US Finalizes China Solar Tariffs
President Obama's election victory has dominated US headlines over the last 2 days, but Washington showed it was still hard at work with news that the Commerce Department has finalized punitive anti-dumping tariffs against Chinese solar panel makers. In a way, this kind of quiet ending seems appropriate for a drawn-out process that began more than a year ago with a Congressional probe into a bankrupt US solar firm. With this trade issue now resolved, China, which produces more than half of the world's solar panels, can now focus on simply saving an industry that is bleeding cash due to a huge oversupply glut.
While much bigger work remains for them, the major Chinese firms were all quick to express their disappointment at finalization of the punitive tariffs, with Suntech (NYSE: STP), Trina (NYSE: TSL) and Yingli (NYSE: YGE) all issuing statements on the ruling by the Commerce Department's International Trade Commission (ITC).
Perhaps not surprisingly, reaction to the final decision was muted on Wall Street, where investors have had a long time to prepare for this inevitable development. Yingli and Trina shares were down 1-2 percent, actually outperforming the broader markets that saw a big sell-off after Obama's victory. Suntech shares were down more than 6 percent, but much of that is due to individual company-specific issues that have led Suntech to seek a state bailout. (previous post)
Let's take a quick look at the latest news, which hopefully will be the last we'll hear from the US anti-dumping investigation. Under its newest move in this saga, the ITC has formally adopted 5-year punitive tariffs of up to 250 percent on Chinese-made solar cells, though most actual duties will be much lower. (English article) The Chinese companies found some consolation in the fact that the ITC decided not to make the tariffs retroactive, meaning the new duties will only apply to imported Chinese solar cells starting from now.
This quiet ending to the story will give everyone the chance to finally move on and focus on the more important task of how to reorganize and salvage a badly damaged global solar panel sector. The sector itself is full of potential, but has become bloated due to a huge state-backed investment binge in China that led to the current state of massive oversupply.
The US and Europe have already worked through much of their
problems using market forces, which led to a series of
bankruptcies and closures over the last year that has left a
handful of only the healthiest players still in the market. China
is still trying to figure out what to do with its industry, though
there are signs that Beijing is finally stepping in to try to
coordinate a national approach to the problem.
China's biggest obstacle to a clean-up is the many local interests involved in the sector. Such interests often strongly support big local solar panel manufactures that are important contributors to their economies. Beijing appears to be trying to take a more active role in the needed sector clean-up by using China Development Bank to make emergency rescue loans for about a dozen major players, presumably leaving them to consolidate the industry. The process will be slow and painful, and is likely to last through most of next year. But at least the US investigation is now officially finished, which will allow everyone to focus on other more important tasks ahead.
Bottom line: The finalization of US anti-dumping tariffs against Chinese solar panel makers will allow Beijing to focus on the more important task of cleaning up China's solar industry.
Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China .