Trade ties between China and the US were strained further Friday when the US International Trade Commission (ITC) gave its official green light to punitive duties on wind towers imported from Chinese firms. The commission's go-ahead on higher duties was based on its conclusion that the low prices of Chinese towers were unfairly undermining US manufacturers.
Unless China does something to reduce its excessive wind power capacity, I fear that more and more domestic firms tied to the wind power industry will try to offload their products in overseas markets in order to cut their losses. By doing so, they will risk incurring the wrath of trade authorities abroad, who can be counted on to put up roadblocks on Chinese products in order to protect their own local enterprises.
The pain now being felt in much of China's wind industry has its origins in the late 1990s, when the Chinese government pushed forward policies to support the sector amid broad efforts to champion renewable energy development. By 2010, the country had the largest wind power capacity in the world.
What many often neglect to mention though is the fact that the government's support for the sector failed to provide for the expansion of the nation's wind-power transmission network. Although China may be on top when it comes to installed turbines and towers, most of this capacity isn't connected to the country's energy grids, which haven't grown fast enough to convert much wind power into usable electricity.
While China had 100.4 billion kilowatts of wind capacity in 2012, up 35.5 percent from 2011, only 12.85 gigawatts were hocked up to the grid in 2012, down 19.69 percent from the previous year, according to data from the State Electricity Regulatory Commission. Meanwhile, wind energy experts estimate that wind power accounts for less than 2 percent of China's overall energy consumption.
Until transmission infrastructure catches up, there is little point adding any new wind capacity. Local power companies realize this and have whittled down their orders accordingly, leaving millions of yuan worth of wind equipment gathering dust in storehouses around the country.
The overseas markets that Chinese equipment firms had hoped would soak up their stocks haven't offered much relief either. Industry data show that global wind tower orders contracted by an annual rate of 5 percent last year as the global market softened. At the same time, the heavy discounts local wind companies had offered to make their products attractive to foreign buyers have sparked charges of underhanded competition and sent trade officials circling the wagons to protect their own industries.
Recent history has made it clear that Chinese wind equipment producers should not expect a warm welcome when they enter foreign markets with their inexpensive goods. The wind sector has grown too large in China and now it's time to let market forces do their work and lop some of the dead weight off this overheated industry.
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