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New Study Details Chinese Government Policies to Promote Domestic Renewable Energy Sector & Implications for Foreign Firms
Date: 3/15/2010
Written By: Jennifer Cummings, The Fratelli Group for NFTC, 202-822-9491

Washington, DC – The National Foreign Trade Council (NFTC) today released a new study, titled China’s Promotion of the Renewable Electric Power Equipment Industry: Hydro, Wind, Solar and Biomass, which examines policies put in place by the Chinese government to promote the development of its renewable energy sector. The study, authored by members of the International Trade Group of Dewey & LeBoeuf LLP, details a series of Chinese government measures that have stimulated demand for Chinese-made renewable energy equipment. These measures include preferential financing; VAT rebates; tax incentives; procurement preferences for Chinese-owned and controlled companies; local content preferences; and R&D subsidies for renewable energy equipment producers. The study also highlights foreign producers’ responses to these measures.

The study, written by Thomas Howell, William Noellert, Gregory Hume and Alan Wolff, chronicles Chinese government policies put in place between 2002 and 2009 to encourage the development of the domestic renewable energy sector, including:

The 2002 Government Procurement Law, which provided that with a few exceptions procurement purchases by government organizations should be limited to domestically-made goods;
  • The National Development and Reform Commission’s (NDRC) 2005 Notice of Requirements for the Administration of Wind Power Construction, which provided that no wind farm could be constructed in China that did not meet a 70 percent local content requirement;
  • The 2006 Renewable Energy Law, which was amended last year to require utilities to purchase all renewable power generated in China;
  • The 2006 Provisional Measures for the Accreditation of National Indigenous Innovation, which provided for a process under which products made with Chinese intellectual property could qualify for “priority” in government procurement;
  • The Medium and Long-Term Development Plan for Renewable Energy in China released by the NDRC in 2007, which triggered a surge of investment in the country’s wind equipment industry;
  • The 2008 Stimulus Package, which required that with respect to stimulus spending, preference be given to domestic products for renewable energy projects; and
  • The 2009 Golden Sun Demonstration Program, which will provide investment subsidies equal to 50 percent of the investment cost for grid-connected solar power systems.
The study puts these policies in context, noting that rising energy consumption coupled with the fact that China’s oil and natural gas reserves will be depleted in two decades at current extraction rates, have made it necessary for the country to develop renewable energy sources. Prior to the implementation of the policies mentioned above, “China imported much of the generating equipment used to construct its hydropower infrastructure, and until very recently China relied heavily on foreign equipment and technology.” Moving forward, “Chinese planners have indicated their intention that eventually most or all of the renewable energy equipment installed in China will be made in China, will be based on Chinese-owned intellectual property, and will embody Chinese-developed standards.”

In addition, the study points out that “although governments in the United States, Canada, Europe and Japan have introduced policies to promote renewable industries, China’s effort is noteworthy for its sheer scale and the speed with which it is being implemented.”

The study concludes by noting, “where questions of market access through trade and investment arise, the policies described above, whether practiced by China or in similar forms by its trading partners, will shape both others’ national policy decisions with respect to trade and investment, as well as emerging global rules on these subjects… Massive investment, major initiatives, and measures affecting trade and investment in a major country always result in substantial changes in trade flows and patterns of investment that might otherwise prevail.”

“While the study makes no findings about whether the Chinese government’s implementation of policies that favor its energy sector violate international trade rules, it does make clear that Chinese firms stand to gain substantially from these measures. The facts the study presents raise serious policy issues for China’s trading partners,” said NFTC President Bill Reinsch. “With strong potential growth in the U.S. renewable energy sector, this is an important emerging issue to watch.”

For a copy of the study, please click here.


About the NFTC

Advancing Global Commerce for 95 Years - The National Foreign Trade Council (www.nftc.org) is a leading business organization advocating an open, rules-based global trading system. Founded in 1914 by a broad-based group of American companies, the NFTC now serves hundreds of member companies through its offices in Washington and New York.
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