CHINA TAKING OVER WIND

To Conquer Wind Power, China Writes the Rules
Keith Bradsher, December 14, 2010 (NY Times)

"…[T]he Spanish company Gamesa may seem to be a thriving player in the Chinese wind energy industry it helped create…[but it] has learned the hard way, as other foreign manufacturers have, that competing for China’s lucrative business means playing by strict house rules that are often stacked in Beijing’s favor…[Supply] companies Gamesa trained to meet onerous local content requirements…[are underming] Gamesa by selling parts to…[Chinese upstarts that since 2005] have grabbed more than 85 percent of the wind turbine market, aided by low-interest loans and cheap land from the government, as well as preferential contracts from the state-owned power companies…Gamesa’s market share now is only 3 percent.

"…[Chinese companies] now control almost half of the $45 billion global market for wind turbines…[It is] an industrial arc traced in other businesses…that many economists say could be repeated in other fields…unless China changes the way it plays…or is forced to by its global trading partners…[but companies] have been so eager to enter the Chinese market…[they] have declined to complain…even when they see China violating international trade agreements…[because even though Gamesa’s] market share in China has atrophied, the country’s wind turbine market has grown so big, so fast that Gamesa now sells more than twice as many turbines in China as it did…"

Two Chinese companies, Goldwind and Sinovel, have moved into the world's top 10 (click to enlarge)

"…Gamesa executives…[believe] they made the right bet by coming to China…With sales of $4.4 billion last year, [Spain’s] Gamesa is the world’s third-largest turbine maker, after Vestas of Denmark, the longtime global leader, and G.E…In China, Gamesa] moved early and aggressively…amassing 35 percent of the market by 2005…On July 4, 2005, China’s top economic policy agency, the National Development and Reform Commission, declared [in Notice 1204] that wind farms had to buy equipment in which at least 70 percent of the value was domestically manufactured…Trade lawyers say that setting any local content requirement — let alone one stipulating such a high domestic share — was a violation of the rules of the World Trade Organization…Rather than fight, Gamesa and the other leading multinational wind turbine makers all opted to open factories in China and train local suppliers…

"In the United States, where there are no local-content requirements, the wind turbine industry uses an average of 50 percent American-made parts. For its American operations, Gamesa relies somewhat more than that on American suppliers, but it still imports some parts from Spain…It was not until the summer of 2009, when senior Obama administration officials started looking at barriers to American clean energy exports, that the United States pressed China hard about Notice 1204. The Chinese government revoked it two months later…But by then…Gamesa wind turbines exceeded 95 percent [Chinese] content…"

China is adding capacity faster than anybody else in the world. (click to enlarge)

"China agreed to abide by the W.T.O.’s trade rules…Chinese officials…defend their actions as being within the bounds of fair play…[T]he Obama administration takes a different view. It included the local content rule in the investigation it announced…The investigation was spurred by the United Steelworkers union, which has…no sales contracts at risk in China…[The] investigation of China goes beyond local content…[and the] W.T.O. has authority to order the repayment of subsidies…The steelworkers’ petition cites various forms of subsidies and support that China has given…in potential violation of international trade rules…[M]ultinational turbine makers, so far [have] benefited from the growing market in China…But that dynamic could be changing. The Chinese government is now slowing the approval of new wind farms…to give the national electricity system time to absorb thousands of new turbines…

"Sinovel, China’s biggest wind turbine maker, has said it wants to become the world’s largest by 2015…[It’s] goal [is] to sell as many turbines overseas as within China…[It] is among the Chinese companies now opening sales offices across the United States in preparation for a big export push…backed by more than $13 billion in low-interest loans issued this past summer by Chinese government-owned banks; billions more are being raised in initial public offerings…Multinationals are alarmed …The Chinese push, clouded by the Obama administration’s investigation…could complicate the climate change debate…Wind farm developers in the West are worried that Western governments may be less enthusiastic about encouraging renewable energy requirements if these programs are perceived as creating jobs in China instead of at home…Meanwhile, the Chinese government is intent on turning its wind energy industry into the global leader…"