Duh, We're Dying On The Vine Here! Quit Coddling China, DC!

Saw this on a Yahoo Finance page this morning:

7:30AM A-Power Energy receives $10.2 mln government subsidy for its acquisition of Evatech (APWR) 6.22 : Co announced that it received a ~$10.2 mln cash subsidy on January 6, 2011 from the Liaoning Provincial Government in support for the acquisition in January 2010 of Evatech. The co's acquisition of Evatech qualified it for certain subsidies that the Liaoning Provincial Government makes available for the acquisition of non-Chinese enterprises that have important technologies and patents. The subsidy is equivalent to approximately 20% of the total cost of the acquisition. The acquisition, completed in January 2010, was valued at $49.9 million and was paid for with cash.

Evatech is a Japanese company, but the rules are the same for American companies. China cares not at all for any of the niceties of free-markets or free-trade. They care about the bottom line. And to insure they stay in the black for a long time to come, they intend to dominate every industrial sector. We already lost the global renewable energy market to China. Could we at least keep the US market? Probably not. We do not seem to have the courage to fight.

photo: NY Times

Another article, this one in the NY Times, aptly titled "To Conquer Wind Power, China Writes the Rules" offer a few -- OK, sorry, a lot of -- choice quotes:

[Chinese wind turbine manufacturers,] aided by low-interest loans and cheap land from the government, as well as preferential contracts from the state-owned power companies that are the main buyers of the equipment. ...have flourished and now control almost half of the $45 billion global market for wind turbines. ...

Chinese companies acquire the latest Western technology by various means and then take advantage of government policies to become the world’s dominant, low-cost suppliers. ...

So as Gamesa [a Spanish turbine company] executives see it, they made the right bet by coming to China. And they insist that they have no regrets about having trained more than 500 Chinese machinery companies as a cost of playing by Beijing’s rules — even if those rules have sometimes flouted international trade law. It is simply the table stakes of playing in the biggest game going.

“If we would not have done it, someone else would have done it,” said Jorge Calvet, Gamesa’s chairman and chief executive. ...

On July 4, 2005, China’s top economic policy agency, the National Development and Reform Commission, declared that wind farms had to buy equipment in which at least 70 percent of the value was domestically manufactured. ...

A top executive at a rival of Gamesa and Vestas, who insisted on anonymity for fear of business retaliation by Beijing, said that multinationals had another reason [besides the notion that being present in China would provide them with negotiating leverage] for going along with China’s dictates: “Everybody was too scared.”...

Within weeks after Beijing’s issuance of Notice 1204, Gamesa sent dozens of Spanish engineers to Tianjin. The engineers did not just oversee the construction of the assembly plant, but fanned out to local Chinese companies and began teaching them how to make a multitude of steel forgings and castings, and a range of complex electronic controls.

One Chinese supplier here became so adept at making a 10-ton steel frame that keeps a wind turbine’s gearbox and generator aligned even under gale-force conditions, and making it so cheaply, that the Spanish company now ships the Chinese frame halfway around the world for turbines that Gamesa assembles at its American plant in Fairless Hills, Pa. ...

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, the policy was no longer needed. Some Gamesa wind turbines exceeded 95 percent local content. 

“The objectives of the local content requirement were achieved, and probably more achieved than anyone expected,” said Steve Sawyer, the secretary general of the Global Wind Energy Council, a trade group based in Brussels that represents wind energy companies from around the world, including China. ...

Li Junfeng, an official at the National Development and Reform Commission who oversees renewable energy policy, defended the local content policy.

“It was localization support,” Mr. Li said in an interview. China is a developing country, he said, and developing countries need to do what they can to foster industrial development. ...

But the United States investigation of China goes beyond local content, and the W.T.O. has other weapons at its disposal.

[WTO], for example, has authority to order the repayment of subsidies a government gives to its export industries to the detriment of foreign competitors. [A United States] steelworkers’ petition cites various forms of subsidies and support that China has given to its industries in potential violation of international trade rules. That includes low-interest loans from state-owned banks and grants of cheap or free land, as well as other perks not available to foreign companies operating in China. ...

Those policies — all potential W.T.O. violations, according to some experts — are an open secret. [against which the US fails to retaliate] ...

Sinovel [the largest Chinese wind turbine manufacturer] is among the Chinese companies now opening sales offices across the United States in preparation for a big export push next year. They are 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 led mainly by Morgan Stanley this autumn in New York and Hong Kong. ...

[At the China Wind Power conference:] “You cannot be called a winner if you are the leader for three or five years,” Mr. Li told the Chinese executives. “You can only stand on the top line if you are the leader for 100 or 200 years.”

The Chinese presidents sat quietly and respectfully, chins down. Senior executives from the foreign manufacturers — including Vestas, G.E. and Gamesa — sat alongside them, staring straight ahead in stony silence.

 Note the recurring themes:

• China invites foreign firms to enter the Chinese market with imports.
• China demands that products sold in China be manufactured from a large percentage of local content.
• The foreign company trains Chinese companies to provide that local content (content that the foreign company had previously exported to China).
• The Chinese companies trained by the foreign companies, once up to speed, compete with the foreign company while receiving illegal Chinese government subsidies.
• The foreign company's market share in China dwindles to almost nothing while Chinese companies enjoy a boom.
• China begins to export the newly acquired technology to the home territory of the foreign companies, undercutting the foreign companies in their native territory.
• The foreign company goes bankrupt, and China owns the market segment.
• Meanwhile, the US, European, and Japanese governments roll-over and take no WTO action, while Chinese officials argue they have the right to illegally subsidize their industrial sector because they are a developing nation -- all while claiming membership in the WTO (despite repeatedly flouting the rules), and receiving most-favored nation status from the US.
• Conclusion: US trade negotiators are a bunch of feckless wimps. And we didn't even get to the lax environmental and labor standards in China that keep costs down...