Joe Biden: We are going to invest $1.7 trillion dollars in securing our future, so by 2050 America will be a 100% clean energy economy.
Simone: President Biden announced a ‘New Green Deal’ and issued restrictions on fossil fuel supplies. This will make America more dependent on solar energy, but companies from which country will supply those solar panels?
Keith Krach: China, Inc. controls 80-90% of the market.
Simone: And who is funding China’s renewable energy industry?
Tianliang Zhang: So this company is not a private enterprise but an institution controlled by the Chinese Communist Party.
Simone: So what implications does a Chinese Communist Party-controlled solar industry mean to America’s energy independence and national security?
Keith Krach: That means we lose our energy independence. That also means we will be totally dependent on China for our clean energy. And if we do nothing, it is scary.
Simone: Hello and welcome to Zooming In China. I am Simone Gao. A consortium of renewable energy CEOs have asked President Joe Biden to remove tariffs that the Trump administration had issued on imported solar panels. They argue that the tariffs are an obstacle to the renewables industry’s ability to tackle climate change.
On March 1st, The Biden administration decided to stand behind Trump’s policy. The new administration asked the court to dismiss a complaint from some members of the solar industry arguing that President Trump’s tariffs were unlawful.
However, the bigger question is where the ‘New Green Deal’ policy of the new administration will lead America to? How will it affect America’s energy independence, and if America becomes less energy independent, who will America rely on more for solar energy? And what will be the consequence of that? In this episode of Zooming In China, we will try to explore these questions.
The current tariff imposes a 18% tax on solar cells made outside of the United States, most of which are imported from China. Those cells are assembled into panels and sold by many American companies.
Biden has announced ambitious goals for curbing global warming. In his first few days in office, the president canceled the Keystone XL pipeline, rejoined the Paris Accord, and called for a 2 trillion dollar ‘New Green Deal.’
Solar energy will play a huge role in this initiative. It already accounts for more than 12% of all renewable energy in the United States, and is expected to account for one-half of all green energy by 2050.
But there’s a catch. The global supply chain for solar panels is dominated by Chinese firms, and most of the solar panels sold in this country use imported components. This poses a strategic risk for the United States if it becomes too dependent on its rival for energy.
First let’s look at how China obtained its quasi-monopoly of the world’s solar energy industry in the first place. How did a country known for its lax environmental regulations and pollution become such a key player in renewable energy?
China’s solar energy industry originated in the 1990s as an exports-oriented industry, designed to meet the demands of European countries. Countries like Germany and Italy had passed legislation to encourage the use of solar energy, and domestic manufacturers couldn’t keep up. This was instead outsourced to Chinese suppliers.
Since then the industry has grown precipitously, and China has become the undisputed world leader in solar technology. Longi Technology is the largest solar company in the world, and is responsible for manufacturing 25% of all silicon wafers across the globe.
But Longi isn’t alone. Collectively, the Chinese solar industry accounts for at least 60% of global capacity in every stage of the supply chain, producing more than 66% of polysilicon and nearly 80% of solar cells.
On the other hand, companies from across the world wanted to enter this field as renewable energy was becoming more lucrative. But it’s difficult to survive in this industry. Since 2011, more than 750 solar companies have liquidated or closed, most notably Solyndra, which was backed by the Obama administration. In 2020, the Trump administration was still recovering parts of a $425 million loan that had been granted to a solar company during the Obama years.
The failed project, called Crescent Dunes, used thousands of mirrors in the Nevada desert to heat up steam in a giant tower, and had cost more than $1.1 billion in total.
The solar industry is an inherently risky enterprise that requires enormous investments across many years, as productions aren’t cost-efficient until the project reaches a large scale. Rapid technological changes means that hundreds of millions can go up in smoke as yesterday’s innovation becomes obsolete.
That said, how did the Chinese companies manage to outperform their competitors globally? I asked former undersecretary of State for the Trump administration Keith Krach this question. Mr. Krach was responsible for economic growth, energy and environment during the last administration.
Simone:Thank you Mr. Krach for being with us today. It seems that Solar cell manufacturing is not an easy business, most of the startups don’t make it, there is a constant flux of companies going out of business. What is the biggest reason for that?
Keith Krach: 250 firms that entered the PV industry globally and 150 exited. The bloodletting is worse for second- and third-generation technologies like thin film. 27 of 34 start-ups went belly up.
The reason is simple. China Inc has come to dominate solar cell manufacturing through a 20 year set of systematic non-market state policies, subsidies, slave labor, state financing, IP theft, with unlimited amounts of “capital” thanks to government policy and buying up companies weakened by this strategy.
Free countries companies operate according to free market principles. Chinese state-led companies don’t. There is not a level playing field.
Simone: China’s domination in the renewable energy market presents another problem for the U.S.. Given the difficulty in manufacturing effective solar technology. If a nation loses its competitive edge in the field, it may lose it forever. An illustration example is the story of America’s decline in telecommunications technology.
In 2019, Trump banned US companies from using communication technology that posed a ‘national security risk,’ which included 5G networks produced by the Chinese tech giant Huawei.
The FBI and intelligence agencies warn that the company had ties to the Chinese Communist Party and their products could serve to spy on their customers.
After the ban, US companies shifted their reliance on European companies like Nokia, based in Finland. The row over Huawei raised an embarrassing question, why couldn’t the US produce its own 5G network?
In the second half of the 20th century, the United States was a leader in telecommunication technology, and in 1999 Lucent was the sixth largest US company in market capitalization.
In the 1980s and 1990s China’s IT industry was still primitive and was reliant on imported technology. However, state regulators required foreign companies to share their trade secrets with local firms if they wanted access to the Chinese market, and companies like Lucent agreed to sharing.
At the time, they didn’t see the Chinese IT industry as a threat, but starting in 2002 Huawei and others started to muscle their way into the US market while Lucent still struggled to gain an even footing after the dot-com bubble burst.
US telecom equipment imports rose from $71 to $129 billion between 2000 and 2008, while Chinese exports rose from $19 to $124 billion around the same timeframe. By then, Lucent had been sold to a French company, and Nortel, which was once Lucent’s biggest American rival, had gone bankrupt.
There are some industries that can’t be conjured up overnight, and a year and a half after Trump’s ban on Huawei, there’s no end in near sight for America’s reliance on imported 5G equipment.
What has happened to America’s telecom companies could also happen to its solar industry. It’s arguably already halfway there.
While solar cells might not pose the same cybersecurity risks as 5G networks, there remains the threat that China might choose to embargo the United States over a diplomatic dispute.
Samantha Sloan, vice president of First Solar said this to Politico in an interview: “Solar panels are the next crude oil, and allowing China to dominate solar manufacturing is the equivalent of establishing an electro-state on the lines of OPEC.” In 1973, an OPEC oil embargo caused oil prices in America to quadruple, which led to a severe recession. I asked Mr. Krach what it means if China dominated the solar energy industry
Simone: China is on track to gain a monopoly on manufacturing solar panel cells. Do you think in the future there is a possibility that the U.S. will be dependent on Chinese solar energy and supplies? and if that happens what it will mean to America?
Keith Krach: They are already a monopoly. China Inc controls 90% of the market. All top 10 companies are Chinese except First Solar in US with 2 % and a Korea 5% Chinese manufacturers have diversified some production within Asia to avoid tariffs, but Chinese factories still produce 60 percent of the world’s PV cells
Here is what it means. According to Some experts solar could account for 70% of our energy needs by 2050. That means we go from energy independence to being totally dependent on china for the majority of our clean energy. And that’s scary.
Simone: right, you just said the U.S. still has a tiny industry that produces solar energy component, do you think they can effectively compete with Chinese manufacturers in the coming years?
Keith Krach: There are 3 big problems with status quo.
A. Makes more expensive to finance. China’s Inc.’s subsidies, whether flowing or serving as backstop, will make an investor seek a higher return as compensation.
B. Stifles innovation. Given the climate challenge. PV is too important a technology to fail. There is a real chance that the industry’s system of innovation will not be able to meet the challenge. PV solar appears to function much more as a barrier than a bridge for next -generation technologies to gain a foothold to establish their own experience curves.
C. China Inc strategically owns the beginning of the supply chain particularly polysilicon and the vast majority of it is produced in Xingjiang.
Simone: Talking about Xinjiang, Its official name is Xinjiang Uygur Autonomous Region of the People’s Republic of China. It is the largest province-level division of the country and is home to a number of ethnic minority groups. Reports from the World Uyghur Congress submitted to the UN in 2018 suggest that 1 million Uyghurs are currently being held in the re-education camps. Officials from both the Trump and Biden administration have declared that genocide has been happening in Xinjiang. So where is Xinjiang in China’s green energy production landscape? And who is really running China’s green industry?
Today, when we talk about China’s renewable energy industry, we can not skip the Golden Concord Holdings Limited, or GCL Group. A conglomerate that specializes in renewable energy, GCL Group ranked number 3 in a 2017 list of top 500 global new energy enterprises.
On the surface, GCL is a privately owned company, but it actually has deep ties with the Chinese Communist Party and the People’s Liberation Army.
On its website, it says “Dating from 1990, GCL has been following the leadership of the Chinese Communist Party or CCP and leading green growth with the red genes.” In the organization, there are 12 CCP committees, 5 CCP branch committees, 120 CCP divisions and 3,000 CCP members.
Zhu Gongshan, Chairman of the company, also serves as a member of the National Committee of the Chinese People’s Political Consultative Conference, a central part of the Party’s United Front system.
In 2011, by partnering with the Poly Group, GCL-Poly became the world’s largest polysilicon manufacturer. The Xinjiang base is its new production center, and is planned to have an annual output of 100,000 tons of high-purity polysilicon, the largest in the country. By October 2019, it already had a 60,000-ton polysilicon production capacity. The cost of producing Polysilicon in that facility fell below 40,000 yuan, or around $6,000 dollars, per ton.
Simone: How did the cost of Xinjiang’s polysilicon production drop so much? China expert, Dr. Zhang Tianliang told me this.
Tianliang Zhang: There are two reasons why Xinjiang has become a manufacturing base. We know this industry consumes a lot of energy. It may take three years for a solar panel to generate the energy that was consumed by its production. And Xinjiang Zhundong has the largest coal mine in China so far. Just this Zhundong coal mine contains 7% of the whole country’s coal reserves. It can also provide high Calorific Value coals by Open-pit coal mining. This can tremendously cut the production cost of solar panels.
Secondly, the labor cost in Xinjiang is also very low. The average salary may be just a half or a third of that in Shanghai. It is about $700 a month in Urumqi, the capital city of Xinjiang. Workers in the United States or Europe cannot compete.
Simone: This is what Mr. Krach think about Xinjiang’s facility.
Simone: Talking about Xinjiang, we know that Xinjiang has become the biggest manufacturing base for polysilicon. And there are many reason for that, but the two big reasons are, One, there happened to be a big coal mine near the facility so they get cheap coals to produce polysilicon. And two, Xinjiang’s labor is very cheap, we now know that Xinjiang’s cotton production uses concentration camp labors. We don’t know if that is the case with their polysilicon production as well. But do you think the world should be concerned about these factors?
Keith Krach: Well, you have your facts right Simone. And this is troubling for a number of reasons. I would turn the question around and ask what does this mean for freedom, human rights, and environmental protection. Consider that Xinjiang represents about 65% of China’s solar manufacturing capacity.
In 2016, only 9% of the world’s solar-grade polysilicon came from Xinjiang. But by 2020 it provided about 45% of the world’s supply. Media has reported about forced labor on a population of about 13 million Muslim minorities in Xinjiang, including ethnic Uighurs, Kazakhs, and others. Current Sec. of State Blinken reinforced Secretary Pompeo’s labeling the treatment of Uighurs as genocide.
We all want to take action on climate change. However, we must remain true to our values and stand up for human rights. Everyone likes cheap goods and services. Yet, there have been multiple times when free nations and consumers decided that the relative savings or corporate profit was outweighed by the cost to society. Consider the case of “blood diamonds.”
As Supreme Court Justice Brandeis noted, “sunlight is the best disinfectant.” The public will turn away from infected Chinese solar if there is greater transparency. The U.S. was a leader in fostering the solar industry. We can resume that role and will be competitive once we ensure a level playing field.
Simone: Now, let’s go back to the GCL group, it has close ties not only to the Party, but to the military as well.
In 2020, GCL partnered with the Poly Group again. By receiving Poly investment’s gigantic funding, the two entities were set to pioneer cutting-edge photovoltaic and semiconductor technology.
Who is behind Poly Group, you might wonder.
Tianliang Zhang: China Poly Group is among the 102 biggest central state owned enterprises in China. It was set up on the basis of Poly Technologies, Inc., an arms-manufacturing wing of the People’s Liberation Army of China. Now it is primarily engaged in representing the Chinese defense manufacturing industry in international sales. The two founders are Wang Jun and He Ping. Wang Jun is the second son of Wang Zhen, who was a founding general of PRC, and was vice premier and vice president in China. He Ping’s father in law is Deng Xiaoping. It is not a private enterprise, but an institution controlled by the Chinese Communist Party.
Simone: President Biden wants to reduce the consumption of traditional energy sources that come from fossil fuels and has issued restrictions on things like fracking and the Keystone XL oil pipeline. In the future, if the US is dependent on Chinese solar energy and the Communist Party decides to embargo America, What will happen? Here is Keith Krach again.
Simone: Do you think America’s existing ‘strategic’ energy reserves are enough to counter a serious major energy embargo?
Keith Krach: It is a good question. Many wars have been lost won because of oil. As under secretary of state for economic growth, energy and the environment. I looked at those three responsibilities as an optimization equation that maximize national security by optimizes economic growth, energy security and the health of the planet. This is a delicate balance to ensure that our grandchildren can enjoy the same prosperity and freedoms that we have. We must not lose sight of that.
Keith Krach: In terms of strategic energy reserves, it can only last so long. So the big question is to get that delicate balance and optimizing that and that requires a lot of analytical thinking and a lot of analysis.
Simone: So what is the way going forward?
Keith Krach:Government does have a role to play in ensuring clarity and to allow for free enterprise to flourish. Increase public investment in R&D is absolutely essential. I am free trader and Believe America’s free market system is the best in the world. But when somebody comes into the market and doesn’t play by the rules the market is no longer free. As I said in my Senate confirmation hearing when I was asked about what my strategy would be dealing with the China challenge, I said it would entail harnessing three of America’s biggest comparative advantages—uniting and mobilizing our allies, leveraging the innovation resources of our private sector and amplified democratic values. When we do that Chyna cannot compete.
I believe strongly in the innovative and entrepreneurial spirit of the American private sector. However, the U.S. government along with other free nations, must ensure there is an opportunity to compete. We believe in and enforce transparency, human rights and environmental standards. Free nations must demand that the energy transition is not done on the backs of minority populations in Xinjiang when a genocide is going on.
The case of PV manufacturing is not over. Nor is it unique. The threat of Chinese innovation mercantilism hangs over other, less-mature sectors, such as batteries, electrolyzers, and carbon capture devices, with the potential to reduce global carbon emissions. Policymakers should adopt measures that counter China’s policies and raise the odds that alternatives to the dominant designs in PV and other key climate and clean energy technologies get a fair chance to succeed in the coming decade. Innovation and deployment of these technologies are both important goals for public policy.
Simone: Do you think the Biden administration would go on this path?
Keith Krach: I think everybody understand the importance of energy security and how that’s tied with national security. But here again, it is an optimization equation. …
Simone: As the Biden administration presses forward with its green energy policy, it will have to deal with the dilemma of increased reliance on China-sourced solar components. Demand for solar energy will only increase if fossil fuel faces more restrictions.
Although US solar-cell manufacturers do exist, they’re responsible for a minority of the solar panel market in America. Whether that industry can survive, and thrive, will remain a critical strategic issue for America, and the world, in the coming decades. Thanks for watching Zooming In China. I am Simone Gao and see you next time.