“Expand or die”: China’s solar companies now also want Western government aid

China is flooding the world with cheap, heavily subsidized solar modules. This angers European and American companies. The USA and the EU are discussing import bans and punitive tariffs, but Chinese solar companies have long since taken a step further.

Electric cars, wind power, batteries or solar energy: In future industries, China is subsidizing everything that is not on the tree in order to become a global leader. In 2022, more than 99 percent of listed companies in the new key technologies would have received direct government subsidies from China, the Kiel Institute for the World Economy (IfW) has calculated in a new analysis.

The result is well known: BYD is scaring other car manufacturers with its exports, the EU Competition Commission is taking a close look at Chinese turbine manufacturers for wind farms, and the Chinese solar industry is essentially producing ultra-cheap modules from the world market to Western competitors. China is flooding the European market with renewable energies, says the German Economic Institute (IW) in Cologne.

During his three-day visit to China, Chancellor Olaf Scholz addressed price dumping, copyrights, overcapacity and told the leadership in Beijing: We need fair competition or the EU will impose punitive tariffs!

“That’s what standard economics says”

Experts doubt that this threat will be received. The cheap Chinese offers are a blessing for consumers, the environment and the climate. Not only the federal government knows this, but also Janet Yellen. “If someone sends you cheap goods, you should send a thank you letter back. That’s what standard economics says,” explained the US Treasury Secretary in an interview with the Wall Street Journal at the beginning of April. Actually.

In fact, the 77-year-old would now “never” write a thank you letter again, as she immediately added in the interview. Yellen also finds Chinese industrial policy highly problematic. She also made this clear during a visit to Beijing in April. Cheap Chinese imports would harm American workers and companies, Yellen said in the Chinese capital. China must change its industrial and export strategy if it is interested in good trade relations in the future. The People’s Republic is now simply too big for the rest of the world to be able to absorb its enormous capacities.

Yellen’s allegations are justified. Because while American manufacturers or German manufacturers like Meyer Burger are going to their knees because of the ultra-cheap competition from the People’s Republic and entire regions are losing jobs, Chinese companies can continue to produce and even achieve their production goals despite difficult conditions increase. “Your companies don’t have to leave the market,” Yellen said in China. “It’s more like ours.”

Solar needs covered by 2023?

The capacities that Yellen is talking about seem adventurous: in 2023, Chinese companies were able to produce solar modules with a total output of 861 gigawatts (GW). This year, despite the low prices, capacities are expected to increase by a further 500 to 600 GW, according to estimates by energy experts from the analysis companies Wood Mackenzie and Rystad Energy. Analysts from Climate Energy Finance in Sydney classify these quantities: Only with this year’s production could the entire global Solar needs covered until 2032 become. There are still significantly more solar modules being manufactured worldwide than are being installed (390 GW). Due to the massive oversupply, prices for solar modules fell last year by almost 50 percent. The US Treasury Secretary made it clear in Beijing that it was time for a change in strategy.

The Chinese solar industry will not be happy to hear such statements, as it is anything but happy about selling off its modules at junk prices. Even market leaders like Longi Energy is currently cutting thousands of jobs, according to the financial and business portal Bloomberg reported.

There is currently no end to consolidation in sight. If you can, try to expand your market share with cheap offers in order to force other manufacturers out of the market, according to the analysis company Rystad Energy. Wood Mackenzie experts add that some Chinese module manufacturers are currently even accepting orders at a loss to defend their position, causing prices to fall further. The experts agree Some: Chinese companies will also soon have to declare insolvency.

“Expand or die”

The Chinese solar industry is also dissatisfied because it fears that the price war will permanently damage its image, which could prevent it from accessing many other markets. India, for example, has previously purchased 92 percent of its solar modules from China, but is now importing them forbidden. Even Chinese economists are now warning that the excess capacity could affect the international trade order and lead to a wave of protectionism with tariffs and restrictions on Chinese products.

A Chinese industry representative has therefore issued a strategy in recent weeks: “Expand or die”. Instead of flooding the world with cheap exports, Chinese companies should rather build factories and production facilities in Europe, but also in the USA, where import restrictions are already particularly strict.

This would have two advantages for the Chinese industry: On the one hand, it would no longer threaten jobs in the West, but would create new ones. In addition, manufacturers like Longi Energy could impose import restrictions with local production evade – and if the plan works, people in the USA will suddenly even be able to speculate on additional American state aid from the Inflation Reduction Act (IRA), following the German model.

Is Yellen right?

The anger of German and American solar companies over cheap Chinese imports is understandable. However, import restrictions, punitive tariffs or state aid no longer seem to be able to stop Chinese dominance. This primarily achieves one thing: the energy transition will be more expensive for everyone. A complicated message at a time when the traffic light has to turn every euro in the German household three times and every fifth family says: We don’t have the money for a week’s vacation.

The Kiel Institute for the World Economy (IfW) also comes to this conclusion in its analysis: “European industry is often no longer competitive in terms of price against competition from China. Without China’s subsidized technology, products that Germany supplies would also become more expensive and scarcer green transformation needed.”

The Kiel economists are also calling for the abolition of subsidies that are particularly harmful. Janet Yellen will hopefully be right in her assessment that the leadership in Beijing has understood the message from the USA and Europe.