Solar Trade Wars: Showdown Coming? 中西方太阳能贸易战离摊牌已不远？
A new flurry of noise indicates a showdown may be imminent in the ongoing solar trade wars between Beijing and the west, reflecting the very real possibility that many of China’s top players may be on the brink of bankruptcy due to a prolonged downturn for their sector. The sudden flurry of new noises comes as yet another top manufacturer, Yingli Green Energy (NYSE: YGE), has just pre-announced second-quarter results that show the industry’s long-anticipated recovery may be weaker than expected. (company announcement)
Let’s look first at the trade war, where there’s an interesting foreign media report saying Chinese government officials have told Trina (NYSE: TSL), another major solar player, to cancel a planned demonstration for workers to voice their anger over a European Commission investigation into unfair state support for Chinese solar panel makers. (English article) The report says simply that organizers of the Trina event were told that their planned action was “inappropriate”, but doesn’t really provide any more details except to say that the event was canceled. It adds that Yingli’s plans for a similar demonstration were canceled for weather-related reasons.
At the same time, other reports are saying a Beijing-backed foreign trade association held a press conference where its leaders warned that China could retaliate if the European Union ultimately levies punitive tariffs against Chinese solar panels. (English article) The US has already announced its own punitive tariffs following an earlier investigation, prompting China to launch its own probe into allegations of unfair state support for US makers of polysilicon, a key ingredient in solar panel production.
The moves by local officials to stop the planned protests at Trina and probably at Yingli seem to indicate China is starting to worry about the health of its solar panel makers and the potential for social unrest if any is forced to close or make mass layoffs. That kind of worrying could lead Beijing to take extreme action, which could result in the showdown I mentioned at the start of this post.
Such a showdown would ultimately be just as destructive for the industry as the current downturn, which has now lasted a year and a half. Instead, Beijing would be much better served by taking action to address some of the source of the US and European complaints rather than get into this kind of tit-for-tat trade war.
Meantime, Yingli has just joined a group of firms that also includes Trina and Canadian Solar (Nasdaq: CSIQ) in pre-announcing second-quarter results that show its sales growth for the period will be about 10 percent lower than it forecast a few months ago. Earlier this week Canadian Solar announced a downward adjustment of similar magnitude (company announcement), while Trina lowered its sales forecast for the quarter by 20 percent. (company announcement)
These downward revisions seem to show the industry’s rebound is a bit weaker than expected, prolonging the pain that many companies will feel. If Beijing really wants to improve the outlook, it should push for consolidation of its domestic market to create a field of 3-4 major firms, and then take strong steps to wean them from some or all of the state subsidies that lie at the center of the US and European complaints.
Bottom line: Recent noise from the solar sector indicates Beijing may be preparing for a showdown with the west in the ongoing trade wars over unfair state support for China’s solar industry.
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