State help powering up China's greenest exports

CHINA is emerging as a world leader in clean energy but questions are being raised internationally over its government's role in expanding the industry.

More than a million people are now employed in the sector and the nation is quickly coming to dominate the production of green technology as the world's oil and coal reserves dwindle.

But much of China's success lies in aggressive government policies that help the export industry in ways most other governments do not. Experts believe these measures risk breaking international rules to which China and almost all other nations subscribe.

Until recently, Hunan was known for its spicy food, smoggy cities and destitute pig farmers but now the provincial capital Changsha and two neighbouring cities are becoming a centre of clean energy manufacturing.

The area is producing solar panels for the US and European markets, developing new equipment to manufacture panels and branching into turbines that generate wind power. By contrast, clean energy companies in the US and Europe are struggling, with many cutting jobs and moving operations to China.

One of Changsha's newest success, Hunan Sunzone Optoelectronics, makes solar panels and ships, nearly 95 per cent of them for Europe. Now it is opening sales offices in New York, Chicago and Los Angeles in preparation for a push into the US market in February.

To help Sunzone, the municipal government transferred 22 acres of valuable urban land to the company at a bargain-basement price. That reduced Sunzone's costs and greatly increased its worth and attractiveness to investors.

Meanwhile, a state bank is preparing to lend to Sunzone at a low interest rate, and the provincial government is sweetening the deal by reimbursing the company for most of the interest payments, to help it double its production capacity.

Heavily subsidised land and loans for an exporter such as Sunzone are the rule, not the exception, for clean energy businesses in Changsha and across China, Chinese executives have said. But this kind of help violates World Trade Organisation rules banning virtually all subsidies to exporters, and could be successfully challenged at its tribunals in Geneva, according to Charlene Barshefsky, who was the US trade representative during Bill Clinton's second administration and who negotiated the terms of China's entry to the WTO in 2001.

Its rules allow countries to subsidise goods and services in their home markets, as long as those subsidies do not discriminate against imports. But the rules prohibit export subsidies, to prevent governments trying to help home companies gain a larger share of world markets.

The WTO also requires countries to declare all national, state and local subsidies every two years, so that if one nation's exports surge suspiciously, their rivals' trade officials can easily check to see if that product is being subsidised.

But China has virtually ignored the requirement since joining the WTO. Contending that it is still a developing country struggling to understand its commitments, China has filed just one list of subsidies, which were in place between 2001 and 2004. And that one list covered only central government policies while omitting local or provincial subsidies.

Evergreen Solar of Marlboro, Massachusetts, plans to move the final manufacturing steps for its solar panels from Massachusetts to China next summer, eliminating 300 US jobs, after struggling to borrow money in the US and after finding that costs in China were lower.

US Treasury Secretary Timothy F Geithner said the Obama administration had begun high-level discussions on how to respond to China's industrial policies. "We are concerned about the depth and breadth of the measures they have taken," he said. "We will be aggressive on the trade front in terms of fighting anything that is clearly discriminatory."

In Changsha, Sunzone's general manager and chief engineer, Zhao Feng, represents a new breed of Chinese clean-energy entrepreneurs. Tall and fit, he is an avid painter, fisherman and golfer.

"If I go to Los Angeles for ten days, I am on a golf course for eight days," he said.

A former professor of semiconductors at Hunan University, he has a daughter studying for a doctorate in bioengineering at the University of Chicago on a Pentagon grant, and he owns a house in Chicago a block from president Barack Obama's.

Zhao is quick to point out that state and federal governments in the US have also encouraged the development of the clean-energy industry.

"Our provincial governor has come several times to our plant, just as governor Arnold Schwarzenegger has made several visits to solar power firms in California," he said.

But the Hunan government's backing of Sunzone is much more extensive than anything in the US.

With government help, Sunzone lined up financing and received all the permits necessary to build a factory in just three months under an expedited approval system for clean-energy businesses. It took only eight more months to build and equip the factory. "The construction teams worked 24 hours a day, seven days a week in three shifts," Zhao said.

Building and equipping a solar panel factory in the US takes 14 to 16 months, and getting environmental and other permits can take years.

"Who wins this clean energy race," Zhao said, "really depends on how much support the government gives."