Chinese Companies to open factories in USA to avoid Duties

The Chinese companies may look to shift their factories abroad, as major trade partners are imposing new duties and restrictions on Chinese solar product imports. USA is planning to close the loopholes with regards to the anti-dumping and countervailing duties it had imposed on Chinese made solar cells last year. This did not have much effect on Chinese imports, as major Chinese solar companies easily circumvented the rule by using Taiwanese made solar cells in their solar panels. This did not raise their cost structure by much and they still had a large advantage on US manufactured solar panels. But now USA is planning to close the loophole by also including Taiwanese solar cell producers such as Gintech and Motech. They have already served notices on those companies and we could expect a duty on Taiwanese companies as well.

Some analysts have already predicted a sharp 10-20% increase in Chinese made solar panels in the USA due to these strictures. Europe has also imposed a volume quota on Chinese made solar panels avoiding a big trade war with China. However, this means that China is at a disadvantage in Europe, compared to the other Asian players from Malaysia/Philippines. The Chinese solar companies are starting to use a different manufacturing strategy to avoid these duties. USA is a huge market, given that it is growing at a 50% CAGR and is the 3^rd largest in the world. Suntech (STP) had earlier opened a factory to make solar panels in Arizona, but was forced to shut down because of its financial problems. Now JA Solar (JASO) is planning to open a factory in the USA.

Read more about the Global Solar Wars here.

Note Chinese companies such as Renesola (SOL) have already opened small factories in different countries through OEM contracts. This had been done to avoid the trade restrictions on exports. Though the cost of making solar panels in the USA is high because the lack of a supplier ecosystem, high transportation and labor costs, the panels might be cheaper than imports because of high duties. It is unlikely that a strong US based manufacturing industry will come up, given that even the big domestic US solar companies such as First Solar (FSLR) and Sunpower (SPWR) have factories in Asia.

The only outcome that I see is that the costs of a solar system in USA will increase without benefiting solar manufacturing in the USA too much. The US is already a leader in solar PV technology with some of the biggest solar equipment manufacturers based in the USA – GT Advanced Technologies (GTAT) and Applied Materials (AMAT). These companies which are at the leading edge of R&D should be the focus of US solar policies and funding and not the plain vanilla solar panel manufacturing which has become more of a commodity industry dominated by a few big players with wafer thin margins.

Businessweek

JA Solar the world’s third-biggest solar-cell maker, is considering building a factory in the U.S. or another country as Chinese producers seek to bypass trade sanctions. “The U.S. is the main place mulled, while its costs will be very high,” President Xie Jian said today in an interview in Shanghai. Other candidates “should have local demand and their markets should be large enough.” JA Solar started construction of a South African plant that can produce 150 megawatts of solar panels annually as a first step toward global manufacturing, Xie said. Construction is expected to be completed this year.