered moving some facilities outside of China. We’re already seeing many wealthy Chinese entrepreneurs investing overseas. But they also know there are major challenges operating overseas. Many Chinese executives don’t have experience outside of China. And they’d lose some of the labor and supply chain advantages they’ve built up here. Also, it’s probably hard to leave a country that continues to grow at 9 percent a year. My feeling is they’ll dabble overseas but mostly stay at home, despite the frustrations.

From Jonathan Huneke of New York, N.Y.

I wonder if anyone is looking at the impact of state-owned or state-championed companies from China (or Russia) who may have an advantage over their U.S. or other Western rivals in bidding on contracts in third markets? It’s well known that state firms have a competitive advantage in their home markets. Now, as Chinese and other state companies begin to invest abroad, are they crowding out established private companies, and is there a need for new rules to address this?

I have begun looking at this, and I’m sure many, many others are too. But I have not yet seen a thorough study that compares China’s efforts with those of other countries. I believe the U.S. government and European governments also find ways to support their own national champions. What the comparisons look like I don’t yet know. Many may quibble over how the evaluations are done. But this is an area ripe for study. And with so much at stake, I imagine we’ll see many such studies in the coming years.

My colleague Keith Bradsher, who is based in Hong Kong, has dealt with some of this in recent articles about China’s government-backed solar industry.

From David Gibson, Shanghai

What are your views on the possibility of severe recession in China due to bad loans made by local governments?

I wrote a lengthy article on China’s investment binge in July, and based on that earlier reporting, and what I continue to hear about and read about from analysts like the Beijing-based banking expert Charlene Chu at Fitch Ratings, I’d say this is cause for major concern. A consensus is building that, perhaps in the next year or two or three, China can absorb the waste and excess. But after that, the country could slide into a long, protracted recession that lasts five to 10 years. I’m not an economist, but there have to be consequences to a system that encourages overspending and overbuilding.

Do you think there is a real estate bubble in the eastern, industrialized cities? If so, what affects will it have on policy makers in Beijing and elsewhere?

This continues to be a major concern among policy makers. And I had these worries when I arrived over six years ago. So I was reluctant to buy. I stood by and watched as housing prices in Shanghai went up about 400 percent in the area I live in! It is perhaps too simplistic to say China is one big property bubble. But there are certainly plenty of bubbles in eastern cities, including the one I live in, Shanghai.

Nicholas Lardy, an economist at the Peterson Institute and one of the leading authorities on China’s economy, traced some of this to China’s system of financial repression — punishing household savers by paying them low interest rates and subsidizing state companies. Because households cannot earn a decent interest rate in banks, they are doing what’s natural: piling into real estate. “If I wanted to create a real estate bubble,” Professor Lardy told me, “I’d do what China has been doing. If you leave money in the banks, it vaporizes!”

In your opinion, can Western companies compete successfully in China? Is it a level playing field?

American companies complain a lot these days about how the Chinese government places them at a disadvantage when competing with Chinese companies. But probably you need to think in terms of sectors or industries. In some industries, like telecom, Chinese state-run companies have big advantages, and even oligopoly status. But in others, like the retail market, there are great opportunities, and American and European companies are thriving here, selling Coke, Nike, Gucci, Mercedes Benz and dozens of other brands. Affluent Chinese want the best, and right now, China still doesn’t have much in the way of reliable brands. Apple is probably going to sell more than $15 billion in greater China next year. That’s a remarkable figure, considering some of the best brands are lucky to have retail revenue of $1 billion.

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China Denounces Demand for High Tariffs on Solar Panels

China accused the American industry of protectionism that could undermine the global economy and harm international efforts to combat global warming. It called for the United States government to reject the industry’s legal filing.

In a carefully worded statement, the Chinese commerce ministry suggested that if the American government imposed import tariffs on Chinese solar panels, then China would purchase less American factory equipment and raw materials for making solar panels.

But the statement did not specify whether American exports would suffer because of deliberate retaliation by the Chinese government, or simply because Chinese companies would have less need for the equipment and raw materials if the United States market were to be partly or completely closed to them.

Either way, “the result is a lose-lose situation, and this will cause an adverse impact on the bilateral trade interests of the two countries,” the statement said.

A coalition of seven American companies filed the trade case against China on Wednesday. They accused Chinese manufacturers of obtaining billions of dollars in Chinese government subsidies to help them buy market share in the United States, and of dumping solar panels in the United States at prices that did not fully cover the cost of manufacturing and distributing them.

Their petition to the Commerce Department in Washington and a related federal agency, the International Trade Commission, seeks tariffs “well in excess of 100 percent” to offset dumping, plus additional unspecified tariffs to offset the suspected subsidies.

The coalition responded quickly to the Chinese criticism. “The Chinese government’s claims that our actions are improper and protectionist, and that its illegal subsidies and massive dumping of solar product are helping the global economy and the environment, are absurd,” said Gordon Brinser, the chief executive of SolarWorld Industries America, the lead company in the coalition. “China is one of the biggest trade protectionists in the world.  In the solar industry, China is gutting manufacturing and jobs here in America and abroad while China’s solar industry pollutes its own people. The accusations have no basis in fact.”

The United States government has 20 days from the filing of the petition to decide whether to take the case, but the law gives it little discretion to reject it. A preliminary ruling is likely by March on the subsidies claim and by May on the dumping claim.

The Commerce Department and the I.T.C. must use narrow criteria set by Congress that give little discretion to either agency except on the question of whether a domestic industry has suffered significant injury from imports. The American solar panel industry has been laying off thousands of workers and closing factories. If the agencies pursue the case, final rulings could take six months or longer.

The Chinese ministry’s statement barely addressed the substance of the industry’s complaint, mentioning only in passing that Chinese policies were “in line with World Trade Organization rules.”

The ministry also made a clear plea for environmentalists to take its side.

“The development of the solar energy industry is a key measure of the Chinese government to address the challenges of climate change and energy security,” the statement said. “The United States has no reason to criticize other countries’ efforts to try to improve humanity’s environment — rather, it should join together with other countries to strengthen cooperation in the field of solar energy, and join together to face the challenges of climate change and the environment.”

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Oil Sands Project in Canada Will Go On if Pipeline Is Blocked

So the regulatory battle over the proposed Keystone XL pipeline, which would link the oil sands to the Gulf Coast of the United States, may be little more than a symbolic clash of ideology, industry experts say. Even if the Obama administration rejects the Keystone plan, the pace of oil sands development in northern Alberta is unlikely to slow.

Oil producers in Canada have several alternatives for reaching the United States market. And recent investments by Chinese companies in the oil sands suggest that a growing alternative market lies across the Pacific.

“The Canadian oil sands will continue to be developed irrespective of whether the pipeline goes ahead,” said Russell K. Girling, the president and chief executive of TransCanada, the company behind the $7 billion project.

That determination to proceed has become almost beside the point in the battle over Keystone XL’s fate, which has dragged on since November 2008.

Environmentalists are using the project as a proxy for their general antagonism toward oil sands production, which consumes large amounts of water and energy and can be destructive to the boreal forest that sits on top of the tarry rock from which the oil is extracted.

“This is really a campaign against tar sands expansion rather than a single pipeline,” said Susan Casey-Lefkowitz, the director of the international program at the Natural Resources Defense Council, an environmental group that is a leading American critic of the process.

Advocates, meanwhile, say that oil sands extraction is getting cleaner and represents a potentially major source of oil from a politically stable ally that will help ensure America’s energy security.

The stakes are enormous. The oils sands have reserves of 171.3 billion barrels, according to estimates by the provincial government of Alberta — enough to change the balance of world oil markets, some energy experts say; by comparison, Saudi Arabia has reserves of 264.2 billion barrels.

Because of that, the debate over the pipeline has been unusually protracted and fractious, and, according to some analysts, characterized by hyperbole on both sides.

“This situation has reached such talismanic significance that whatever the U.S. government does will be read far more deeply than the substance merits,” said Michael A. Levi, the senior fellow for energy and the environment at the Council on Foreign Relations.

The State Department, which must approve the project because it crosses international borders, is nearing the end of its environmental review and then will examine national interest questions. It has said it expects to make a ruling by the end of the year.

As the world’s largest importer of oil and a next-door neighbor of Canada, the United States is the most attractive and logical market for oil sands crude and already buys virtually all that Canada exports. But producers are eager to move their product all the way to the Gulf of Mexico, where there are more refineries capable of handling the unusually thick crude.

It is now shipped through an existing pipeline — an earlier part of the Keystone project — to Cushing, Okla., where large storage facilities are fed by a variety of pipelines. There, it is priced against lighter oil and generally commands a lower price.

Because demand for oil in the United States is unlikely to fall significantly in the foreseeable future, Canadian producers are sure to look for other ways to ship their oil south if the Keystone XL project is rejected. While backup plans are not fully developed, other options do exist.

Shipping by rail is one. Last October, in a joint venture with the Canadian National Railway of Montreal, Altex Energy, an oil shipping company, began shipping relatively small amounts of tar sands crude along Canadian National’s tracks directly to the Gulf of Mexico.

Not only does rail avoid billions of dollars in infrastructure investment, it also escapes any regulatory reviews in the United States.

“It’s no different than shipping grain,” said Glen Perry, the president of Altex, which is based in Calgary, Alberta.

Mr. Perry acknowledged that rail was considerably more expensive than pipeline shipping. Pipelines, however, require the oil sands crude to be diluted with chemicals that thin it and make it flow more easily. Rail cars do not.

In addition to rail, there are other pipelines available. The Trans Mountain pipeline owned by Kinder Morgan already moves Alberta oil, including tar sands production, to ports on Canada’s Pacific Coast. Some of that travels by sea to refineries in the United States.

While that pipeline is operating at near capacity, Kinder Morgan is considering increasing its capacity to the coast and has already upgraded the line inland.

Enbridge, another large Canadian pipeline company, is proposing its own line, from just north of Edmonton, Alberta, to the northern British Columbia port of Kitimat.

While both of those projects have encountered opposition from environmentalists and some aboriginal groups, the political climate favors the energy industry. Last month Canadians re-elected a Conservative government that has its traditional power base in Alberta, which has staunchly promoted the oil sands.

Other pipeline projects could develop if Keystone XL does not. It is technically feasible to convert one of two natural gas pipelines to eastern Canada to carry oil. Once there, shipments could enter the United States through existing trans-border crossings in Ontario and Quebec.

Ronald Liepert, the energy minister in Alberta, said that while Canada would prefer to sell its oil to the United States, “this commodity will go someplace.”

In particular, he said, China is already a major consumer of other Canadian natural resources and a small investor in the oil sands. “I can predict confidently that at some point China will take every drop of oil Canada can produce.”

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S.E.C. Investigating Longtop Financial of China

The case deepens concern about possible accounting irregularities at Chinese companies. The S.E.C. has created a task force to investigate fraud by non-American companies listed on United States exchanges. Longtop went public in 2007 in an offering led by the Goldman Sachs Group and Deutsche Bank.

The auditor, Deloitte Touche Tohmatsu, resigned on Sunday, three days after Longtop said that its chief financial officer offered to resign.

Longtop had a $1.08 billion market value before trading was halted in New York last week.

The company, based in Xiamen, China, makes software for Chinese financial services companies. It is among the largest of several Chinese companies, including China MediaExpress Holdings, that were hit recently by accusations of accounting fraud, including from short-sellers or regulatory inquiries.

According to Longtop, Deloitte said that its resignation stemmed in part from “recently identified falsity” in Longtop’s financial records, as well as “deliberate interference” by Longtop management in the audit process. Longtop also said Deloitte could no longer rely on its previous audit reports for the company.

Longtop said it would cooperate with the S.E.C., and had hired legal counsel and was about to hire forensic accountants.

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