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Chinese dominance in clean energy equipment will have worrying effect on energy politics

Mar 8, 2010 - Datamonitor - energycentral.com

China's rise to become the world leader in the production of clean tech equipment and rare earth metals will have negative consequences for the West in both economic and political terms. Aside from resulting in the eastward migration of industry players, the trend will allow China to gain control over the sector in a manner reminiscent of OPEC.

In 2009, China established itself as the world's number one manufacturer of both solar panels and wind turbines, overtaking previously dominant countries such as Germany, Denmark, Spain and the US. Losses for these countries, in terms of economic opportunities, will be significant, with China creating 100,000 jobs per year in renewable energies. More important, however, are the implications for energy dependency in the future. The nation's dominance in the manufacture of clean tech equipment and the refining of rare earth metals could lead to Western countries exchanging their current reliance on the Middle East for oil for a new reliance on China for these metals.

In both the manufacture of clean tech equipment and the refining of rare earth metals, China has pursued an overall industry development policy, with state-owned banks providing finance for investment in clean tech equipment development and manufacturing and generous consumer subsidies for the installation of solar panels and solar water heaters. China's need for new electricity production, estimated at a level of 15% per year, provides a strong impetus for the development of this sector.

Domestic demand for clean tech products will take precedence over international demand, and restrictive export quotas are likely to be implemented to enforce this priority. Vestas of Denmark has already opened the world's largest wind turbine manufacturing complex in northeastern China and more multinationals will transfer operations to the country in order to avoid trade barriers, in effect sucking the whole industry and its employment opportunities away from North America and Europe.

Rare earth metals are essential for the manufacture of wind turbines, low-energy light bulbs and batteries for hybrid cars, and China is by far the largest refiner of these metals in the world. While deposits of these resources are also found in North America, Australia, Brazil, India, Russia and South Africa, China has the largest refinery capacity. The nation is the world's biggest supplier of rare earth metals, but it is estimated that again domestic demand will outstrip supply in the next few years and hence exports will be limited. Japan, for example, currently imports almost 100% of its rare earth metals from China. China already has export quotas in place, and further restrictions could lead to trade wars between the country and importing nations. Furthermore, Chinese investments in rare earth mining firms in other countries, such as Arafura Resources, an Australian player, will allow the nation to establish an Organization of the Petroleum Exporting Countries (OPEC)-like dominance in rare earth metals and capture the supply chain for clean tech products.