Doug Young
China and the European Union have reached a new settlement that
should formally end their ongoing dispute over solar panels,
contrasting sharply from a more confrontational tack taken by the
US in a similar spat.
Meantime in other solar news, a looming new
bond default by a mid-sized panel maker has become the latest sign
that Beijing is prepared to let more of these smaller companies
miss their debt payments. That approach will force these smaller
firms to either leave the industry or sell their money-losing
operations to larger peers, in a much-needed industry
consolidation.
Let’s start with the latest China-EU settlement, which involves
polysilicon, the main ingredient used to make solar panels.
Beijing opened an anti-dumping investigation into EU polysilicon
in late 2012, a move that many saw as retaliatory for an earlier
EU probe that found Chinese solar panel makers were selling their
products in Europe at unfairly low prices. The original dispute
centered on complaints by both the US and Europe that Chinese
solar panel makers were undercutting their western rivals after
receiving unfair government support in the form of subsidies like
low-cost land and cheap loans.
China and Europe settled their initial dispute over solar panels
last year, in a landmark deal that saw Chinese manufacturers agree
to raise their panel prices to a minimum level agreed to by both
sides. (previous post) Now this latest agreement
will see European polysilicon makers also agree to sell their
products into China at a minimum price agreed to by both sides. (English article) The main beneficiary of
this new deal is Germany’s Wacker Chemie, which
is Europe’s main polysilicon seller to China.
The EU’s 2 settlements contrast sharply with the approach taken
by the US, which conducted its own investigation and last year
imposed anti-dumping tariffs on Chinese solar panels. As a result,
China opened its own probe into US polysilicon, which ended this
year with retaliatory anti-dumping tariffs against US-made
polysilicon.
On the one hand, I should applaud the EU for its more reasonable
and pragmatic approach to this matter, even though the setting of
minimum prices has nearly the same effect as imposing punitive
tariffs. But that said, I do also think the US approach sends a
stronger message to Beijing that it needs to stop its practice of
giving money to industries it wants to promote. Perhaps this mixed
approach by the US and Europe is the best way to send the message
to Beijing, providing both positive and negative incentives to
change its behavior.
From that solar dispute, let’s look quickly at the latest looming
bond default from smaller panel maker Baoding Tianwei
(Shanghai: 600550). The company has announced that trading of 1.6
billion yuan ($260 million) worth of its bonds has been halted on
the Shanghai Stock Exchange. (English article; company announcement) Tianwei has lost big
money for the last 2 years, so it’s not a huge surprise that it
might not be able to repay its debt. The bigger surprise is that
it might be allowed to default on the bonds, since Beijing or
local governments often come to the rescue of companies that risk
debt defaults.
We saw something similar happen earlier this month when Chaori
Solar (Shenzhen: 002506), another smaller player,
failed to make an interest payment for some of its bonds, becoming
the first corporate bond default in modern Chinese history. (previous post) This latest case involving
Tianwei shows that Beijing is preparing to allow more such
defaults on solar debt. That should ultimately force many of these
smaller players to either shut down or sell their operations to
larger players like Canadian Solar (Nasdaq: CSIQ)
and Trina (NYSE: TSL),
which are emerging as industry consolidators.
Bottom line: Europe’s latest solar settlement
with Beijing will end their trade dispute in an amicable way,
while a new looming bond default by Tianwei reflects China’s
ongoing resolve to consolidate the sector.
Doug Young has lived and worked in China for 15 years, much of
that as a journalist for Reuters writing about Chinese companies.
He currently lives in Shanghai where he teaches financial
journalism at Fudan University. He 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 author of a new book about the media in China, The
Party
Line: How The Media Dictates Public Opinion in Modern China.
http://www.altenergystocks.com/archives/2014/03/china_eu_reach_solar_settlement_but_more _defaults_loom.html
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