To ease trade problems, Chinese solar companies move production abroad

By Coco Liu | 11/24/2015 07:54 AM EST

HONG KONG — With the dominating role of Chinese factories in the global solar supply chain, the label “Made in China” has adorned the majority of solar panels installed in the world. But now, some Chinese solar manufacturers are out to get a different label.

HONG KONG — With the dominating role of Chinese factories in the global solar supply chain, the label "Made in China" has adorned the majority of solar panels installed in the world. But now, some Chinese solar manufacturers are out to get a different label.

Xi’an LONGi Silicon Materials Corp., a solar producer based in central China, recently announced it will build a factory in India with an investment of about $222 million. If all goes as planned, the company says, the new plant will bring its overseas manufacturing capacity from zero to 500 megawatts.

LONGi is the latest among a growing number of Chinese solar companies that have moved production abroad. According to estimates at Bloomberg New Energy Finance, overseas facilities are expected to make up nearly one-tenth of all China-owned solar manufacturing capacity by the end of this year.


Putting that into numbers, it would be about 5 gigawatts of manufacturing capacity for solar cells and solar panels, the market intelligence firm says.

This is far behind what Chinese solar companies could produce at home, indicating that "Made in China" is nowhere near the stage of fading out. But a wave of new facilities announcements also sends out a clear signal that there is nothing small or temporary about Chinese solar companies’ ambition to globalize their production.

Canadian Solar Inc., a Nasdaq-listed solar equipment maker that has most of its operations in China, said this month that it will be expanding manufacturing bases in Canada, Brazil and Southeast Asia. Earlier this year, JinkoSolar Holding Co. Ltd., another leading Chinese solar manufacturer, unveiled a plan of building a factory in Malaysia, following its production in South Africa and Portugal.

And the list could go on and on.

"Most first-tier Chinese companies have already built or have announced building factories outside China," said Edurne Zoco, a principal analyst for the solar research group at IHS.

Zoco added that some smaller players have also spread their ties. China’s Zhongli Talesun Solar Co. Ltd., for one, has started producing solar panels this month in Thailand.

Circumventing trade sanctions

"Overseas manufacturing is a trend," explained Armand Cao, an analyst following China’s energy sector at Beijing-based Cinda Securities. Cao said this trend emerged only in the last couple of years, when the relations between Chinese solar producers and their key trading partners began to turn sour.

In 2012, the United States slapped preliminary punitive tariffs on China-made solar cells for what it said were dumping and unfair government subsidies. The European Union then followed suit, launching the bloc’s biggest ever anti-dumping action against more than 100 Chinese solar producers.

To dodge penalties imposed by their two major buyers, Chinese solar producers have begun setting up factories outside China. The trade disputes have also provided momentum for the Chinese to diversify sales markets, which, in turn, has fueled their desire for overseas manufacturing.

"Hot spots include Thailand, Malaysia, Singapore, South Korea, South Africa, Turkey, Germany and Canada," said Wang Xiaoting, an analyst with Bloomberg New Energy Finance, referring to countries in which Chinese solar companies prefer to build their manufacturing plants.

"The locations for new plants are picked by considering costs and convenience to explore emerging markets," Wang explained.

Developing emerging markets, cutting labor costs

That is particularly true in the case of JinkoSolar. Before the recent economic crisis and currency risks forced JinkoSolar to postpone its decision, the Chinese solar manufacturer planned to open a factory in Brazil, where local authorities have lured project developers to use components sourced from domestic suppliers by offering them cheap loans.

LONGi’s recent announcement is also viewed as an attempt to cope with rules in India, which demands local content in solar products.

Reuters reported that peak power demand in India is expected to double over the next five years from around 140 GW now. To help meet rising demand while limiting greenhouse gas emissions, India wants 100 GW of new capacity to come from solar energy, with at least 8 GW of that from locally produced solar cells.

Besides that, experts say, cheaper labor costs have helped countries like India win over China in terms of attracting solar manufacturers. Dezan Shira & Associates, an Asia-focused investment advisory firm, compared minimum-wage levels between the two nations in 2013. Their findings show that workers in Shanghai, with the highest salaries among seven surveyed Chinese cities, made at least $264 per month. That figure was only $110 for their Indian counterparts.