Macquarie University Business School

BUS803 Globalisation and Value Chain Management - Individual Assignment

Fernanda Werneck Esteves
Student Number: 45827125

October 2019

The United Stated political defence on the case of Chinese

national champions companies
A critical analyse of the politic and economic implications of the American strategy in the case of
the Solar Energy Panels produced in China.
Table of content

Introduction...........................................................................................................................................2
Methodology .........................................................................................................................................3
Study Case – Chinese Investments on Solar Panel Energy...................................................................4
The United States' strategy to compete with Chinese national Champions in the solar energy sector .5
Recent Impacts of the Trade War between United States and China on Solar Energy Power
Production .............................................................................................................................................6
Conclusion ............................................................................................................................................6
References.............................................................................................................................................8

Introduction
This essay establishes a critical analysis of the article “How to Compete Against the New
Breed of National Champions” , The concepts of this case study will be applied on the
study case of the Chinese Government investments on Solar Panels since 2006 and the
consequent reaction of the western countries to this investment. More in particular, this
essay will analyse which type of international behaviour has been adopted by other
countries that also produce Solar Panels. Special attention will be given to the response
of the United States due to the recently observed international phenomenon described by
specialists as a trade war between these two countries and the possible future implications
of these actions.

The study case of China’s investments on clean energy will present relevant data about
the aim of the Chinese investments as a national policy. Further, data is presented of
international implications of the price shift of solar panels in the market and the potential
benefit for non-producer countries. In addition, an analogy will be established of the
United States’ response to the Chinese investments with the listed commercial and
political strategies as described in an article of how to compete with the identified menace
on trade entrenched by the “National Champions”.

This essay applies the concept of National Champions extracted from the same article to
describe the companies that receive investments of the government of China to foster the
production of Solar Panels. In this context the national champions are describes as “a
company that is heavily subsidized (either implicitly or explicitly) or, in some cases,
owned by a government.” (Sharon Poczter, Aldo Musacchio, Sergio G. Lazzarini , 2018,
p. 2) In addition, relevant international journals were consulted to accurately answer the
research question: Was the United States' reaction efficient to restrain the commercial
advantages of Chinese national champions in the renewable energy sector?

The conclusion of this essay emphasizes the relevance of the Chinese actions as a
renewable solutions producer as this country its currently the biggest producer of
greenhouse gases. In addition, this essay defines possible political solutions to remediate
the impact of the trade war on climate change.

Methodology
The research aims to analyse the recent Chinese investments specifically in the solar
energy sector as well as the western response to this investment and its implications in
the international market of solar power panels through the elaboration of the above-
mentioned research question. In order to answer this question, this essay uses a qualitative
method of analyses through the investigation and comparison of data and empirical
content found in articles and recent journals appropriately related to the concept
elaborated and the suggested articles presented in the course BUS 803 Globalisation and
Value Chain Management.

Study Case – Chinese Investments on Solar Panel Energy

The astonishing growth rate of China in the last three decades came with a high
environmental cost as a side effect. In other words, the path of China to achieve the status
of the second largest economy in 2010 cost the undeterminable value price of having 16
of the 20 most polluted cities in the world. (Speziale, 2018) The bad quality of the air,
water and the clouds of pollution in some cities and international pressure on reducing
the footprint made the boost of environmental concern essential.

Since the late 1970’s China has changed state policies toward the promotion of pollution
reduction actions. In 1994, China has launched the China’s Agenda 21, a list which
defines it’s the priority areas of governmental regulations and actions. (Speziale, 2018)
This list already included the ambition towards a cleaner energy production. In the same
year that China had surpassed the United States as the world’s largest emitter of
greenhouse gases it also implemented the Renewable Energy Law of the People’s
Republic of China.

The regulation implemented in 2006 was “one of the largest state-sponsored economy
commitments toward renewable energy that is expected to boost the use of renewable
energy capacity up to 10 percent by the year 2020.” (Eisen, 2011) The mentioned
governmental intervention on the renewables energy sector is one of the causes justified
by the United States to launch a barrier tax and officialise a trade war between this country
and China. The apprehension tension is caused because production of the solar panels in
China targets not only the national market, but it also targets the United States market and
of other economies in transition, as the Indian market for instance. In 2017, this country
was responsible for exporting 37.9 gigawatt of solar panels last year, which is equivalent
to 37 percent of global solar installation this year and represents 78% more than the
previous year. (China Photovoltaic Industry Association data, 2019).
The United States' strategy to compete with Chinese national Champions in the
solar energy sector
The fear of the competition with Chinese national supported producers’ of solar panels
on its internal and the international market made the United States adopt protectionist
measures to restrain the attractiveness of Chinese prices in the sector. In practical terms,
“Access to the US market has come into question since the Trump Administration
announced a 30 percent tariff on solar panel imports from China” (Eric Ng, 2018). The
tariffs described as safeguards by Trump administration targets all the solar panels
produced outside the United States in a first stage, but subsequently it was complemented
with “an additional duties of 25% on Chinese solar cells and panels” (Walsh, 2019). As
the adoption of this measures was a governmental strategy, the response cannot be
classified as a market strategy, but rarther a political strategy of the defence implemented
by Donald Trump presidency.

Without the political protectionist action the Chinese suppliers of solar panels will be
“facing an epic headwind in the year ahead, as rising production capacity is set to coincide
with a downturn in domestic demand and growing trade protectionism that threatens
access to the US and promising emerging markets such as India.” (Eric Ng, 2018) Which
means that the political defence of United Stated implied a reduction of trade volume for
China.

As an aftereffect, China demanded a specific panel in the World Trade Organization

(WTO), which was opened in October 2018. China’s commerce ministry justified that
“the U.S.’s extra measures harmed Beijing’s interests and distorted the global renewables
market. China later filed an initial complaint with the WTO.” (Walsh, 2019)

The example of the solar panels presented in this essay is a case of explicit governmental
subsidy to a sector. But their is not always the case that a government support to a
company or sector is explicit in the internal policy of a country. In this sense, there are
other common implicit governmental manoeuvres to sustain national champions
companies that can vary between corporate and noncorporate strategies. For instance,
unspoken actions as “restrictions on foreign competition, preferred access to government
financing, funding through sovereign investment funds, preferential, government
contracts, and privileged access to natural resources”. (Sharon Poczter, Aldo Musacchio,
Sergio G. Lazzarini , 2018, p. 3)
Recent Impacts of the Trade War between United States and China on Solar
Energy Power Production
It’s already possible to observe that the implementation of the political barriers by United
Stated has implied a deep impact on the Chinese production of solar panels. Some
specialist’s argue that the negative impact on exports can be assuaged by the growth of
the Chinese internal market and the diversification of international partners. In other
words, the Chinese market’ advantage on this sector can still establish the country in “an
influential position which other countries may struggle to counter.” (Dominic Dudley,
2019) In other words, it’s current market position can still make China the leader on Solar
Energy panels production and at this stage the government benefits are no longer being
applied as the“ central government has increasingly grown concerns about the impact of
the U.S.-China trade war on China’s economy” (Standaert, 2019)

On the other hand, one year after the implementation of the political barriers by United
States it’s already possible to observe the negative impact on trade associated with the
continuous use of power generation other than solar energy. In addition, China has
stopped with solely subsidizing the renewable energy forms that are affected by the
commercial war, which doesn’t include gas and other energy generators responsible for
emissions of greenhouse effect. Due to the mentioned reasons, “energy installations are
nevertheless expected to drop by about half this year, from a peak of 53 gigawatts in
2017.” (Standaert, 2019)

The ongoing U.S.-China trade war and a slowing Chinese economy has the potential to
change the political priorities of these two countries and consequently affect the actions
to target climate change. “Analysts fear that China’s emissions may not level off by 2030,
the target set in the Paris Climate Agreement, which would be a significant setback for
efforts to slow global warming.” (Standaert, 2019)

Conclusion
Historically, China has used its governmental power to intervene in the course of Chinese
economic growth. Not only by monetary subsidy but also with currency devaluation
policies to launch and reinforce Chinese presence in the international market of
manufactured goods. This intervention has been explicit and naturalized by other actors
in the international systems as it was perceived as a beneficial factor for all the parts
involved in the business.

Nevertheless the permanent growth rates of China has recently started to growth concern
in other economies in regard to the potential menace of this country to conquer new
markets, specifically the market of high technological products. The case detailed in this
essay established a critical analyse of the potential impact of political defence strategy in
the international market one specific renewable matrix. Further, there is proof that the
United States' can punctually restrain the commercial advantages of Chinese national
champions in the renewable energy sector. On the other hand, the capacity of China to
regenerate its economy and look for new markets in other economies in transition can still
make this impact lighter.

It’s a dilemma whether the price of the production of clean energy products should be
controlled or not by international actors because the climate crises and the pollution do
not consider the political frontiers when causing a negative impact in a country. On the
other hand, the production and sell of clean energy related goods follows the same
international laws of international trade as any other good, and should thus also have the
price observed by international trade agencies in order to protect incipient industries in
and international market in regard to a fair competition.

In order to solve the mentioned dilemma of this study case this essay proposes that the
WTO should allow china’s invest in clean energy as a state policy due to massive degree
of pollution observed in the country and because it reduces the use of coal, gas and oil
which causes more pollution in the whole supply chain. On the other hand, the WTO
should control the price of solar panels in the international market in order to avoid an
unfair competition with other international actors, even if it can have a beneficial effect
on the reduction of pollution rates in other countries. Finally, countries should be allowed
and incentivised to build partnerships to transfer knowledge of clean energy materials
production in order to reduce climate change impact and to reach the global target in the
Paris Agreement.
References
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Anon., 2019. Global Trends in Renewable Energy Investment 2019. [Online]

Available at: http://www.chinapv.org.cn/index.html

Anon., 2019. WTO to set up panel to judge US-China solar panel dispute. TechXplore.
Dominic Dudley, 2019. China Is Set To Become The World's Renewable Energy Superpower,
According To New Report. Forbes.

Eisen, J. B., 2011. China’s Greentech Programs and the USTR Investigation, s.l.: DEV. L. &
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Eric Ng, 2018. China’s solar panel industry faces a year of reckoning amid global protectionism,
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Ferriss, J., 2015. Fueled by Free Trade: WTO Trade Agreements Ensuring the Proliferation of Solar
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Gang, C., 2015. China's Solar PV Manufacturing and Subsidies from the Perspective of State
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Levy, P., 2018. Was Letting China Into the WTO a Mistake?. Foreing Affairs.

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Sharon Poczter, Aldo Musacchio, Sergio G. Lazzarini , 2018. How to Compete Against the New
Breed of National Champions. MITSloan Management Review - Massachusetts Institute of
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Speziale, D. B., 2018. Chinese Environmental Protection Policies and Implementation. Western
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Standaert, M., 2019. Why China’s Renewable Energy Transition Is Losing Momentum. Yale School
of Forestry & Environmental Studies.

Walsh, M., 2019. WTO to Arbitrate China’s Complaints About U.S. Solar-Cell Tariffs. CX Tech.

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Available at: https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds437_e.htm