China's designs on European wind are eerily similar to how it brought EU solar to its knees.

I have previously written on the subject of Chinese turbines and/or investment in Europe's offshore wind industry. Since the matter was again raised by a developer earlier this month, I resolved to spend a bit of time investigating. From that analysis I submitted this article to Recharge which was published today. For those interested in the subject, I include my full-length original, together with references, below.

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Macquarie-owned Corio’s Jonathan Cole, in a recent Recharge article, argued that “big players talking with Chinese wind suppliers is not a sign that things are going off track” [1]. While he makes a number of excellent points about the looming shortage of critical components, his conclusion, that the solution lies in more Chinese wind turbines, is questionable.  In response, and since he calls for a “more nuanced debate”, the following comments are not brief.

China’s designs on European wind are eerily similar to the strategy it adopted to bring the nascent European solar industry to its knees more than 10 years ago [2]. The manufacturing jobs Europe had in solar at that time are now largely gone and today China makes 80% of all solar panels produced globally, 85% of solar cells, 88% of solar-grade polysilicon and 97% of the silicon ingots and wafers that form the core of solar cells. Last year, the IEA forecast that global spending on solar energy, for the first time, would exceed spending on oil production: $380-billion vs $370-billion [3]. As noted by The Economist, “The fact that a vital industry resides in a single hostile country is worrying” [4].

There are those that claim European and US companies are simply not competitive. However, the substantial price advantage of Chinese solar panels, wind turbines and other products is not due to superior technology or better processes.  For more than 20 years, China has openly flouted World Trade Organization (WTO) rules to massively subsidize specific sectors of its economy to the tune of trillions of dollars [5]. In addition to wind and solar, the industries that have enjoyed this state-backed largesse include broadband, aviation, oil, gas & coal, automotive, electronics, space, rail & transport, electricity, steel and other raw materials [6],[7].

China provides non-market support through a broad range of tools including state-sponsored corporate espionage, national and local government subsidies and grants, low-cost capital and state ownership of banks, discounted energy (particularly electricity – supported by below-cost coal), subsidized/free land, weakened/non-existent environmental standards, labour rights violations (the Hukou system) and more [8],[9],[10],[11].

As far back as 2013, a US study found that Chinese IP theft was already costing the US economy $300 billion annually. A 2017 update estimated a new annual figure between $225 and $600 billion and that $1.2 trillion worth of US IP had been stolen by China since the initial 2013 report [12].

The result is that China today has massive manufacturing over-capacity and is dumping the resultant product into other markets – such as Europe. China’s 2023 investment to GDP ratio, 43%, was the highest for any major economy and one of the highest in the world. The flip side of such high investment is low private consumption which was 39% of GDP: This compares with 68% in the US. China is now responsible for one-third of global production but one tenth of global consumption: a staggering mismatch [13],[14].  

In other words, China’s vast trade surpluses, and apparent cost advantages, are really a result of state-driven, and heavily subsidised, industrial policy pursued in ruthless disregard of its citizens’ needs and WTO rules. How ironic that China’s trade surplus in solar PV modules, electric vehicles, batteries, and the processing of related minerals is reliant on electricity demand growth fed by polluting coal with significant unpriced negative externalities [15].

In response to concerns raised by other countries, China has shown itself more than willing to game international trade rules and to use economic sanctions, including with rare earths and other technologies critical to renewables, to try to influence trading partners to accept its domestic policies and/or geopolitical interests. It is also not afraid to use its massive market power to deter other countries from activities it deems harmful to the interests of the Chinese Communist Party. Over the years, China has employed both administrative discrimination, and popular boycotts, with companies and/or entities from UK [16], Germany [17], France [18], Norway [19], South Korea [20], Japan [21], Lithuania [22], Australia [23], Canada [24] and the USA [25] (amongst others) [26].

China is now too big to rely on other countries to absorb its massive trade surpluses. That it nonetheless continues to do so threatens to destroy the rules of international trade that have played a large part in maintaining international relations, and world peace, for the last 80+ years.

The EU expects full decarbonisation of its electricity in the second half of the 2030s with the focus being on renewables (wind & solar) to fill the gap: By 2030 it is targeting 500 GW of on- and off-shore wind, and 600-750 GW of solar PV. By the same date, the UK Government wants to double onshore wind, triple solar power and quadruple offshore wind. This means that, by 2030, wind & solar will represent Europe’s two largest forms of electricity generation and could be responsible for as much as 70%+ of all electricity generated. If Europe now cedes wind energy to China, as it did with solar, this means that – within a decade - China could be responsible for manufacturing the overwhelming majority of Europe’s electricity generation capacity.

Such a high degree of energy dependency would be challenging even with a trusted ally. It will be much more so with a Communist “democratic dictatorship [27]” that is fundamentally - and increasingly – opposed to Europe’s basic values of democracy, free markets and respect for international law [28].

In February, I wrote about the national security implications of excessive energy dependency on China (‘Protecting the UK’s strategic energy interests..’). Since that time, Chinese foreign policy has become noticeably more aggressive. Particularly concerning is China’s support for Russia’s 2022 invasion of Ukraine - Europe’s first major conflict since World War II.  Although China denies this support, it is evidenced by significantly increased Sino-Russian trade, that Putin and Xi Jinping have met, and continue to meet, regularly, and by China conducting joint military exercises in Belarus – close to the border with NATO (Poland) and Ukraine [29],[30],[31].

Consider the following which is from the 7,000-word joint communique released by the Kremlin at the conclusion of May’s Russia/China summit in Beijing: “Moscow and Beijing will continue to deepen trust and cooperation in the military sphere, expand the scale of joint exercises and combat training … constantly improve the potential and level of joint response to challenges and threats” [32]. Also in the last few months, instances of Chinese spying in Europe as well as suspected Russian sabotage of undersea cables [33],[34],[35],[36],[37],[38].

In June, the G7 called on China to stop supplying “dual-use materials, including weapons components and equipment that are inputs to Russia’s defence sector” [39]. Two weeks ago, NATO labelled China a “decisive enabler” of Russia’s war in Ukraine and a “cause for profound concern” [40]. It further called on China to “cease all material and political support to Russia’s war effort” in its strongest ever condemnation of Beijing [41]. Last week, the UK Government commissioned a Strategic Defence Review which will be headed by the former Secretary General of NATO, Lord Robertson, who said: “the challenge of China is something that has to be taken very, very seriously indeed". [42]

Despite all of this, there are those who argue that the exigencies of the current climate crisis demand immediate action regardless of its provenance. But this ignores the fact that, when it comes to decarbonising electricity generation and integrating wind and solar, China is far behind Europe. In 2023, China consumed 56% of the world’s coal which generated 61% of China’s electricity, the ninth highest level in the world [43]. This largely explains why China’s power generation sector had the world’s 13th highest per capita GHG emissions (4.6 tonnes) which was significantly more than the UK (0.9 tonnes), the EU + UK (1.4 tonnes) and the global average (2.0 tonnes). Significant coal usage also means that China is the world’s largest emitter of mercury [44]. China performs poorly in zero emission generation (i.e. renewables + nuclear): Out of the 127 countries generating more than 5 TWh of electricity p.a., China was in 75th place with only 35% of its total from zero emission sources. This compares with 67% for the EU + UK. Chinese wind and solar uptake was also significantly behind Europe’s: In 2023, they generated 9% and 6% respectively of Chinese electricity vs. 19% and 9% in Europe [45].

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Given this large body of evidence, is it not disingenuous of those who claim they support European supply chains, jobs, labour rights, IP protection, efforts to fight climate change, environmental standards, market competition, the international rule of law etc. to then advocate for the use of Chinese turbines which are cheap only because they don’t follow these same standards?

Before further consideration is given to allowing Chinese suppliers into Europe, there are fundamental questions that need answers.

How do current Chinese turbine prices account for government subsidies and IP theft – much of it from European companies - that has taken place over the last 20+ years? Will new Chinese investments in Europe continue to benefit from cheap capital and other non-market support? If yes, how will European companies be compensated so they are competing on a level playing field? How will Chinese investments in Europe threaten the 300,000 jobs at companies that currently make up the European offshore wind supply chain? [46] When will China address its massive trade surplus and so remove its need to dump huge volumes of its manufactured products in foreign markets? What reassurance do we have that, if China has control over wind and solar industries supplying the majority of European electricity, the Chinese government will not use economic sanctions over minerals, machinery, supplies etc. to try and force its policies on Europe? How sure can we be that China will not use its control of our electricity sector to stifle European criticism of the Chinese Communist Party or of its ‘no-limits partnership’ with Russia? [47] What assurance do we have that China would not use its future electricity oligopoly to migrate the bulk of European sub-supplier capacity to China (as it has done with solar) and, from there, to dictate prices for European wind turbines and solar panels? While China lags so badly in decarbonising its electricity sector, why is it focused on exporting turbines to Europe rather than catering to its own domestic needs? Why does China continue to hinder European, and other companies’, access to China’s market when those companies could materially assist in significantly improving the poor environmental track record of China’s electricity generation sector? How will imported Chinese wind turbines account for the negative environmental externalities of high GHG and Mercury emissions associated with their production in China?

Mr Cole flagged a looming shortage of critical components in the European offshore wind industry and, to address this, advocates increased reliance on Chinese OEMs. We should treat advice from his company with caution: Through an excessive focus on maximising returns to shareholders at two of its portfolio companies (Thames Water and Southern Water), Macquarie has already inflicted significant damage on UK water [48],[49]. We must ensure the same fate does not now befall Europe’s wind industry. Until such time as China has, at the very least, addressed its massive trade imbalances and stopped gaming the global trade system, it is hard to fathom how any non-Chinese company can honestly advocate for increased European energy dependence on China.

A superior solution would be for Europe to tread extremely cautiously with China and instead to work with offshore wind OEMs from countries with whom we have long-established trading relationships and shared values.  Turbine OEMs from such countries should be encouraged to increase manufacturing capacity to meet the need. Excessive cash drains on the industry, for example aggressive negative bidding auctions, should be critically reviewed since they suck billions of Euros out of the industry which should instead be used to build vital infrastructure.

Here in the UK, one senses an opportunity for our yet-to-be formed GB Energy. It could play a critical role by giving European & US OEMs (Vestas, SiemensGamesa and GE) comfort that the UK market is substantive, attractive and here for the long term. This can be done, in large part, by ensuring that excessive rents are not extracted from the industry - for instance through aggressive leasing rounds (Crown Estate Leasing Round Four) and artificially low CfD prices (AR5) - and that monies are instead used to build critical offshore wind infrastructure [50],[51]. GB Energy should then impress on these trusted OEMs that their investments in UK manufacturing facilities must be commensurate with the volume of turbine orders they can expect from our world-leading offshore wind pipeline. These functions certainly seem to fit within the fourth ('Supply Chains') of the five key activities this Government envisages for GB Energy [52].

I raise these issues because I care passionately about the European wind energy supply chain and the hundreds of thousands of skilled jobs it supports. Europe has a world-class wind resource and an industry to develop it that has been painstakingly built over the last 50 years on the back of the harsh lessons learned from the 1973 OPEC oil embargo. We should fight hard in its defence and push back against those that would sell out these hard-won gains in pursuit of short-term profits.

In a 2020 article in Qiushi, the communist party journal, Xi Jinping wrote that, in areas vital to China’s national security, the country needs supply chains that are “self-sufficient at critical moments”. Europe would do well to heed this advice.

[1] ‘Corio CEO Cole: “Big players are talking to Chinese wind suppliers – that’s not a sign things are going off track”.’ Recharge. 17 July 2024

[2] ‘EU-China trade dispute raises fears of retaliation.’ Politico. 15 May 2013

[3] ‘Solar Power investment to exceed oil for first time says IEA Chief’. Financial Times. 25 May 2023

[4] ‘The exponential growth of solar power will  change the world.’ The Economist. 22 June 2024

[5] ‘The Contentious US-China Trade Relationship’. Council on Foreign Relations. 14 May 2024

[6] The 13th Five Year Plan: National Strategic Emerging Industry Development Plan’. The State Council of the PRC. 29 November 2016 (via ‘Upstart: How China became a great power.’)

[7] ‘Subsidies to Chinese industry; State Capitalism, Business Strategy & Trade Policy.’ Usha & Usha. 2013

[8] Ibid.

[9] ‘Red Ink: Estimating Chinese Industrial Policy Spending in Comparative Perspective.’ The Center for Strategic & International Studies. May 2022

[10] ‘Foul Play? On the scale and scope of industrial subsidies in China.’ Kiel Institute for the World Economy. April 2024

[11] ‘WTO Trade Policy Review: China - Concluding remarks by the Chair’. WTO 19 July 2024

[12] ‘The Report of the Commission on the Theft of American Intellectual Property’ May 2013 + Feb 2017 update

[13] ‘Why Xi Jinping is afraid to unleash China’s consumers’ Financial Times. 1 May 2024

[14] ‘Overcapacity at the Gate’. The Rhodium Group. 26 March 2024

[15] ‘Electricity mid-year update’. IEA 22 July 2024 pp 11

[16] ‘China sanctions UK lawmakers and entities in retaliation for Xinjiang measures’. CNN 26 March 2021

[17] ‘China floats perks for German carmakers to Prevent EV levies.’ Bloomberg 24 June 2024

[18] ‘Chinese anti-dumping investigation: the Cognac appellation confirms its concerns.’ Cognac. 22 May 2023

[19] ‘China slams Norway state fund over Xinjiang forced-labour fears’. 9 March 2022

[20] ‘Opinion: Why China’s shadow boycott of South Korea is self-defeating’. South China Morning Post. 2 April 2017

[21] ‘Japan Might Have an Answer to Chinese Rare-Earth Threats.’ Foreign Policy. 15 August 2023

[22] ‘China-Lithuania Relations’. Wikipedia 22 July 2024

[23] ‘Live and don’t learn. The lesson of China’s failed Australia trade bans’. Reuters. 7 August 2023

[24] ‘China has lifted a 3-year ban on Canadian canola’. CBC News. 18 May 2022

[25] ‘China ban on Apple’s iPhone accelerates – Bloomberg News’. Reuters. 15 December 2023

[26] ‘Upstart: How China became a great power’. Oriana Skylar Mastro. 2024

[27] ‘Constitution of the People’s Republic of China’ Wikipedia 21 July 2024

[28] ‘‘Joint statement of the Russian Federation & PRC on Deepening the Comprehensive Partnership and Strategic Relations….’ (in Russian) The Kremlin. Section I “The Parties note the growing dynamics of ongoing global changes….. states accustomed to thinking according to the logic of hegemonism and power politics are seeking to undermine the generally recognised world order based on international law and replace it with a ‘rules-based order’. The Parties emphasize the important positive significance of the concept of building a community of shared destiny for mankind’.” 16 May 2024

[29] ‘China-Russia: an economic “friendship” that could rattle the world’. Financial Times. 15 May 2024

[30] ‘Putin-Xi bromance flourishes as Russia-China summit kicks off.’ Politico. 16 May 2024

[31] ‘China & Belarus conduct joint military exercises right next to NATO and EU’s border’. CNN. 9 July 2024.

[32] ‘Joint statement of the Russian Federation & PRC on Deepening the Comprehensive Partnership and Strategic Relations….’ (in Russian) The Kremlin. 16 May 2024

[33] ‘Honeypots and Influence operations: China’s spies turn to Europe’. Financial Times. 29 April 2024

[34] 'Online security lapses led to data of 40m UK voters being hacked' The Guardian. 30 July 2024

[35] ‘UK suspects China behind cyber attack on military personnel data’. Financial Times. 7 May 2024

[36] ‘A Norwegian citizen has been arrested on suspicion of attempting to spy for China.’ Associated Press. 2 July 2024

[37] ‘A subsea cable went missing. Was Russia to blame?’. Bloomberg 11 July 2024

[38] ‘How China and Russia could hobble the internet.’ The Economist. 11 July 2024

[39] ‘G7 hammers China over Russia ties, “harmful” trade’. France24. 14 June 2024

[40] ‘Washington Summit Declaration’. NATO 10 July 2024

[41] ‘China rejects NATO accusations of supporting Russia’s war in Ukraine’. Financial Times. 11 July 2024

[42] ‘China poses “deadly” threat to UK, says former NATO boss’. Financial Times. 16 July 2024

[43] ‘Old King Coal remains omnipotent and omnipresent’. Bloomberg.  25 July 2024

[44] ‘When trees fall, Mercury Rises: Unveiling a Hidden Environmental Threat.’ SciTechDaily. 31 March 2024

[45] ‘Ember electricity data explorer: Yearly electricity data’.  Ember Climate database.

[46] ‘Home-grown wind energy is critical to Europe's competitiveness’. Recharge. 20 March 2024

[47] ‘Putin and Xi pledge a new era and condemn the United States’. Reuters 17 May 2024

[48] ‘Thames Water works to avoid fines as debt cut to junk’. Bloomberg. 24 July 2024

[49] 'Southern Water pays chief £183,000 after proposing 73% rise in customer bills'. Financial Times. 16 July 2024

[50] ‘Latest UK leasing round risks raising the costs of offshore wind’. Wind Europe. 8 February 2021

[51] ‘UK subsidy auction fails to attract any offshore wind bids in blow to net zero plans.’ Financial Times. 8 September 2023

[52] 'New Great British Energy partnership launched to turbocharge energy independence' UK Gov. 25 July 2024

[53] ‘Why Xi Jinping is afraid to unleash China’s consumers’. Financial Times. 1 May 2024