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Trade Protectionism Envelops Chinese New Energy Companies

02-14 13:46 Caijing
In order to form competitive advantages in foreign markets in the long term, enterprises should look to compete on technology rather than price.

By staff reporters Shi Zhiliang and Zhu Yue

After 2010, along with rising calls in developed economies to revive domestic manufacturing and improve local employment conditions, the United States and Europe placed increasingly severe trade restrictions on new energy products from China.

U.S. President Barack Obama sent a strong signal during his State of the Union address on Jan. 25 that the United States aims to revitalize its manufacturing sector. This has been considered a key cause of the recent trade friction between China and the United States in the field of new energy equipment manufacturing.

There is some evidence to suggest some manufacturing jobs could return to the United States. Even though U.S. labor costs are higher, in recent years labor costs in China, Brazil and other big manufacturing countries have shot up rapidly; at the same time, resource shortages have pushed up logistics costs. Moreover, American workers are more productive, and the products they produce are closer to the market. Thus, in theory, an opportunity has arisen for manufacturing to return to the United States.

Due to target markets being overseas, China’s new energy industry is generally considered to be the most likely to witness the emergence of transfer of production with tax and policy support from developed economies; for instance, Chinese photovoltaic (PV) company Canadian Solar Inc. built factories overseas long before trade frictions began to escalate.

A number of industry insiders said that it is becoming increasingly urgent for China's new energy industry to internationalize. Investing to build factories in key PV module-consuming countries would help Chinese companies move closer to target markets, reduce transport costs, avoid trade risks, and attract consumer market policies.

However, several experts said that in the end, the new energy equipment manufacturing industry is still a labor-intensive industry that is heavily dependent on labor costs. While some companies have chosen to set up factories abroad, this is still the exception rather than the rule. Chinese PV companies will not move excess production capacity overseas, let alone the entire industry chain. Developed countries have advantages in technology output, management and financial services; but for them, the golden era of the development of the manufacturing sector has already passed. As for the return of manufacturing to the United States, the idea’s political appeal exceeds its economic significance; at this stage, bringing manufacturing back to a developed country such as the United States is almost impossible.

Nevertheless, to respond to the rapidly changing international market, Chinese new energy components enterprises should strengthen their technology reserves and create competitive advantages in overseas markets based on technology rather than price.

Full article in Chinese: http://magazine.caijing.com.cn/2012-02-12/111675634.html

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