Sunday, January 31, 2010

Will Obama Allow Foolish US-Based Multinational CEOs to Trade Our Dependency on Gulf Oil for Our Dependency on Chinese-Made Windmills & Solar Panels?

China leads global race to make clean energy: Now the world's largest maker of wind turbines, solar panels

As China takes the lead on wind turbines, above, and solar panels, President Barack Obama is calling for American industry to step up.

By Keith Bradsher

New York Times

January 30, 2010

TIANJIN, China - China vaulted past competitors in Denmark, Germany, Spain and the United States last year to become the world’s largest maker of wind turbines, and is poised to expand even further this year.

China has also leapfrogged the West in the last two years to emerge as the world’s largest manufacturer of solar panels. And the country is pushing equally hard to build nuclear reactors and the most efficient types of coal power plants.

These efforts to dominate the global manufacture of renewable energy technologies raise the prospect that the West may someday trade its dependence on oil from the Mideast for a reliance on solar panels, wind turbines and other gear manufactured in China.

“Most of the energy equipment will carry a brass plate, ‘Made in China,’ ” said K. K. Chan, the chief executive of Nature Elements Capital, a private equity fund in Beijing that focuses on renewable energy.

President Obama, in his State of the Union speech last week, sounded an alarm that the United States was falling behind other countries, especially China, on energy. “I do not accept a future where the jobs and industries of tomorrow take root beyond our borders — and I know you don’t either,” he told Congress.

Executives expect China to prevail

The United States and other countries are offering incentives to develop their own renewable energy industries, and Mr. Obama called for redoubling American efforts. Yet many Western and Chinese executives expect China to prevail in the energy-technology race.

Multinational corporations are responding to the rapid growth of China’s market by building big, state-of-the-art factories in China. Vestas of Denmark has just erected the world’s biggest wind turbine manufacturing complex here in northeastern China, and transferred the technology to build the latest electronic controls and generators.

“You have to move fast with the market,” said Jens Tommerup, the president of Vestas China. “Nobody has ever seen such fast development in a wind market.”

Renewable energy industries here are adding jobs rapidly, reaching 1.12 million in 2008 and climbing by 100,000 a year, according to the government-backed Chinese Renewable Energy Industries Association.

Yet renewable energy may be doing more for China’s economy than for the environment. Total power generation in China is on track to pass the United States in 2012 — and most of the added capacity will still be from coal.

Largest market for equipment

China intends for wind, solar and biomass energy to represent 8 percent of its electricity generation capacity by 2020. That compares with less than 4 percent now in China and the United States. Coal will still represent two-thirds of China’s capacity in 2020, and nuclear and hydropower most of the rest.

As China seeks to dominate energy-equipment exports, it has the advantage of being the world’s largest market for power equipment. The government spends heavily to upgrade the electricity grid, committing $45 billion in 2009 alone. State-owned banks provide generous financing.

China’s top leaders are intensely focused on energy policy: on Wednesday, the government announced the creation of a National Energy Commission composed of cabinet ministers as a “superministry” led by Prime Minister Wen Jiabao himself.

Regulators have set mandates for power generation companies to use more renewable energy. Generous subsidies for consumers to install their own solar panels or solar water heaters have produced flurries of activity on rooftops across China.

China’s biggest advantage may be its domestic demand for electricity, rising 15 percent a year. To meet demand in the coming decade, according to statistics from the International Energy Agency, China will need to add nearly nine times as much electricity generation capacity as the United States will.

So while Americans are used to thinking of themselves as having the world’s largest market in many industries, China’s market for power equipment dwarfs that of the United States, even though the American market is more mature. That means Chinese producers enjoy enormous efficiencies from large-scale production.

In the United States, power companies frequently face a choice between buying renewable energy equipment or continuing to operate fossil-fuel-fired power plants that have already been built and paid for. In China, power companies have to buy lots of new equipment anyway, and alternative energy, particularly wind and nuclear, is increasingly priced competitively.

Interest rates as low as 2 percent for bank loans — the result of a savings rate of 40 percent and a government policy of steering loans to renewable energy — have also made a big difference.

As in many other industries, China’s low labor costs are an advantage in energy. Although Chinese wages have risen sharply in the last five years, Vestas still pays assembly line workers here only $4,100 a year.

China’s commitment to renewable energy is expensive. Although costs are falling steeply through mass production, wind energy is still 20 to 40 percent more expensive than coal-fired power. Solar power is still at least twice as expensive as coal.

The Chinese government charges a renewable energy fee to all electricity users. The fee increases residential electricity bills by 0.25 percent to 0.4 percent. For industrial users of electricity, the fee doubled in November to roughly 0.8 percent of the electricity bill.

The fee revenue goes to companies that operate the electricity grid, to make up the cost difference between renewable energy and coal-fired power.

Renewable energy fees are not yet high enough to affect China’s competitiveness even in energy-intensive industries, said the chairman of a Chinese industrial company, who asked not to be identified because of the political sensitivity of electricity rates in China.

High transmission losses

Grid operators are unhappy. They are reimbursed for the extra cost of buying renewable energy instead of coal-fired power, but not for the formidable cost of building power lines to wind turbines and other renewable energy producers, many of them in remote, windswept areas. Transmission losses are high for sending power over long distances to cities, and nearly a third of China’s wind turbines are not yet connected to the national grid.

Most of these turbines were built only in the last year, however, and grid construction has not caught up. Under legislation passed by the Chinese legislature on Dec. 26, a grid operator that does not connect a renewable energy operation to the grid must pay that operation twice the value of the electricity that cannot be distributed.

With prices tumbling, China’s wind and solar industries are increasingly looking to sell equipment abroad — and facing complaints by Western companies that they have unfair advantages. When a Chinese company reached a deal in November to supply turbines for a big wind farm in Texas, there were calls in Congress to halt federal spending on imported equipment.

“Every country, including the United States and in Europe, wants a low cost of renewable energy,” said Ma Lingjuan, deputy managing director of China’s renewable energy association. “Now China has reached that level, but it gets criticized by the rest of the world.”

This article, China Leading Global Race to Make Clean Energy, first appeared in The New York Times. Copyright © 2010 The New York Times

Global companies 'forced' to move to China

By Johan van Slooten

Radio Netherlands Worldwide

21 January 2010

International companies doing business in China say they are being forced to relocate there. Finnish/Dutch ship engine manufacturer Wärtsilä has given in to Chinese pressure and decided to move its production facilities out of the Netherlands.

Listen to a Newsline interview with EVO spokesman Godfried Smit

The move means hundreds of job losses in Wärtsilä’s three Dutch factories. 'No other option' [?????]

Wärtsilä’s Dutch CEO Fred van Beers said earlier this week that the Chinese had left his company with no other option: “They only want to use local manufacturers these days. So if we don’t move to China, they won’t be using us anymore. It’s a tough decision, especially for our employees here in the Netherlands”.


Beijing’s decision that Chinese companies must use only locally produced materials has angered Dutch exporting companies, represented by the EVO organisation. Its spokesman Godfried Smit says China is violating international rules set by the World Trade Organisation (WTO):

“The rules for international trade are clearly spelt out in the WTO hand book. These practices clearly don’t meet the standards set by the WTO”.


Mr Smit says this is the reason why the Chinese government is not openly forcing companies to move to China. However, local and regional authorities do press international manufacturers into relocating, EVO claims.

“But it’s difficult to detect, as most companies that have to deal with this kind of pressure rarely speak out. If they do, they fear their access to the Chinese market will be more difficult,” Mr Smit says.

General Motors

Wärtsilä is not the only international company that has to deal with this pressure. General Motors was also forced to move part of its construction capacity to China after it unveiled plans to expand its exports to the region.

'EU should take action'

EVO wants the EU to take action against China on this issue, says Mr Smit. “The EU Commission has a huge influence on the global economy and if it says China is not in line with WTO legislation, China will hopefully listen. The Chinese should also be aware that this might be harmful to themselves. They’ve overcome the image of having an economy that only produces substandard, counterfeited stuff, and they shouldn’t want another negative image”.

China is not the only country putting up trade barriers against the rest of the world - the US and EU have done likewise. “But there’s a difference”, says Mr Smit, “as the EU and US trade barriers are normally in line with WTO guidelines”.


US protectionism

However, in early 2009, the US government came under fire when it unveiled an economic rescue package which stipulated that American investors should use only US-made iron, steel and manufactured goods in projects funded by the package.

US President Barack Obama changed the rules after criticism by the WTO.

Dutch reaction

On Thursday, Dutch deputy minister of economic affairs Frank Heemskerk asked the WTO to take action. “This clearly violates international trade laws. If China is guilty of protectionism, the WTO should act”, he said.

Excerpted from, Lawrence A. Kogan, Rediscovering the Value of Intellectual Property Rights: How Brazil's Recognition and Protection of Foreign IPRs Can Stimulate Domestic Innovation and Generate Economic Growth, IJED, Vol. 8 No. 1-2 at pp. 127-128, and accompanying endnotes. ;


China has employed a perceptibly more attractive multi-level strategy that has enabled it to progress along the economic ladder much more rapidly than its industrial predecessors.505 As a result, it has become, for the moment, the 'factory of the world', as well as a future aspiring technology leader.506 China‘s strategy differs markedly from Japan‘s strategy insofar as, it was necessitated by a simultaneous need for development, skilled labor, technology, and investment.507 Although China has utilized practically every device in the opportunist‘s toolbox,508 its conduct has remained more palatable to developed nation industries. Apparently, China has learned to frame its innovation needs in terms acceptable to the marketplace.509 510 511 China has largely premised its model of innovation and development on the mechanism of joint venture-based investment.

Typically, a foreign investor contributes intellectual property, including manufacturing process know-how and overseas distribution in exchange for a Chinese company‘s contribution of local manufacturing plant and equipment plus an unlimited supply of low-wage skilled labor. Incremental technology improvements and any new patents, trademarks and copyrights inure to the benefit of the new enterprise. Joint venture-based products are usually subject to export and substantially banned from the domestic Chinese market, which is largely reserved for Chinese state-owned or private enterprises.512 513 514 The Chinese government has documented the massive extent of foreign technology transfer that has already occurred. In 2001 alone, the government approved 240,000 joint venture technology transfer contracts, worth approximately $10 billion, reflecting a 23% increase from the prior year (2000).515

In addition to recognizing how it could capitalize on its seemingly endless supply of cheap labor, China has also sought to develop indigenous human capital (labor skills) which it deems essential to innovation. The Chinese government obviously knows that intellectual property-based innovation is the key to technological advancement. In this regard, China has employed a global ‘charm offensive’ that has sought to “persuade, lure and sometimes force foreign corporations to locate their most advanced research and developm ent facilities in China”. It has also sent its students abroad to advanced western universities to become educated, with the expectation that they will eventually return.516

In order to keep its factories running and its labor pool content China has sought to control the mass wholesalers and retailers upon which most global end-use consumers depend for their daily purchases. To accomplish this, however, China has had to develop the ability to efficiently: 1) import large quantities of raw materials; 2) build and operate large manufacturing and processing facilities that convert those materials into useable intermediate and/or finished goods; and 3) export large quantities of finished products to consumers. This has required that it quickly learn all about global procurement and distribution systems. Consequently, when a western company decides to move its R & D operations to China to capitalize on China‘s relatively cheap labor and very well educated knowledge pool, it is unwittingly transferring its next generation of knowledge and innovations there,517 and helping China to become an independent innovative as well as manufacturing force. 518 519 520

Corresponding Endnotes:

505 “China is using its unprecedented access to so m e of the world‘s most advanced technology as a means of leapfrogging into the modern industrial age. China has been able to use this technology to upgrade its industries and to become globally competitive in a short span of time… [Through the] process of absorbing [foreign] technology and using it to compete with the technology‘s original owners and creators…China‘s goal is to become competitive and to dominate all industries. While China already dominates in some low-technology sectors, China‘s goal is to dominate not only in low-technology sectors, but also in high-technology sectors. Unlike Japan or Korea, China does not intend to abandon lower-level technology sectors as it moves up the technology ladder.” See Counterfeiting and China‘s Economic Development, Written Testimony of Professor Daniel C.K. Chow, at p. 3, Before the U.S.-China Economic and Security Review Commission, Hearing on Intellectual Property Rights Issues and Imported Counterfeit Goods (June 7-8, 2006).

506 “With its joint venture model, the Chinese government has moved its industrial infrastructure from the nineteenth century to the twenty-first century in less than two decades. In the process, China is getting the kno w ledge and capacity it needs to become the world’s manufacturing center.” See Pat Choate, HOT PROPERTY: The Stealing of Ideas in an Age of Globalization, at p. 172.

507 “China needs jobs. To get those jobs, China needs foreign technology. To get the foreign technology, China needs foreign investment. To get the foreign investment, the Chinese government has introduced a host of national development initiatives. Each is built on a grand four-part long-term development strategy.” Ibid., at p. 170.

508 “For those companies that do decide to do business in China, the unfortunate reality is that they all must expect intellectual problems eventually. The problem may originate from suppliers or other Chinese manufacturer. It may come from former employees. It may even come from state-sponsored reverse-engineering programs. In March [2006], China’s railway ministry proudly announced two new, high -speed railway lines. Government officials announced that the new railways would use only Chinese technology. How did China achieve this Great Leap Forward in transportation technology? Railroad minister Liu Zhijun explained it to the Chinese press: ‘Our technology is a re-innovation on the basis of assimilating advanced technologies of foreign countries.‘ Re-innovation’, whether by the state or by other local businesses, is a fact of life in today’s China’” (emphasis added). See Testimony of the Honorable Dave McCurdy, President and CEO, Electronic Industries Alliance, before the U.S.-China Economic & Security Review Commission Hearing on China‘s Enforcement of Intellectual Property Rights and the Dangers of the Movement of Counterfeited and Pirated Goods into the United States at p. 4 (June 7 - 8, 2006).

509 “Just like the United States and Japan before it, China is using all the usual means – licensing, theft, piracy, intimidation, spies, and cooperation – to get the technology it needs. China has also adopted a system of joint venture, an old and established tool for securing foreign intellectual property, and has elevated it to an art form. With joint ventures, China reduces its need to steal or expropriate foreign intellectual property because foreign corporations share it as a condition of doing business there… In 2002, economists at Lehman Brothers… projected that China would have the world ‘s second largest economy by 2030. But that projection will not be realized unless China can continue to: a. [G]et the basic foreign technology; b. [C]reate the capacity to develop proprietary technology domestically; and c. [C]ontrol these core technologies world wide.” Ibid., at pp. 170 and 172.

510 “For decades China has been targeting Western technologies, initially seeking military and other secrets, but more recently concentrating much of its effort on technologies and intellectual property designed to drive its rapidly expanding economy…Thousands of American companies are among those attracted b y China’s cheap labor and growing market for consumer goods. Based on population, China’s market is three times larger than the European Union and four times the size of the United States. It economy is growing at an average of 8 percent a year. Many of the products are particularly vulnerable to reverse engineering, design infringement, and counterfeiting due to inadequate protections in China of intellectual property rights… It has been said that the right to counterfeit goods is engrained in China’s culture. Former premier Deng Xiaoping promoted the philosophy of: ‘Let foreign things serve China.’ This perspective continues today and China generally views counterfeiting and other violations of intellectual property not as a serious offense, but as a major source of income, taxes, and employment.” See The Developing U.S.-China Relationship: Analysis of China’s Weak Intellectual Property Rights Protection and Enforcement, Written Testimony of Dr. Neil C. Livingstone, at pp. 1-2, Before the U.S.-China Economic and Security Review Commission, Hearing on Intellectual Property Rights Issues and Imported Counterfeit Goods (June 7-8, 2006).

511 “China is now our third -largest trading partner. Last year American firms exported $42 billion in goods and services to China, and exports rose 40% in the first quarter of this year, with high-tech products such as medical and scientific equipment and semiconductors among the fastest-rising major products… We have seen some small indications that the Chinese government is taking intellectual property more seriously. There has been progress – a very tiny amount – but not nearly enough. The truth is that China has no strong tradition of protecting intellectual property rights. Until it does, the abundant rewards of trade with China will always be tempered by equally abundant risks. The concerted effort begun by the Chinese government in recent months to encourage homegrown innovation and lessen the country‘s economic development reliance on imported technology is in some ways a double-edged sword. On the one hand, it is encouraging that the government wants China to develop its own commercial technologies, because the most effective way to foster true enforcement of IPR protection is for domestic entrepreneurs and small businesses to have a real stake in the system. It is impossible for someone to take enforcement seriously if they have nothing of their own to protect. Encouraging innovation rather than mandating technology and standards is a definite step in the right direction of lowering non-tariff trade barriers… As a new market and an ever more important trading partner, China holds great promise. But there are still many challenges that U.S. companies face in doing business there. Sometimes the opportunities outweigh the risks; other times, firms run into serious trouble in China. In every case, the Chinese market will never meet its full potential until it is governed by a sound and transparent legal system, particularly in terms of intellectual property rights.” See Testimony of the Honorable Dave McCurdy, President and CEO, Electronic Industries Alliance, before the U.S.-China Economic & Security Review Commission Hearing on China’s Enforcement of Intellectual Property Rights and the Dangers of the Movement o f Counterfeited and Pirated Goods into the United States supra, at pp. 1 and 4.

512 “The foreign investor puts up the capital, patents, copyrights, trademarks, know-how, and overseas distribution. In most circumstances, the local Chinese partner keeps half the equity in the new enterprise. Any improvements in technology and any new patents, trademarks, or copyrights developed in China by the joint venture belong to the new enterprise. In exchange, China contributes an unlimited supply of low-wage, competent, compliant workers. The foreign corporations are allowed to serve their markets from Chinese-based factories that operate under the most limited public regulation of labor, production, pollution, and health and safety standards. Products from these ventures are often banned in China, leaving that market to state or locally-owned enterprises. Despite China’s invitation to foreign companies to come and invest, the Chinese government has reserved entire sectors of its economy for state-owned enterprises. Other sectors belong to China’s private entrepreneurs. Foreign investors can participate in the rest on terms that China dictates. See Pat Choate, HOT PROPERTY: The Stealing of Ideas in an Age of Globalization, at p. 178. Foreign corporations also use local managers and engineers to operate their factories, teach the Chinese how to apply their technology, and follow the government’s economic dictates. Through this, China gains know-how quickly.” Ibid., at p. 172. “…As foreign companies become increasingly dependent on Chinese manufacturing for their worldwide production, they will come under correspondingly more pressure to make available and then share ownership of their foreign distribution systems. Eventually, just as the Japanese and Koreans did, the Chinese will establish brand trademarks that become known worldwide, which they will sell through these joint distribution networks. Finally, the Chinese, just like the Japanese before them, will no longer need foreign corporations or their networks.” Ibid., at p. 183.

513 “…[T]he [Electronic Industries Alliance] EIA published in April [2006] a best practices guide entitled Protecting Intellectual Property Rights in China and sent it to senior executives at each of our nearly 1,300 member companies. The guide was a collaboration between EIA and the China Alliance, which is a partnership of four North American law firms…with a collective team of legal experts on China… I think the most important message of the guide… is that in many ways there are no markets in China” (italicized emphasis in original) (boldface emphasis added). See Testimony of the Honorable Dave McCurdy, President and CEO, Electronic Industries Alliance, before the U.S.-China Economic & Security Review Commission Hearing on China’s Enforcement of Intellectual Property Rights and the Dangers of the Movement of Counterfeited and Pirated Goods into the United States at pp. 3 -4, supra.

514 Some who have studied the lack of success experienced by large U.S. law firms in China have labeled the promise of Chinese market share ‘fool’s gold’. See, e.g.,: Jason Lohr, Gold Mountain or Fool’s Gold?, Asia Business Law (4/4/06), at: ( ); Kelly Schmitt, Law Firms Pressured to Serve China on the Cheap, The Recorder (12/14/05), at:
( ).

515 See Pat Choate, HOT PROPERTY: The Stealing of Ideas in an Age of Globalization,, at p. 174.

516 “China offers more than an enormous pool of cheap labor light manufacturing. It has a large pool of engineers and technicians available for more advanced work, many educated in the United States. The Chinese Academy of Engineering reports that as of the late 1990‘s China had more than 2.1 million trained engineers, including 600,000 senior-level people. This is a significant reservoir of technical talent. Most of these engineers are available at roughly 10 percent of the salaries of their American, Japanese, or European counterparts.” Ibid., at p. 173.

517 “Angela Merkel, German chancellor, will…urge China to drop rules that force foreign companies to transfer proprietary technologies and designs to Chinese competitors. These ‘forced transfers’ top a list of complaints that German business has asked Ms. Merkel to raise with Wen Jiabao, the Chinese premier, during her first visit to Beijing. The complaints, to be published today [May 22, 2006] by BDI, the industry federation, include the difficulties foreign companies face in obtaining redress before Chinese courts in intellectual property infringement cases.” See Bertrand Benoit, Merkel To Grill China On ‘Forced Transfers’, Financial Times (5 /22/06) at p.1.

518 See Pat Choate, HOT PROPERTY: The Stealing of Ideas in an Age of Globalization,, at pp. 171-172. “China is developing its capacity to import raw materials and export finished goods. COSCO, the Chinese state-owned shipping company is now working with port authorities on both the west and east coasts of the United States to expand their capacity to handle far greater imports and exports with China. In 2002…COSCO opened a route to Boston. Within one year, the volume of goods shipped from the Boston port to Asia doubled, while the import volume from Asia to Boston increased fourfold. Equally significant, China has replaced the United States as the transport manager for the Panama Canal. The governments of Panama and China have had extensive negotiations on the construction of new locks for the canal, sufficient to carry the giant cargo ships that China envisions for the future. China is ensuring that it w ill be able to get the world’s raw materials to its factories and its finished goods to world markets. China will eventually try to control the principal retail outlets that market its products in other nations. China’s growing monopoly on the manufacture of goods that foreign retailers sell provides the business advantage required in such negotiations and takeovers. Viewed from China’s perspective, as the products it makes come to dominate U.S. and other markets, why should not the Chinese share in the profits made by Wal-Mart, Kmart, JCPenney, and other retailers that sell its good, or even take them all if it can? This is the way capitalism works.” Ibid.

519 There is actual anecdotal evidence that China’s domestic propaganda machine promotes industrial stealth of foreign technologies by warning local industries that the Chinese government’s protection of foreign intellectual property rights, if permitted, would lead to foreign company monopolies in China. “On one of my trips to China, I had the chance to sit in on a speech made by a local Qingdao official of the State Intellectual Property Office. Since he was speaking to an auditorium of local businessmen and Chinese government officials, perhaps, I should have expected the candor with which he spoke, but my jaw dropped when I heard off-message rhetoric that enforcement of trademark, patent and copyright laws could lead to monopolies by foreign multinationals, that different economic development levels call for different standards of enforcement, and that better enforcement could not come at the expense of domestic innovators. That is not the language we hear from Vice Minister Wu Yi and other Beijing officials working to improve China’s record.” See Testimony of the Honorable Dave McCurdy, President and CEO, Electronic Industries Alliance, before the U.S.-China Economic & Security Review Commission Hearing on China’s Enforcement of Intellectual Property Rights and the Dangers of the Movement of Counterfeited and Pirated Goods into the United States at p. 5. supra.

520 Some experts believe that China’s IPR violation conundrum is caused not by the attitude of Chinese officials, but rather by limitations on state capacity. ―It is m y considered opinion that the majority of Beijing‘s elite decision makers genuinely believes in the importance of protecting intellectual property rights, even if it is for nationalistic or other self-interested reasons (i.e., economic growth, the strategic payoffs form a vibrant innovative – and protected – knowledge base, etc.). Insofar as this problem persists, much of the reason is due to limitations on state capacity: China’s top leadership can only expend the necessary resources to sustain two or three major campaigns over the long term. That explains the paradox of why China can regulate the most intimate behavior of 1.3 billion people through its stringent population control policy but cannot crackdown in a sustained manner on a problem as seemingly straightforward and obvious as copyright piracy” (emphasis added). See Andrew C. Mertha, Testimony to the US-China Economic and Security Review Commission, Hearing on Intellectual Property Rights Issues and Imported Counterfeited Goods (June 8, 2006), at p. 1.