Industry Market Trends

Chinese Dominance of Green Manufacturing: Are They Playing Fair?

Sep 28, 2010

If you keep an eye on green manufacturing news, you'll know that many countries are vying to take a spot out front in what is expected to be just about the only boom industry on the planet in the coming years. It's no secret that the country ascending the fastest is China: the nation is using its traditional manufacturing dominance to carve out a big chunk of the green manufacturing pie. A report released earlier this year by research group Ernst & Young ranking manufacturing countries in the green sector (as measured by how attractive each country's legislative and industrial climate is in terms of green energy projects and investment) for the first time placed China in the number one spot, surpassing the U.S., which now occupies the number two spot, and other green industry-friendly countries such as Denmark, Germany and Spain. China this year became the number one manufacturer of both solar panels and wind turbines, and the country is in the process of boosting its construction of nuclear reactors and efficient coal power plants.

But have the Chinese arrived at the top by playing by the same rules as everyone else?

The United Steelworkers Union doesn't think so. Last month, the union made a formal request of the Obama administration to investigate China's trade practices in green technology and manufacturing, citing that some tactics may be illegal and fraudulent, result in unfair hindering the development of U.S. domestic manufacturing in alternative and clean energy products. The Steelworkers' Union claims to have uncovered "five major areas of protectionist and predatory practices utilized by the Chinese to develop their green sector at the expense of production and job creation here in the U.S." The World Trade Organization maintain rigid rules for participating countries, including rules covering green industry. The steelworkers' are alleging that China is flouting those rules. "Right now, China is taking every possible step - many of them illegal under international trade laws - to ensure that it will control that sector. America can't afford to cede more of its manufacturing base to China," said Leo Gerad, International President of the United Steel Workers Union. "It's a national priority to reduce our dependence on foreign energy supplies. But if all we do is exchange our dependence on foreign oil for a dependence on Chinese alternative and renewable energy production equipment, we will have traded away our nation's energy, economic and job security," said Gerad.

The United Steelworkers are probably not merely lashing out to protect their own interests. A recently released report claims to have proven that almost all of China's green manufacturing businesses are breaking World Trade Organization laws. According to the report, most "green" Chinese manufacturing and technology businesses are receiving generous government subsidies and using cheap labor while still exporting the majority of their goods. The report also accuses the Chinese of deliberately restricting the export of components needed for green manufacturing by other countries: materials such as rare-earth minerals.

A report in The New York Times earlier this month confirmed that Chinese practices - particularly government subsidies for exports - may indeed violate World Trade Organization rules that ban such subsidies, and that these practices could be successfully challenged in court. However, the article noted that such a challenge from the steel industry may not be in the best interest of U.S. green energy companies. The Times noted that if China is challenged and fails to discontinue its subsidies, other countries can retaliate by imposing steep tariffs on Chinese imports, but in the clean energy business, fear of retaliation from China against multinationals has made the wisdom of such attacks questionable.

Still, the United Steelworkers are prepared to make their charges formal: the union has filed a trade case asking the Obama administration to sue Beijing over their practices. The steelworkers' suit has at least one fan in Congress: Senator Sherrod Brown (D-OH) has urged the president to file the suit based on the steel union's request. "Clean energy represents the future of manufacturing. Acting now means that we won't displace America's dependence on foreign oil for a dependence on Chinese-made clean energy technology," stated Senator Brown.

Many fear that if the U.S takes no action, it will be trading its problematic dependence on Middle Eastern oil for dependence on green energy components manufactured in China. Certainly, the White House has noted the rising dominance of China in green manufacturing and has expressed concern. In a State of the Union address earlier this year, President Obama remarked, "I do not accept a future where the jobs and industries of tomorrow take root beyond our borders - and I know you don't either," he said, speaking to Congress.

Green manufacturing is a boom industry in China. According to the government-backed Chinese Renewable Energy Industries Association, green jobs in China reached 1.12 million in 2008, and that figure has been escalating by 100,000 jobs a year. The Chinese government has pledged that power derived from wind, solar and biomass energy will double and represent eight percent of its electricity generation capacity by the year 2020 (the figure in China currently stands at about four percent).

Ironically, some analysts believe that the U.S.'s long-time status as a first-world nation is exacerbating the problem. In the U.S., the power grid is well developed, paid for and largely based on older technologies (read: dirty energy). With the astronomical growth of Chinese manufacturing in the last few decades, the country has been forced to build new power plants and new manufacturing facilities to more up-to-date standards. As a result, Chinese energy supplies are derived from newer technologies that are more efficient and cleaner.

In short, Chinese green manufacturing is benefiting - and growing - from a perfect storm of factors that could not be replicated in North America or Europe. For starters, there are the low wages: Chinese factory line workers are paid around $4,000 per year. China also has newer energy plants with clean-energy components and retrofits that have been subsidized by the government. Massive government and bank subsidies, plus tax cuts, have been offered to the manufacturing sector (loans with interest rates as low as two percent), and the country has an enormous trade surplus. Ironically, as other countries are trying to build up their green manufacturing base, they are having to import Chinese-made power equipment to do it, which helps bolster the Chinese position even further.

Many struggling green manufacturing businesses have given up trying to compete and have located manufacturing facilities in China instead. Further angering U.S. And European trade groups, however, is the fact that foreign businesses that partner with China and manufacture on Chinese soil must surrender their technologies as a cost of doing business, which will only widen the gap further.

By convention, the Obama Administration has 45 days from the date of the Steelworkers' Union filing to decide whether it will accept the petition and file the suit. This 45 days will be up on October 24, at which time the administration must announce a decision.