Chinese Policies Promote Domestic Renewable Energy Companies over Foreign Firms
The National Foreign Trade Council (NFTC) released on March 15 a new study, titled China’s Promotion of the Renewable Electric Power Equipment Industry: Hydro, Wind, Solar and Biomass, which examines policies put in place by the Chinese government to promote the development of its renewable energy sector.
The study, authored by several attorneys in the International Trade Group of Dewey & LeBoeuf LLP, details a series of Chinese government measures that have stimulated demand for Chinese-made renewable energy equipment. These measures include preferential financing, value-added tax (VAT) rebates, tax incentives, procurement preferences for Chinese-owned and controlled companies, local content preferences, and research and development subsidies for renewable energy equipment producers.
The study also profiles foreign producers’ responses to these measures. Six years ago, foreign wind turbine manufacturers held 82% of the Chinese market, but they now have a 10% share, according to the Dewey & LeBoeuf study.
The study chronicles Chinese government policies put in place between 2002 and 2009 to encourage the development of the domestic renewable energy sector. One example of the new Chinese policies is the National Development and Reform Commission’s 2005 Notice of Requirements for the Administration of Wind Power Construction, which provides that no wind farm could be constructed in China that does not meet a 70% local content requirement.
The NFTC study puts these policies in context, noting that rising energy consumption, coupled with the fact that China’s oil and natural gas reserves will be depleted in two decades at current extraction rates, have made it necessary for the country to develop renewable energy sources. Prior to the implementation of the policies mentioned above, "China imported much of the generating equipment used to construct its hydropower infrastructure, and until very recently China relied heavily on foreign equipment and technology." Moving forward, "Chinese planners have indicated their intention that eventually most or all of the renewable energy equipment installed in China will be made in China, will be based on Chinese-owned intellectual property, and will embody Chinese-developed standards."
"While the study makes no findings about whether the Chinese government’s implementation of policies that favor its energy sector violate international trade rules, it does make clear that Chinese firms stand to gain substantially from these measures. The facts the study presents raise serious policy issues for China’s trading partners," said NFTC President Bill Reinsch. "With strong potential growth in the U.S. renewable energy sector, this is an important emerging issue to watch."
Sen. Sherrod Brown (D-Ohio) is one of the sponsors of legislation that would add "Buy American" requirements for wind projects built with government stimulus funding, according to the Dallas Morning News. "We cannot sit idly by while China races to the forefront of clean energy production at the expense of U.S. manufacturing, U.S. jobs and U.S. energy independence," he said.
By choosing to build a wind turbine factory in Nevada, the Chinese at the very least may have slowed Brown’s bill. The turbine plant provides an economic boost to Nevada, where Senate Majority Leader Harry Reid is facing a tough reelection challenge later this year.
Sources: NFTC, Dallas Morning News