China has enacted a series of policies that have made it one of the largest consumers of renewable energy in the world, but the country has also moved steadily to shut out foreign participation in its renewable energy market, according to a new report, China’s Promotion of the Renewable Electric Power Equipment Industry: Hydro, Wind, Solar and Biomass, commissioned by the National Foreign Trade Council (NFTC).
China's Renewable Energy Law, enacted in 2006 and strengthened in 2009, requires utilities to buy all available renewable power and pay full price for it, while offering it at a discount to their customers. A 2007 Development Plan requires large utilities to have 8% of their power capacity provided by renewable energy by 2020. China has also implemented a $586 billion economic stimulus plan that was largely directed toward renewable energy, and a new program will provide a 50% subsidy for grid-connected solar power systems.
While these actions have spurred rapid growth in renewable energy, the nation has closed itself off to foreign companies through policies that require or strongly encourage the purchase of domestically made goods or products based on Chinese intellectual property. This is part of an overall Chinese government policy that encourages “indigenous innovation,” in most areas of business. American businesses of all kinds are struggling with new regulations that favor Chinese companies and do not protect foreign intellectual property.
The study, authored by members of 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; VAT rebates; tax incentives; procurement preferences for Chinese-owned and controlled companies; local content preferences; and R&D subsidies for renewable energy equipment producers.
For example, the report notes that the foreign share of wind power equipment has fallen steadily from about 75% in 2004 to about 25% in 2008. In 2009, Chinese imports of U.S.-made wind turbines fell to zero, after reaching about $15 million worth of imports in 2008. Meanwhile, China has rapidly expanded its production of solar cells, nearly all of which are exported. Those exports have helped to drive down solar photovoltaic prices, contributing to financial difficulties for some non-Chinese solar cell companies.
The report chronicles Chinese government policies put in place between 2002 and 2009 to encourage the development of the domestic renewable energy sector, including:
• The 2002 Government Procurement Law, which requires most procurement purchases by government organizations to be limited to domestically made goods.
• A 2005 law that stipulated that no wind farm could be constructed in China that did not meet a 70% local content requirement.
• The 2006 Renewable Energy Law, which was amended last year to require utilities to purchase all renewable power generated in China.
• The 2006 Provisional Measures for the Accreditation of National Indigenous Innovation, which stated that products made with Chinese intellectual property could qualify for “priority” in government procurement.
• The 2007 Medium and Long-Term Development Plan for Renewable Energy in China, which triggered a surge of investment in the country’s wind equipment industry.
• The 2008 Stimulus Package, which required that stimulus spending must give preference to domestic products for renewable energy projects.
• The 2009 Golden Sun Demonstration Program, which will provide 50% investment subsidies for Chinese grid-connected solar power systems.
The study puts these policies in context, noting that rising energy consumption and the concern that China’s oil and natural gas reserves will be depleted in two decades have made it necessary for the country to develop renewable energy sources.
Before such policies, the study noted, “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.” But now, “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.”
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