Is China’s Quest for Sustainability Unfair to Foreign Competition

In an area where everyone is waiting for governments to begin cooperating on environmental issues, and an environment where both the US and China are looking to develop partnerships to develop technologies together, I am once again bothered to see the stories of cleantech conflict.

China Builds High Wall to Guard Energy Industry is the latest one from the NY times that highlights what “appears” to be a trend of articles on how China is looking to lock everyone out from “its” market. That China will, as if it is a bad thing, look to build its local capacity through government favoritism… which in the process will cost US/ EU jobs.

Calling renewable energy a strategic industry, China is trying hard to make sure that its companies dominate globally. Just as Japan and South Korea made it hard for Detroit automakers to compete in those countries — giving their own automakers time to amass economies of scale in sheltered domestic markets — China is shielding its clean energy sector while it grows to a point where it can take on the world.

It is an article, and an argument, that I believe is without merit and will ultimately do more harm than good for the following reasons:

1) Cleantech is not just solar panels and hybrid cars
Perhaps in the myopic media environment, the only technologies that are worthy of reporting are wind, solar, and hybrid, but for anyone who is working with the core issues of sustainability, these are simply smaller pieces of a much larger puzzle.. and there are a large number of foreign firms who are successfully penetrating the Chinese market for LEDs, nucleur plants, locomotives, sensors, aircraft engines, diesel engines, wind turbines, building materials, water treatment, and softwares

The fact that the media continues to be locked onto 2 sources of clean energy (solar and wind) as the primary indicators of cleantech trade is not a true indicator of anything economicall, it is an indication of the writer’s understanding and knowledge of what cleantech is and what the real economic opportunities are.

2) Locking out Foreign firms (who are not invested) in China’s is not protectionism, its business
Perhaps one of the longest running complaints that China has had to face over the last 5 years is that their markets have not been open to foreign manufacturers. That they look to protect “their own”. A quote that Boris Klebensberger, the chief operating officer of SolarWorld AG makes when he says :

“This is not a level playing field,” said AG,

Yet, his firm does not even have an office in China!.. which makes Commerce Department Kevin Griffis comment

“Generally speaking,” Mr. Griffis said, “we support a business environment that is open, transparent, and fair so that all companies are able to compete based on product performance, not country of origin.”

all the more interesting as American firms like Motorola, GE, Eaton, and corning have all done very well in the markets here. BECAUSE THEY ARE HERE.  Invested and manufacturing in Tianjin, Shanghai, and other parts of China.  they have sales offices, and tech teams that service the local market, and they have developed research centers that allow them to create products specifically for this market.

The fact that their sales do not count as an American product is simply a matter of statistical gaming, not reality, and the fact that SolarWorld (and others) feel locked out is not because China’s border is closed.

It is that their products are clearly not developed for the market, nor are they priced properly. they do not have a tech team on the market to sell the products, nor were anything to go wrong, to fix it.

The implication is that SolarWorld should be able to compete “fairly” is therefore a false one as it is their own failure to understand and invest in the markets has failed them while some of their competitors have begun to make progress. I say progress, because up until a few months ago, even the most successful local manufacturer was still exporting 97% of their products!

3) It takes more than being price competitive to win

In the NY Times article, the following comment is made to show how price compeitive the foreign firms are:

Turbines from Chinese-owned companies tend to have slightly lower purchase prices than foreign-brand turbines, but have higher repair costs, so the life cycle costs are similar, according to Chinese experts.

A key measure by many of how competitive a product should be at similar quality levels, where this comment becomes misleading is that a wind turbine is not a packet of Potato chips, and that for many local generators it is not simply a function of best price for quality.

It is also about knowing that should something go wrong with the software or hardware of the turbine, that local firms have the ability to get a part on site and be able to speak their language. This was a critical issue I found in a number of other industries (telecom, food, trucking), and whereas many Chinese suppliers will embed their people within a clients office…many foreign firms are still working out how to open their first office

So, firms who want to sell not only need to be able to provide a good price/ quality ratio, but also be able to provide the required amount of service as well.

4) That China, even if blocking out foreign firms, is somehow risking US/ EU jobs
This is perhaps the worst implication/ argument I have seen through these articles, and I find it misleading for two reasons:

1) It assumes that the only market there is is the Chinese market, and fails to focus on the fact that the US and EU in their own markets have largely failed to develop. That actually the reason why green jobs in the US/ EU have yet to boom is a matter of their own markets having yet to make their own markets.

2) It assumes that a manufacturing job lost in the US is a loss at all, or that the loss of that job is THE figure to look at. Sure, perhaps the solar panel assembly may be offshored, but there are literally dozens of other jobs that support the movement and installation of that panel from the container ship to the roof. jobs in logistics, electricians, technicians and repair, design, and so on. (Read Van Jone’s book Green Collar Economy to see where the real jobs are)

and thus focusing on the manufacturing/ final assembly job is a false statistic. that, were it not for the price competitive nature of offshoring, none of those jobs would have existed to begin with. that offshoring is creating more jobs that would be possible otherwise.

Some conclusions:

Going forward, I think it is going to be important to keep in mind that not every American or European firm is competitive in their own market, and that through globalization, not ever powerhouse is going to come from the West anymore.

That, to be successful in China, firms are going to have to invest in the local market.
They must have local sales, tech, and design teams to be able to sit with customers,
That their pricing will have to be competitive, but that more than pricing, the entire package must be competitive

It is not about whether or not the turbine is the most efficient, the best price, or will last the longest. It is about which product meets the needs and expectations of the customer. PERIOD. the fact that Chinese purchasing managers are buying products that are cheaper, less efficient, and have a shorter life is not a national level barrier to entry, it is a condition of business here that needs to be changed, and firms who have products that are better, faster, and sold at a premium will need to continue educating the market before overcoming that barrier.

… and that is true for any of the 300 product categories that are “cleantech“