Best stock to invest in – EU Extends Punitive Tariffs To Transshipped Chinese Solar Panels

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Doug Young

Bottom line: The EU’s extension of punitive
tariffs to China-made solar panels transshipped through shell
factories in Malaysia and Taiwan could kill a recent wave of
offshore factory construction by Chinese manufacturers.

A recent offshore movement by Chinese solar panel makers seeking
to avoid western anti-dumping tariffs could come to a sudden halt,
with word the European Union (EU) is extending its previously
announced punitive duties to Taiwan and Malaysia. The EU’s ruling
means it believes that many of the offshore solar panel plants
recently built by Chinese manufacturers are little more than
shells designed to hide the true origin of their products.

This story dates back 3 years, and began when the EU levied
anti-dumping tariffs on Chinese-made solar panels after
determining manufacturers were receiving unfair government support
via policies like cheap land, low-interest loans and export
rebates. Chinese manufacturers quickly agreed to raise their
prices to levels comparable to those of western rivals in a bid to
avoid the tariffs. But then they almost immediately began to
violate the spirit of that agreement by offering discounts to
buyers in other ways.

The EU is in the process of investigating claims of such
violations to that agreement, and this latest development
involving panels made in Malaysia and Taiwan shows the EU is also
attempting to stop another way the Chinese are avoiding the
tariffs. The latest reports say the EU has officially said that
all panels made in Malaysia and Taiwan will be subject to the same
punitive tariffs as panels made in China. (EU document; English article)

The document goes on to provide a long list of Malaysia- and
Taiwan-based companies that will be exempted from the extension of
anti-dumping tariffs originally set for China-made panels. But
that list includes only truly domestic panel makers in those
locations who have been in the business for a while, such as Motech
(Taipei: 6244) and E-Ton (Taipei: 3452) of
Taiwan and Flextronics (Nasdaq: FLEX) in

Two leading Chinese panel makers that had previously announced
plans to manufacture in Malaysia at the height of the offshore
movement include ReneSola (NYSE: SOL)
and Jinko Solar (NYSE: JKS).
Trina Solar (NYSE: TSL)
also announced plans last year to develop 500 megawatts of solar
panel-making capacity with a local partner in Malaysia, though it
never named the partner. (company announcement)
In its announcement it said that the partnership would start
manufacturing in late 2015 or early 2016.

Shares Near Two-Year Lows

It’s not clear how many, if any, of the Chinese solar panel
makers I’ve mentioned will be directly affected by this ruling.
Shares of Trina actually rose 3.6 percent during the latest
session on Wall Street, though it’s worth noting they’re now
trading near 2-year lows. Shares of Jinko Solar and ReneSola
posted similar performances.

This latest wrinkle in the China solar exporting story shouldn’t
surprise anyone, and certainly doesn’t surprise me. Chinese
companies have already shown they are quite capable of using
backdoor tactics to avoid their earlier price-raising agreement
with the EU. When that backdoor appeared to be closing, they
simply tried another one by setting up these offshore shell
factories. Such factories simply receive their China-made
products, and then claim themselves as the country of origin
before re-exporting them to Europe to avoid the anti-dumping

The US has taken a similar approach to Europe, levying
anti-dumping tariffs against Chinese panels and now taking steps
to close loopholes like these shell factories in Malaysia and
Taiwan. There’s no indication that the anti-dumping duties will
disappear anytime soon, especially as weaker Chinese players like
YIngli (NYSE: YGE)
show increasing signs of getting more and not less government

The bottom line is that the status quo is likely to continue for
at least the next few years, even as the US, EU and China start to
phase out many of their government incentives for building solar
power plants. That means many Chinese-made solar panels could
ultimately get squeezed out of the US and Europe as loopholes
close that were allowing a continued flow of such products even
after original punitive tariffs were levied.

Doug Young has lived and worked in China for 20 years, much of
that as a journalist, writing about publicly listed Chinese
companies. He currently lives in Shanghai where, in addition to
his role as editor of Young’s China Business Blog, he teaches
financial journalism at Fudan University, one of China’s top
journalism programs.. He writes daily on his blog,
China Business Blog
, commenting on the latest
developments at Chinese companies listed in the US, China and Hong
Kong. He is also author of a new book about the media in China,
Line: How The Media Dictates Public Opinion in Modern China

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