Subsidies cloud China's solar industry in suspicion

On the heels of the U.S. trade battle with Chinese solar panels, the European Commission launched its own investigation Thursday to uncover whether Chinese solar panel manufacturers had sold their products in the EU for less than their production costs, a practice known as dumping. If the commission rules that Chinese panel makers sold their wares in the EU for dumping prices, as U.S. trade authorities did in May, much of the $20 billion worth of Chinese-manufactured panels that enter the union every year could be slapped with hefty tariffs, according to media reports.

With many parts of the EU racked by slowing economic growth, it's no surprise that trade leaders in Europe are taking steps now to protect the region's industries. Chinese solar panels are an excellent target given their competitive pricing and the large amount of support Beijing is often perceived to be giving players in the country's solar industry.

While Beijing should continue to support the interests of the country's economy in matters related to global trade, if the government really wants to help domestic solar panel and photovoltaic product makers gain a larger foothold in the world, it needs to stop simply throwing money at them in the form of subsidies and encourage them to improve their manufacturing technology and efficiency. This strategy will not only make the Chinese solar energy industry stronger but also provide the country some ammunition against the West's frequent charges of unfair State support for the industry.

For years, local governments across China have been responding to calls from Beijing to offer financial backing to solar panel manufacturers and other high technology companies in their areas, which has greatly pushed up domestic panel production.

Compared with the global solar energy industry, which has typically managed to double its output every two years, Chinese manufacturers have been able to double their production every year thanks to the massive inflow of funding which has come from local authorities.

While local officials are willing to spend big on the new energy sector in order to make their development reports look good to Beijing, the huge amount of money that the government appears all too happy to shower the industry with has discouraged solar energy firms from developing their technological prowess or their production methods in order to gain an edge in the market. Moreover, with overcapacity bogging down the domestic industry, many companies have likely turned to offloading their panels overseas with an eye toward getting rid of their inventories rather than gaining market share.

Unable to compete with their overseas peers in terms of technology or value-added features, Chinese solar panel makers are little more than assemblers. Until they can actually offer something to market aside from cheap products, foreign concerns about Chinese dumping will never be banished completely.