If the relationship between the U.S. and China were a potential company merger, now would seem a great time to see the stocks. Nowhere is the interplay more fraught than at the clean-energy sector, the universe of fast-growing businesses built around products such as solar panels, batteries, and electric cars.
China, which has decreed green businesses a tactical priority, has become the world’s biggest manufacturer of clean-energy equipment and of fresh energy itself. The U.S. has revealed less continuing interest in these arenas – but tons of interest in trying to invade the Chinese green giant.
That approach is damaging not just the world but America’s bottom line.
A long-running tariff war jeopardized by Washington and by a few American chief executives would be backfiring, harming the U.S. clean-energy business that its rhythms stated it might help. The anti-China fever also is blinding the U.S. to emerging opportunities to leverage China’s green drive for the sake of American corporations and consumers. The chances are the outgrowth of a little-noticed but possibly far-reaching effort by China to modernize its green venture to retool a raft of economically inefficient green subsidies and also to change potentially enormous amounts of funds in a lower-carbon direction. Those twin Chinese transformations provide informed U.S. players fresh methods of making money — by selling electric automobiles in China without having to filler joint ventures with Chinese firms to peddling green products and services to countries targeted at the huge Chinese foreign-infrastructure-investment program known as the Belt and Road Initiative.
In short, China’s clean-energy business — call Green China Inc. — is rising upward. And, as I contend in a brand new paper published by the Brookings Institution, the U.S. approach to Green China Inc. must grow up also.
A solar-energy skirmish backfires
Consider the latest unintended casualty in one conflict of the trans-Pacific trade war, a skirmish more than solar. Over five decades back, the U.S. imposed tariffs on imported Chinese solar panels, accusing China, definitely the world’s biggest manufacturer, of subsidizing them of”dumping” them around the global industry. The U.S. expected the tariffs would materially boost American solar-panel production, but hasn’t happened. The U.S. never was a globally significant solar-panel maker, also, despite the tariffs, it isn’t one today. Between 2017 and 2018, total U.S. solar power fell 3.2%, to approximately 242,000 jobs, according to the Solar Foundation, a nonprofit group. Solar-manufacturing projects, which accounted for 14 percent of that total, fared particularly poorly, shrinking by almost 9 percent. The tariffs”restrained industry growth,” the solar team stated.
The tariffs have eroded U.S. competitiveness particularly significantly in one of the number of international solar markets in which the country really was a significant manufacturer: the creation of polysilicon, a key raw material used to make solar panels. After the U.S. slapped tariffs on Chinese panels, China did so on U.S. polysilicon, prompting retrenchments at a number of big American polysilicon factories. The latest twist includes REC Silicon, a Norwegian company that owns a polysilicon plant in Moses Lake, Wash.. REC had already slashed production in the plant because the Chinese tariffs have made REC’s U.S. product uncompetitive in China, the leading global marketplace; the firm announced in early May that it intended to mothball the plant by June 30″unless access to Chinese polysilicon markets is restored.”
Though policies charged as protectionist have had unintended effects in many parts of the economy, they are particularly problematic in the clean-energy sector. Other businesses, such as automobiles and steel, climbed regionally and globalized only later in their own development. Nevertheless, the clean-energy sector, which emerged as a significant force only in the first decade of the century, has been global basically from the start. SunPower, one of the greatest U.S.-based solar-panel makers, has as its majority owner the French petroleum firm Total; it will take much of its production in Malaysia, the Philippines, and Mexico, and makes panels in China. GM, which has stated it intends to sell as much as 20 electric-car models by 2023, uses South Korea’s LG Chem as a major provider of the electric Chevy Bolt and sees China as a key electric-car industry. Leading American sellers of clean-energy wares normally have Chinese suppliers, investors, or clients. They have much more to benefit from U.S. policies which seek to leverage Green China Inc. than from those that try to bury it.
To be surethat the U.S. has reasons to worry about Green China Inc.’s rise. Using its command-and-control economy, China is running the global green race with a solid home-track benefit: five-year financial strategies, subsidies for businesses it deems tactical, and state-owned policy banks to help fund the federal assignment. And American firms doing business in China continue to face real challenges: irregular intellectual-property protection, government tastes for Chinese firms, and enduring limitations on the ability of foreign firms to go it alone at the Chinese market. Engaging with Green China Inc. will stay a political minefield for the U.S.. However, given the globalism of the clean-energy sector, the American company does not have any intelligent alternative but to try.
A Fantastic time to engage
For many the trade-war saber-rattling, indeed, now is a particularly opportune moment for informed U.S. involvement with Green China Inc., because China’s move to modernize its own green drive creates chances for U.S. funding in the world’s largest green-industry marketplace.
China has spent thousands of dollars its green businesses. Not only does China stay the world’s biggest coal burner along with carbon emitter, but it has made a raft of inefficient clean-energy firms. It acknowledges both, which explains why it’s restructuring many clean-energy subsidies in an attempt to create more bang for the dollar.
A good example is China’s electric-car subsidies, which in the case of some models make buying an electric car half as expensive as it otherwise could be. China last year accounted for 60% of all of the pure-electric automobiles sold globally, based on Bloomberg New Energy Finance. But Chinese leaders are concerned the subsidies are not causing enough technological invention. So they are retooling the subsidy structure to maneuver the marketplace toward models which use electricity better and go further on every charge. That change could help technologically advanced U.S.-based players. So could China’s move, last year, to allow foreign auto makers build cars in China with Chinese joint-venture partners. That was a large motive California-based Tesla broke ground in January to a huge electric-car mill in Shanghai.
Beyond rationalizing its subsidies, China is now trying to flex huge flows of private and public funds in a lower-carbon direction. This drive, dubbed”green finance,” has become a buzz phrase in many countries. However, if Beijing follows through on its pledges, it is going to dwarf anything underway in Washington or London. China is dangling carrots, such as reduced interest rates for so-called green bonds, also sticks, such as a mandate which, by next season, publicly traded Chinese companies disclose environmental liabilities in annual public reports.
Even if China’s green-finance effort hits snags, as it certainly will, it is going to generate real opportunities for U.S. and other Western businesses, from accounting firms to banks. Western firms already are ginning up green-finance companies on their home turf, however China introduces a much bigger potential market for Western banks to underwrite and sell, accountants to audit, and also advisers to advise. Ernst & Young already has turned into one of the largest checkers of the ecological validity of corporate green-bond issuances at China. JPMorgan Chase and other U.S. banks are peddling their solutions to assist Chinese customers problem green bonds, so much focusing on issuances in different countries.
The world wants China to clean up its act for the good of the planet. That’s accurate enough, yet history indicates that forecasts for climate comity are mostly beside the point. Far more relevant as a reason for important action is that a developing array of U.S. players want Green China Inc. to succeed for the good of their financial returns.
Jeffrey Ball is scholar-in-residence in Stanford University’s Steyer-Taylor Center for Energy Policy and Finance. This essay is adapted from”Grow Green China Inc.: How China’s Epic Push for Cleaner Energy Creates Economic Opportunity for the West,” a paper published by the Brookings Institution, in which Ball is a non-resident senior fellow.
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