A glance into the Sino-EU solar panel dispute

In 2012, several European companies operating in the solar sector accused Chinese companies of unfair trading practices — namely dumping and alleged illegal subsidies. These contested trade practices were deeply affecting the EU solar power sector and causing distortions in the local market. Growing tensions brought the two economic powers to the brink of a trade war, bred scepticism around Chinese cross-border economic activities, and resulted in one of the most intense trade disputes in the history of Sino-European bilateral trade. Some observers also point out that the dispute adversely impacted the development of Europe's photovoltaic market, hindering efforts toward a low-carbon future for the continent.

The Beginnings of China's Sustainable Outlook on Development

The dispute traces its roots to 2007, when the Chinese government announced its Medium-and Long-Term Plan for Renewable Energy Development, with the intention of making the solar panel sector a pillar industry. Several internal electrification projects were launched, and these — coupled with export-stimulating policies such as tax rebating and a dual exchange rate system — caused many Chinese solar panel manufacturers to turn to the European market, which was experiencing a huge surge in demand for solar energy at the time.

As a result, the Chinese government began challenging EU pioneering roles in the production of photovoltaic modules and components, capturing more than 80% of the European market in less than six years. This allegedly led forty European solar product firms into insolvency between 2009 and 2012.

A Counter-Reaction from EU Industry

Multiple European solar power equipment manufacturers filed a complaint, leading the European Commission to initiate an anti-dumping and anti-subsidy case on Chinese exports. The trade investigation aimed to restore fair competitiveness for EU companies in the sector. But, mainly due to diverging interests among European countries, the action was widely seen as a defeat for the bloc — failing to hold a hard stance on the matter and not adequately addressing the spiral of insolvencies among EU producers and the related loss of jobs.

During the investigation, up to 17 governments — including Germany and the UK — showed dissent towards the proposed action. In response, the Chinese government launched its own trade action into polysilicon manufacturing, an important material for photovoltaic cells, which particularly affected German suppliers whose main customers were Chinese companies. Chinese Prime Minister Li Keqiang commented on the proposed duties: "We don't agree with this decision and emphatically reject it." German Chancellor Angela Merkel also took a side: "Germany will do all it can so that this won't lead to import tariffs… That's not something we believe in."

The trade action was concluded in 2013 when an "amicable solution" was agreed upon. The preliminary duties were abandoned and instead the EU imposed a Minimum Import Price (MIP) set at 56 cents per watt, enforced until 2015.

A Split in Public Opinion

The MIP settlement appeared to halt the negative price spiral in the EU solar energy market — but a full restoration of competitiveness never occurred. Total European solar panel industry output decreased by almost 20% between 2014 and 2015, and further insolvencies of EU producers continued after 2013.

Public opinion remains divided. The dispute gave rise to criticism that preliminary duties on Chinese exports bore a detrimental effect on green technology production in Europe. Some argued that China was unfairly relying on government subsidies to boost its competitiveness; others argued that European countries should have made use of China's comparative advantage to expand photovoltaic production and build a steady industrial base to tackle the climate crisis globally.

In this view, a neomercantilist approach and the politicisation of the issue are at odds with the creation of a global photovoltaic industry. Even after the MIP, the competitiveness of the EU solar panel industry never fully recovered. The dilemma of conflicting interests — protecting European industry while taking full advantage of cheaper renewable technology imports — remains unresolved. As Chinese production capacity continues to grow and technology costs continue to fall, this issue will persist for European policymakers going forward.