6. Motivations for Outward Investment
6.1. From the Government
The principal motivation for Chinese enterprises to invest in the international market is government policies, which are influenced by its Five-Years Plans and many sector plans. Given China’s special economic system, industry policies are often formulated simultaneously with or even after the practice, and then modified along the years according to the development. From 2001 in the 10th to the 13th FYP, China keeps supporting Chinese enterprises to go out and invest. Under the guidance of government, enterprises gain financing support. Normally industrial subsidies and financing (often entitled as “green credits”) are distributed by state-owned banks (or the policy banks), such as the China Development Bank, to companies engaging in foreign investments, engineering and construction projects.
6.2. From Enterprises
For companies in key sectors such as renewable energy, it is a natural wish to grow big, preferably to grow international. As explained above, wind and solar enterprises in China relies on foreign clients to export and to expand their market shares. For them, investing in North America and Europe is necessary for continuing their success. The quest for new technologies is another incentive. Through Q&A activities, Chinese companies might be able to rapidly obtain standardised technologies and intellectual assets (the first generation crystalline solar PV cells for example) of their well-established partners. In the wake of the financial crisis, many companies are undervalued due to the shortage of funds and are facing the risk of bankruptcy. This is a great opportunity for Chinese investors to acquire good quality assets with comparatively low prices. Last but not least, the renewable energy targets and tax benefits in some host countries can render them attractive to invest in.
7. China’s Advantages and Strategies
China’s competence as an international investor in the renewable energy market comes from its long term practice as a “world manufacturer.” Few competitors could beat China when it comes to price. In the case of Hanergy, its thin-film CIGS battery cells technology does not have the highest efficiency, yet its price is unbeatable. For this reason its acquired assets – German company Solibro, American companies Global Solar Energy and MiaSolé – lost their market status. As a huge and fast-growing economy, China’s development potential is highly appealing. Countries like Greece, Spain and Portugal especially welcome Chinese capital as they are striving to recover from the economic crisis.
Establishing a production base in the destination country is a common approach, JinkoSolar is one example. Many Chinese companies choose to keep the local production facilities and labor in their foreign branches, creating a smooth landing for themselves; or they opt to export via non-Chinese channels (Taiwan for example), in order to avoid the harsh requirements of the destination countries. In response to the United States’ antidumping investigations, China fought back and imposed counter-tariffs on products such as high-voltage photovoltaic components and pure silicon. The case of EDP and China Three Gorges shows how leveraging local enterprise can bring fast success. Despite being the biggest development and operation group for large-scale hydropower in China, the Three Gorges Group had not invested in a single project in the US and European markets prior to the acquisition of EDP. The EDP company served as a bridge for the Three Gorges Group to have rapid access to the global energy market.
8. Setbacks and Resistances
8.1. Low Cost Is a Double-Edged Sword
Competition based on price can be vicious. With an attractive offer, Chinese solar manufacturers phased out many competitors around the world; but eventually many of themselves collapsed also for this reason. Subsidies are available but are put in the wrong place — most subsidies are given in the manufacturing stage instead of sales in the market phase. This keeps the price of turbines and PV panels low and it stays in a vicious circle: with low costs, Chinese enterprises were able to provide the global renewables market with its massive manufacture, in which they also received subsidies of the Chinese government; more enterprises joined the competition with the same low or even lower costs, the global market therefore received excessive supply.
8.2. Unfamiliarity with Laws and Situations of the Destination Countries
Many Chinese enterprises suffered a blow when the United States Department of Commerce and EU conducted antidumping and countervailing duty investigations and imposed trade sanctions. Europe lowered its subsidies to the solar market due to the financial crisis, which led to a decrease of need for Chinese PV products.
9. China’s Future Development and Role as Investor
9.1. “One Belt, One Road” on Energy Cooperation
The Road Map of “One Belt, One Road” referred twice to energy cooperation:
— Strengthen the interconnection and cooperation of energy infrastructure, defend the safety of oil and gas pipelines and other transportation channels, pursue the construction of cross-border electricity transmission channels and actively cooperate in the upgrading of regional power grids.
— Increase cooperation in the exploration and development of coal, oil and gas, metallic minerals and other traditional energy resources, actively promote cooperation in hydro, nuclear, wind, solar and other clean or renewable energies, encourage cooperation in local energy processing and conversion, to further form an integrated vertical industry chain; strengthen cooperation in deepening processing technologies, equipment and engineering services of energy resources.
China is currently planning and building a number of energy channels, including the Central Asia–Center gas pipeline system, the Maritime Silk Road energy hubs, The Sino-Pakistan Trade and Energy Corridor, the Sino-Russian cooperation in oil and gas pipelines, the China and Myanmar energy channels, and the power grids the surrounding areas. “One Belt, One Road” allows China to join together more countries and regions, with new rules that China would have more leverage on. This time China as an emerging economy is leading the development and energy distribution centralised in Asia and the Middle East.
9.2. Sino-US Emission Statement, COP21 and 2016 G-20 Summit
In November 2014, President Barack Obama and President Xi Jinping stood together in Beijing to affirm a historic U.S.-China Joint Announcement on Climate Change. China has agreed to cap its CO2 output by 2030 or earlier if possible, and by then 20% of energy in China would come from non-fossil fuel sources. The United States has pledged to cut its emissions to 26-28% below 2005 levels by 2025. In December 2015, at the Paris Climate Conference (COP21), 195 countries adopted the first-ever universal, legally binding global climate deal. Governments agreed on a long-term goal of keeping the increase in global average temperature to well below 2°C above pre-industrial levels, as well as to aim to limit the increase to 1.5°C, since this would significantly reduce risks and the impact of climate change.
Today, G-20 countries account for 74% of global greenhouse gas emissions. Average annual per capita emissions are nearly 11tCO2e, according to Climate Transparency. The 2016 G-20 Summit will be held in Hangzhou, China this September. While each country is making plans tailored to their own CO2 emission situation after the COP21, the 2016 G-20 Summit Coordinators have issued a presidency statement in one of their sherpa meetings, reaffirming the result in Paris, declaring their determination to implement the Paris climate deal through the summit. Undoubtedly, G-20 is a significant stage for China’s participation in the global energy governance. Being the presidency country this year, the leading position will help China get more direct and positive involvement in strictures for global climate change mitigation and energy administration in the world, as it is foreseeable that these are extremely important issues.
9.3. HVDC, Super Grid and Global Energy Internet
High-voltage direct current, or HVDC, is a technology particularly suited for long distance and submarine power transmission. China started building HVDC transmission grid since the late 1980s, in the hope of transferring power from mega hydroelectric plants to big cities in the east of the country. According to C-EPRI Electric Power Engineering Co., Ltd’s data, the leading enterprise is State Grid Cooperation of China (SGCC), which owned over 655 thousand km transmission line and 2 million MVA substation capacity by the time of 2013. SGCC envisions its HVDC transmission grid in 2020 will link every province in China together in a highly complex and interconnected Super Grid.
Today China is not only conducting the biggest HVDC and UHVDC roll-out in the world, it is also setting up a manufacturing base that could challenge the biggest global players in the market, such as Siemens and ABB.
The term “Global Energy Internet” was raised by the Chairman of SGCC, Zhenya Liu, in 2014. The idea is to develop a worldwide, high voltage energy transmission network, which would be capable of sharing renewable energy around the world. Using this new “Global Energy Internet”, nations particularly rich in renewable energy resources could become major renewable energy exporters. In the perspective of China, with its current development rhythm focused on renewables, HVDC transmission grid and smart grid, China will probably become a global power operator in the next 10 – 20 years wherever its grid is connected to.
10. Conclusion and Policy Implications
Scrutinising Chinese enterprise’s investments in foreign countries in the last 15 years, it is obvious and proved, that they were made under the auspices of the government’s Five-Year Plans and industry sector plans, directly or indirectly. During this period, China’s renewable energy industry had a rapid and massive growth, namely in wind, hydro and solar power. A new industry – New Energy Automobile – emerged as one of the effective approaches that China adapted to fight against air pollution. There were also a considerable amount of investments that went into international funds instead of specific projects. A small amount of raw material investments were observed.
Solar industry flourished for a few years but then suffered a blow because of the financial crisis and antidumping measures in foreign markets. It is now slowly recovering, as China encouraged domestic installations, as well as foreign markets like Europe and the United States are recuperating from the crisis. Most investments in the solar industry were Q&As including the acquired party’s full assets – offices, labor and production lines. Wind industry investments kept a comparatively steady and rapid growth. Compared to solar investments, the percentage of investment conducted by state-owned enterprises in the wind industry is higher. New Energy Vehicles are accumulating investments both in the national and international market, due to the enterprises’ wish to acquire key technologies in a short period of time, as well as China’s central government’s generous support.
In general, China is promoting its energy revolution with a good rhythm. China gained experience through massive production and therefore effectively lowered the costs of PV panels and wind turbines. Its renewable energy advancement often surpassed expert and the government expectation. Therefore it is predicted in the 13th Five-Year Plan’s targets will be accomplished without notable difficulties as well.
In addition, China’s vigorous expansion in hydro and nuclear power worked efficiently to lower its carbon emissions. These two are not considered renewables; however are rather clean with comparatively low costs when duplicated massively. China’s energy reform ambition to reach peak CO2 emission in 2030 cannot be done without its hydro and nuclear efforts. Observing its unprecedented wind and solar development, it is obvious that China is not relying on hydro and nuclear power for good.
As Germany and England dominated the coal industry in the 19th century and the United States became the world leader in the 20th century through possessing petroleum, China has the potential to stand out in the 21st century with its dominating presence in the development of renewables.
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