Trade Wars & Chinese Solar Power (FXI, TAN, CHIE, GEX, CHIX)

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solar Trade Wars & Chinese Solar Power (FXI, TAN, CHIE, GEX, CHIX)Amid Imminent Trade War, China’s Solar Sector Rebounds

Written by Ryan Landon Swanson

In the third quarter of 2011, many Chinese (NYSEARCA:FXI) solar manufacturers faced dangerously declining profit margins due to overcapacity.  With subsidies from the Chinese Ministry of Finance (NYSEARCA:CHIX), Chinese photovoltaic panels glutted the world market with excess supply, threatening the livelihood of US and German solar firms (NYSEARCA:TAN) and eventually Chinese firms, too.  The outlook for 2012 is much brighter, however. Domestic demand for panels within China is growing and is predicted to mop up the excess supply.  This increasing domestic demand coupled with an anti-subsidy case under review by the US Department of Commerce—where petitioners are proposing a tariff on Chinese solar products to counter China’s questionable subsidies—will certainly keep industry insiders and investors on their toes throughout the year.

Despite the third quarter slump, China’s installed solar photovoltaic installations in 2011 grew a staggering 500 percent.  Even as solar markets soared in Japan and India, China by far leads the way with 48 percent of Asia’s solar market.  Two of China’s top five solar panel manufacturers (NYSEARCA:CHIE) believe that 2012 will solve the problem of overcapacity from the past year, as increased domestic demand within China is expected to ease the supply glut.  Shi Zhenrong, CEO of Suntech Power Holding Co., predicts China will install at least 4 gigawatts in 2012, while Trina Solar Ltd. CEO Gao Jifan predicts 5 gigawatts.

Some observers even speculate that China could pass Germany—which added 7.5 gigawatts of solar capacity in 2011—to become the largest new-photovoltaic-capacity country by the end of 2012.  In 2011, China installed 2.2 gigawatts of new solar capacity.  Due to increased domestic installations, China’s solar stocks spiked this past week to a five-month high with Yingli Green Energy Holding Co. and Trina Solar Ltd. jumping 20 percent and 19 percent, respectively.  With a national target of 15 gigawatts of installed solar capacity by 2015, China is on track to accelerate its already breathtaking growth in renewable energy (NYSEARCA:GEX).

China is currently home to three-fifths of the world’s solar panel production (NYSEARCA:TAN), exporting many of the subsidized panels to Europe and the US.  Thus, it was no surprise when on October 19, 2011 the US arm of Germany-based SolarWorld—along with six other anonymous solar companies—filed petitions with both the US Department of Commerce and the US International Trade Commission alleging that Chinese photovoltaic cells and modules of less than fair value were injuring the domestic solar industry.  The Department of Commerce has twice delayed the case, but is expected to deliver a ruling on March 2nd.  If the Department of Commerce finds that Chinese solar subsidies have indeed violated the rules of free trade, the US government may enact tariffs on the importation of Chinese solar products in order to protect domestic industry, potentially provoking the solar trade war that has been abuzz in the media.

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