Frustrated companies are voicing concern through intermediaries and some may be seriously considering pulling back their participation in the world-leading Chinese wind market. The situation has led a government source to say the US is ready to "play hardball" with China's trade "cheats".
Concerns have come from both the US and Europe. Earlier this summer, top US trade official, secretary of commerce Gary Locke took the unusual step of expressing concern over China's policies, which he says favour domestic wind turbine manufacturers.
"We saw a troubling example of this that occurred late last year," said Locke, speaking at a meeting of the US-China Business Council in Beijing. "China announced a new indigenous innovation accreditation system, which would give favour in China's government procurement process to companies that perform their research and development, and patent their innovations in China. Many US businesses and other businesses around the world were surprised by this policy, which was made with little input from affected businesses and was not subject to any public comment. This practice may have the laudable goal of nurturing a stronger innovation ecosystem in China, but it could significantly disadvantage foreign companies interested in bidding for contracts worth an estimated $85 billion annually."
Locke's comments came after the US government had consulted US wind firms on their experience of operating in the Chinese market, sources reveal. "He's not just pulling this out of thin air - they've been talking with the companies and dealing with the companies that have to live in this space," says a top US government trade official who declines to be named. "Foreign turbine firms are completely frozen out of that market. The Chinese decided they want to promote their own national champion companies."
The foreign companies operating in China currently are Vestas, GE, Gamesa, Suzlon and Nordex. Most set up their local manufacturing in China in the early 2000s and have steadily lost market share, going from 75% in total in 2004 to just 24% by 2008. The government power contract tendering process in 2009 saw all 5.25GW go to seven domestic suppliers. "You've got proven foreign companies producing over there, and yet the project tender winners were for turbines that don't have the quality and the warranty backup that the foreign manufacturers were offering," says the unnamed US official.
The outlook has grown gloomier, says Ziting Zhang, the coordinator of operations in China for the EU's Chamber of Commerce Renewable Energy Working Group. Market share for foreign firms dropped to 13.8% in 2009, equalling 1.9GW of newly installed capacity that year. Since 2005, no international wind turbine manufacturer has won a major national tender, Zhang says.
"The world's most competitive wind turbine producers continue to be unsuccessful in China's national bidding projects," says Zhang. "These companies are competitive across the world and deploy solutions adapted to the needs of each local market in which they operate."
Zhang cites three examples of recent protective measures. The Tentative Procedures for the Administration of Special Funds for the Industrialization of Equipment for Wind-driven Power Generation allows Chinese manufacturers to apply for the special funds, but not foreign firms, unless through a minority joint venture with a Chinese partner.
The National Indigenous Innovation Product Accreditation Catalogue, as commented on by secretary Locke, appeared to further skew the regulatory environment against foreign-invested manufacturers in the sector. The rules would have provided grounds to discriminate in favour of accredited goods, but precluded foreign-invested enterprises (FIEs) from applying through patent filing and trademark ownership requirements. Earlier this year, the government clarified that the accreditation scheme did not in fact discriminate against FIEs and published a new draft version of the rules to be applied in 2010. Following public comment, the draft rules are currently under revision. The policy still creates a risk of discrimination, says Zhang.
In February this year, China's National Energy Administration and State Ocean Administration issued details for the start of offshore wind project development in China. However, only domestic or firms with at least 50% Chinese ownership can develop or operate offshore wind farms. The most recent public offshore concession tendering announcement (Windpower Monthly, July 2010) suggested that foreign firms are not entitled to purchase the bidding documents. As most international developers are not joint ventures, this rule alone will exclude them from the process.
"The regulations above constitute a trend illustrating a clear and steady move away from fair market access, and could lead to an industry that lacks the latest technology and wider choices to customers," says Zhang.
Wind turbine original equipment manufacturers are reluctant to speak directly about their concerns, says an unnamed US trade official. "They're already quite frozen out," he says, "and they would be totally frozen out big time if they said anything. They still hold out hope this is going to be a market for them."
Meantime, he adds, manufacturers at the annual US wind power conference held by the US wind lobby were questioning how much effort and capital to continue allocating to the Chinese market. This year's event saw an increase in both the number and the size of event exhibits from Chinese wind turbine firms hoping to establish a presence in the US.
"We've got to tell them, 'if you're going to sell it here, you're going to make it here and you're going to open the market up the other way,'" says the US official. "We're all about free and open competition but, when people cheat, you've got to play hardball. We've got to better manage trade and say to these guys that they're not going to sell a single turbine here unless we have access to their market."
Last year, the Chinese government gave in to international pressure when it agreed to ditch its controversial localisation rule that 70% of all wind plant components in China should be made locally. The rule created an artificial gap in the market that was partially filled by substandard manufacturers. (Windpower Monthly, December 2009).