China has enacted a series of policies that have made it one of thelargest consumers of renewable energy in the world, but the country hasalso moved steadily to shut out foreign participation in its renewableenergy market, according to a new report, China’s Promotion of theRenewable Electric Power Equipment Industry: Hydro, Wind, Solar andBiomass, 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 fullprice for it, while offering it at a discount to their customers. A 2007 Development Plan requires large utilities to have 8% of their powercapacity provided by renewable energy by 2020. China has alsoimplemented a $586 billion economic stimulus plan that was largelydirected 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 policiesthat require or strongly encourage the purchase of domestically madegoods or products based on Chinese intellectual property. This is partof an overall Chinese government policy that encourages “indigenousinnovation,” in most areas of business. American businesses of allkinds are struggling with new regulations that favor Chinese companiesand 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 havestimulated demand for Chinese-made renewable energy equipment. Thesemeasures include preferential financing; VAT rebates; tax incentives;procurement preferences for Chinese-owned and controlled companies;local content preferences; and R&D subsidies for renewable energyequipment producers.
For example, the report notes that the foreign share of wind powerequipment has fallen steadily from about 75% in 2004 to about 25% in2008. 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 ofwhich are exported. Those exports have helped to drive down solarphotovoltaic prices, contributing to financial difficulties for somenon-Chinese solar cell companies.
The report chronicles Chinese government policies put in placebetween 2002 and 2009 to encourage the development of the domesticrenewable energy sector, including:
• The 2002 Government Procurement Law, which requires mostprocurement purchases by government organizations to be limited todomestically made goods.
• A 2005 law that stipulated that no wind farm could be constructed inChina that did not meet a 70% local content requirement.
• The 2006 Renewable Energy Law, which was amended last year to requireutilities to purchase all renewable power generated in China.
• The 2006 Provisional Measures for the Accreditation of NationalIndigenous Innovation, which stated that products made with Chineseintellectual property could qualify for “priority” in governmentprocurement.
• The 2007 Medium and Long-Term Development Plan for Renewable Energy in China, which triggered a surge of investment in the country’s windequipment industry.
• The 2008 Stimulus Package, which required that stimulus spending mustgive 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 energyconsumption and the concern that China’s oil and natural gas reserveswill be depleted in two decades have made it necessary for the countryto develop renewable energy sources.
Before such policies, the study noted, “China imported much of thegenerating equipment used to construct its hydropower infrastructure,and until very recently China relied heavily on foreign equipment andtechnology.” But now, “Chinese planners have indicated their intentionthat eventually most or all of the renewable energy equipment installedin China will be made in China, will be based on Chinese-ownedintellectual property, and will embody Chinese-developed standards.”
“While the study makes no findings about whether the Chinesegovernment’s implementation of policies that favor its energy sectorviolate international trade rules, it does make clear that Chinese firms stand to gain substantially from these measures. The facts the studypresents 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.”