Thursday 9 May 2013

Solar fun for the EU

I can't help but love the story about China dumping solar panels. It is so full of contradictions that it is hard to know where to start.

- Firstly, China has hugely over-produced the solar panels and has little internal demand. the panels are produced by State Owned Enterprises and this is a good example, as mentioned by Ryan in the comments of Monday's China post, of the mis-allocation of resources in China that will lead them to a bust.

- Secondly, many European industry companies welcome the dumping! Why you ask? Well they have had their precious subsidies turned off in Germany and elsewhere so now their business model is broken. One element saving that was that the cheapness of Chinese supply means that even without subsidies the reduced cost of panels just might enable them to have a profitable business model.

- Thirdly, European producers of panels clearly hate the dumping as they cannot compete with Chinese suppliers. However, they can't compete without subsidies anyway. Much like the windfarm industry there was due to be big consolidation in any event. So creating a protectionist environment may help to save the industry, but to what end - I have heard this story before and know how it ends..

How the EU can justify starting a trade war over this is hilarious when the underlying industry is in such a mess due to the distortions in such a regulated and subsidised market. One for the Greenies and Lefties to shout about for a while...

25 comments:

Blue Eyes said...

We must have the panels made in Britain! I don't want Johnny Foreigner syphoning off the profits of solar energy!

It's the same with the lightbulbs. The Chinese make them cheaper so the German manufacturers lobby the Commission. Consumers end up paying more.

When the EU gets on the side of the consumer and the individual as it is supposed to be, I will be re-enthused.

Bill Quango MP said...

That EU import ceramic tax of 50% has filtered through now.

Wholesale mugs, plates and cups are 35-45% dearer than this time last year.
And the ranges are tiny as no one wants to hold too much stock.

EU protectionism.
Too much, too late. As always.


And O/T but remember those Snapits! you had as a child. Twists of paper that made a bang when you threw them on the pavement? About as loud as a cap gun.

Now reclassified Class 1 fireworks.
Not for sale to under 16s.

Its a product aimed at under 10's.
AND they cannot be transported by air without a special explosives permit,
AND banned on ebay/amazon as they are classed as hazardous goods.

That's them finished then.



Sackerson said...

Seared by your irony, BE. But if the banks hadn't made easy money from inflating house prices much of the investment would have gone into British business and we might have kept HP sauce, Cadbury's etc etc.

Blue Eyes said...

I agree with part of that bit. Britain doesn't "do" long-term saving and that is a serious economic handicap. However British investors chose to cash out of Cadbury's etc. and it is their absolute right to do so. After all, what is the point in investing in a business if you can't sell it for a profit at the end? Where will the next big thing come from if people can't liquidate their investment and put it into something else?

Re Snapits: I was in Barcelona by chance when they were celebrating some festival or other and the celebrations mostly involved setting off fireworks on the street and beach. Nobody seemed to get hurt even though there was a fair amount of drinking going on. Our tiny little health and safety British minds were boggled!

Anonymous said...

"I agree with part of that bit. Britain doesn't "do" long-term saving and that is a serious economic handicap. However British investors chose to cash out of Cadbury's etc. and it is their absolute right to do so. After all, what is the point in investing in a business if you can't sell it for a profit at the end? Where will the next big thing come from if people can't liquidate their investment and put it into something else?"

No, the system is broken and leveraging is the root cause of massive buyouts. Banking and bankers don't care a fig about good British companies - most of Cadbury's 'shareholders' were not little guys.
Corporate leveraging, is a menace, more especially when jobs are lost in Britain due to off shoring 'asset selling' by the corporate giants.

Blue Eyes said...

They are not *supposed* to "care about British business". People should only care about a decent return on their investment. Why the hell should anyone leave their money idling when it could be put to more profitable use elsewhere? Have you heard of the parable of the talents?

Clive said...

I think the main problem I have here with CU's "free markets are the solutions to all our problems" stance is not that it isn't true. It probably, as a set of principles, very valid.

The trouble is, it's only valid if everyone else plays fair -- that is, plays by the rules of the free market.

They don't. China is, as CU's tale of woe illustrates, a case in pint. So too, again, as per the piece, is Germany and its partner in crimes-against-commerce the EU. "Who started it" is playground stuff and as such I won't dwell on it here.

So far, so much broad agreement. The issue I'll take is CU's solution which seems to be, to paraphrase, "well, those funny foreign types may not play be Free Market game properly but what we should do in response is to play it even harder".

No. If they don't play fair, we can't play the same Free Market game. Even if we want to. It's like a marriage. Either both parties have to be in it together, to coin a phrase, or else it's a sham with each partner in the deal just doing their own thing as it pleases them with a veneer of unity and respectability.

The solution to the problem of market manipulators is to punish them by excluding their goods and services from your markets and to protect and directly support your own country's industry. Not in the long term, just so long as it takes to teach the errant player that they can't fool around and still expect to come round to your place and you'll put tea on the table and let them have a good time.

Do say if I've missed the point though :-)

Blue Eyes said...

Clive, if Chinese people are willing* to work for less than nothing to produce cheap solar cells for us that is their loss not ours. Our workers can build nice new pavements or write poetry or whatever with the surplus.

* obviously they have a limited choice given their political system, but ultimately they could revolve if they wanted to.

Anonymous said...

@Blue Eyes

Banking, economics and religion all in one posting! Respect.

Clive said...

Hi BE, "revolve" indeed (revolt is what you meant I know. Or maybe like the Scots, "devolve" -- no, that's something else isn't it) :-) My typos are a lot worse than yours so I won't throw stones in that glass house.

Getting back you your point. That's just my argument. The Chinese people cannot, by and large, change their lot for the better without the risk of death, serious injury and the possibility of not just their own individual demise but that of their families. I might be willing to face down a tank to stop my own personal exploitation (actually, I probably wouldn't, posting on a website is about the limit, or writing to the Daily Mail to complain about my lot) but I wouldn't invite the possibility of my father being carted off to a labour camp.

Which is where I came in... we're not dealing with nice, fair, humane people here. We can't have a race to the bottom with them either.

Blue Eyes said...

But we're NOT racing to the bottom! We are floating up on a wave of cheap *stuff*. I pity the Chinese factory worker, but not much, because their alternative is to work for even less on the land. I am glad to live in a richer, freer society where I have a bit more choice but if I'd been born 150 years ago not so much.

It wasn't a typo ;-)

Ryan said...

Let's put the Chinese in some sort of perspective here. They don't have inexhaustible productive capacity. Most Chinese people will have to work for the government, or on farms, or in energy production, or retail or whatever. Only about 30% can possibly work for exporting industry. That's about 390million people even if Chinese farming etc was very efficient, which it certainly isn't. About 300million people are already working in western-style factories.

So China is round about the end stops of its productive capacity as far as exporting industry is concerned. Which is why we have seen Chinese salaries rise by about 25% over the last year, as Chinese factories fight to bring more people into the workplace. This encourages Western companies to move back to Mexico and Turkey and even old Blighty in some cases.

China has managed to fill its entire productive capacity with sh*tty low paid jobs making tat we didn't want yesterday but want today because the Chinese make this stuff so cheap. B&Q angle grinders, patio heaters, Argos tents, all sorts of stuff we don't really need. Very difficult for them to back out of all this into the high value added stuff we do in the West.

In return for their hard work they have been given a lot of IOUs (i.e. Western central bank bonds) which the British and Americans are simply buying back at the moment by printing their own money to do it. On top of that, the Chinese have spent the last 20 years printing their own money to buy American debt but the Americans haven't wasted that Chinese currency on Chinese bonds - they have bought lots of prime Chinese real-estate instead.

Maybe now you can see that China is utterly, utterly, screwed. They just haven't realised it yet. They have given us lots of stuff which we have paid for with freshly printed fivers, and we have taken their freshly printed yuan to buy up half of China. We've just done it in a rather complicated way so they didn't realise what was going on. They are the victims of a massive confidence trick.

CityUnslicker said...

OK..

Clive - I don't think that the free market is solely the answer to everything. However, in this case it is the laughable how things have come to pass.

I am with BE and Ryan. i dont mind if the chinese want to make cheap things in order that we can do other things. What is more amusing is that even making them cheap still does not make non-subisdised solar economics viable.

As for protectionism, if people wish to throw rocks in their ports, it does not mean that we should copy them.

Nick Drew said...

Ryan, I have no knowledge of China, so this is really interesting

when the Chinese get really pissed off, what happens to Westerners' property claims on the half of China we've bought ?

I have always reckoned that buying property in a country where you can't bring a meaningful title-claim action is fantasy stuff: people do it all the time in Bulgaria, Cyprus, Spain etc - and they are kidding themselves the good times will always be here

I've had serious difficulties pursuing a cast-iron contractual case (performance, not property) in Germany ('cast-iron' was the other side's kind assessment of the validity of my claim) - but as they said: we are a Bavarian company in a Munich court, you are a British company in a Munich court ...

and in China ? - that's my question

Sackerson said...

ND's point also works for the trillion dollars the US government owes to China. At the moment it's a sort of symbiosis; they key moment is when the arrangement ceases to suit one party, and whether it thinks it can get away with breaching it.

Seems to me the US is treating the Chinese labour force like coolies, and the Chinese are going along with it until they've built up their regional customer base and their global energy and material supply lines. It's not so much a matter of whether there will be a crash, but who will be best placed to rebuild afterwards.

This is where we will find out the consequences of poor Western strategic thinking. The US will get through sort of OK because of its high arable land to population ratio; the UK, not so well.

Budgie said...

Fortunately I am not tired of repeating that 'Jonny Foreigner™ does not owe us a living'. That includes the fact that JF is not obliged to follow English rules just because some of us in these sheltered isles lack the imagination to suppose there is any other world view than our own.

Moreover Clive is quite right: playing the free market game, when everyone else isn't, is a mug's game. Still, I doubt that there will be any change to the tendency of the English to buy their enemies and sell their friends.

Budgie said...

"I've had serious difficulties pursuing a cast-iron contractual case ... - but as they said: we are a Bavarian company in a Munich court, you are a British company in a Munich court ...".

Yes, ND, exactly.

Blue Eyes said...

Can someone explain why the lack of decent rule of law in Foreignland means we shouldn't buy their solar panels?

Ryan said...

"when the Chinese get really pissed off, what happens to Westerners' property claims on the half of China we've bought ?"

Well the bubble will certainly burst then, and a lot of Westerners with considerably more money than good business sense will get burnt. Goldman Sachs will come out smelling of roses as always, because they are simply getting a cut out of every investment bubble they are creating. From the Western point of view it will be much like the bursting of the dot-com bubble - huge amounts of investment capital invested in something that turns out to be almost entirely worthless. Some people close to the "explosion" at the time will get hurt, but most everybody else will barely notice - especially those that get out just ahead of time. For the Western investment community the party will simply move on somewhere else. Looks like India will be the next location for a bubble, but it could be South America.

The Chinese will end up with a lot of fancy Western hotels that nobody wants to book anymore.


I think they key thing with China is that you have three things happening at once. You have the real growth in the low-wage economy. 300million people working for $1 per hour gives you an economy about the size of the UK that has grown up from nowhere - not bad for China but hardly exciting. Then, built on that real growth you have a possibility for a massive Goldman Sachs led investment bubble that just happens to have been timed to replace the bursting dot.com bubble. This leads to the building of lots of fancy Western hotels and brand new electronics and clothing factories and so on. That also adds to the growth - but in this case it is Ponzi style growth - it only lasts as long as more investors can be suckered in to ponying up their cash to buy into all that lovely growth while the brokers are guaranteed to get their cut both on the way in and the way out. Then you have the Chinese private sector growth - they have clicked on that they have to keep this new economy growing by whatever means so they have run up huge debts internally to support the growth in the private sector - new power stations, new motorways, new appartment blocks. This spending they have lost control of it seems. They no longer understand why they are doing it or how it can really be funded.

On a related note have you noticed that Kim-jong Un has gone very quiet ever since the US leant ever-so-gently on the Chinese the other week? Looks like the CCP has realised who their masters really are.

Ryan said...


"the Chinese are going along with it until they've built up their regional customer base and their global energy and material supply lines."

No, the Chinese have become obsessed with energy and raw material supplies because they are desperate to keep feeding the dragon that has grown up on their doorstep. Apart from Lenovo (former IBM PC division) and Huawei they don't deal much direct with customers in the West, so they have no real customer base nor any real control over prices.


"This is where we will find out the consequences of poor Western strategic thinking. The US will get through sort of OK"

The US are doing great! They have already leant on the Chinese to force them to lean on Burma to open up government, now they are forcing the Chinese to lean on the North Koreans. The Chinese are losing influence in Vietnam too. The media are too left wing to have joined up the dots, but the reality is that the US is finally winning all the wars it lost in South East Asia because they have the Chinese by their economic balls. Those wars in Vietnam and Korea were really wars against the Chinese, and now American soft-power is winning those wars.

"the UK, not so well."

I'll say it again, exactly what are the Chinese doing that hurts the UK economy? The Chinese are making clothes for us that we used to buy from India and Sri Lanka because they are making it even cheaper. We haven't made clothes in volume for years. (I notice that some of that clothes production seems to have moved back to Turkey recently, perhaps because Chinese wages are on the rise as their productive capacity reaches its end). They also make lots of consumer electronics - we haven't made that for years either.

The only Chinese company I have seen that could be considered to have hurt UK employment is Huawei. They are a "proper" Western style multi-national. They now supply 30% of all telecom infrastructure world-wide. But they now do a lot of engineering in the UK so its not all bad news even there.

Fact is that employment in the UK has stayed pretty high despite all the growth in China. And China is now at the end stops. It can't expand its industrial base anymore without wage costs rising to uncompetitive levels. China is about to become old news.


Sackerson said...

Hi, Ryan. I'm not blaming China for what the UK has done to itself. The problem with systemic instability is that everything is fine until suddenly it isn't. That goes for the US, too.

If you measure by what's happening to people, it's already fairly disastrous, but we started with a full bathtub and it'll be a while yet before our knees start to show.

If our government really thought it had cracked it, it wouldn't have stopped NS&I Index-Linked Savings Certificates.

Wish I could share your sanguine outlook.

Ryan said...

Well, this was timely! Saw this link on Guido Fawkes and it is in agreement with much of what I said on China, albeit from a slightly different perspective. It seems to agree that China is at the end stops of its current productive capacity and has filled that capacity with low wage jobs thus hitting a "ceiling" on its development. In future it will be held back by a declining population and huge levels of debt:


http://www.telegraph.co.uk/finance/comment/10044456/China-may-not-overtake-America-this-century-after-all.html


CityUnslicker said...

I saw that too Ryan. AEP was clearly reading this thread and our posts this week.

So your comments are having a big impact. Good show Sir.

Sackerson said...

According to James Kynge China has been moving up into heavy industry and the handwork jobs have been pushed away from the Pearl River and also moving to even lower wage economies elsewhere. Naturally they'll take any work they can get because as you say, they have to keep going - and their demographics are increasingly unbalanced.

Agence communication said...

good to hear that i like it so much "" Secondly, many European industry companies welcome the dumping! Why you ask? Well they have had their precious subsidies turned off in Germany and elsewhere so now their business model is broken. One element saving that was that the cheapness of Chinese supply means that even without subsidies the reduced cost of panels just might enable them to have a profitable business model.""