Bringing solar manufacturing back

A key issue in the case is the billions of dollars in subsidies that the Chinese government has provided its manufacturers. The Chinese government heavily subsidizes export-oriented solar production through low-cost capital, free utilities, energy and land. Chinese state-owned banks make large loans with flexible, if any, repayment dates, to increase companies’ production capacities and scale economies. Our data show Chinese solar companies carry substantially more debt than U.S. companies. For 2011-2020, China’s National Development and Reform Commission allocated about $792.6 billion in direct investments into solar production. China’s Five-Year plan has acknowledged that this capital-intensive industry requires large upfront investments.
Domestically, the Chinese government favored Chinese companies. In 2010, China’s Ministry of Finance chose Yingli to supply 70% of the  modules for one project’s  first phase  over  foreign  companies’ bids. Yingli received $114 million in prepayments, or 35% of the total purchase price in advance as an instant rebate. To meet capital shortfalls, Yingli also obtained additional low-cost loans from at least seven other state-owned banks.

{mosads}U.S. subsidies, on the other hand, focus on trade-neutral consumption. That is, U.S. consumers receive subsidies regardless of whether the solar panels they purchase are made in the United States or China. U.S. consumption subsidies give no preference to U.S. manufacturers, offering more consistent benefits to assemblers and installers. Finally, these subsidies are significantly smaller than Chinese subsidies.

Chinese subsidies have allowed Chinese manufacturers to sell below cost and begin a drive to push competitors out of business. Aggressive cost-cutting Chinese manufacturers have used substantial production subsidies to employ price competition against U.S companies. As a result, many U.S. solar companies have moved production to Asia or outsourced. The trend began with contracting out value-chain parts (e.g., conversion of polysilicon to wafers), expanded to outsourced module manufacturing for branded-cell manufacturers, and evolved to joint ventures that moved all upstream production offshore. Essentially, higher- value manufacturing is moving to China, while lower-value assembly and installation is staying in the U.S.

Unfortunately, the United States’ commitment to solar energy may result in the loss of domestic higher-value productions’ benefits. Technological innovations, which occur not just in labs but also on factory floors, constitute major reasons why solar-panel prices have fallen. By offshoring production, companies offshore innovations as well. Additionally, higher-value-adding manufacturing employees receive higher pay, and have substantially higher job-multiplier effects than lower-value-adding assemblers and installers.  In short, if we allow the Chinese to drive the remaining U.S. manufacturers out of the market, we are offshoring the type of advanced, next generation manufacturing we should want to have here in the United States. Without U.S.-based competitors, Chinese solar companies would have no need to maintain low prices. Indeed, our research has shown that without generous government subsidies, many Chinese manufacturers would face bankruptcies, incentive enough to raise prices and to recapture lost profits after destroying the competition.

President Obama continued, “So we have a huge opportunity, at this moment, to bring manufacturing back. But we have to seize it.”  Carpe diem, Mr. President.

Haley is professor and director of the Center for International Industry Competitiveness, University of New Haven, Connecticut and Haley is professor of International Business, Massey University, Auckland, New Zealand and research associate, Economic Policy Institute, Washington, DC. The authors have researched Chinese manufacturing subsidies and the solar industry for over five years.