This past September was not a good month for the American renewable energy sector. On the 14th, American Semiconductor (NASDAQ: AMSC) of Devens, Massachusetts, filed suit against Sinovel Wind Group of Beijing, China for “illegal use of AMSC’s intellectual property.” The 19th saw Boston Power, a privately held lithium-ion battery startup, fire its CEO, move manufacturing to China and shed 30 jobs in Massachusetts due to the $125 million it raised in (mostly China-related) venture capital money. Solyndra, in California, blamed low-cost Chinese competitors for having to file for bankruptcy, in spite of a half-billion dollar U.S. government loan guarantee. Just a few months earlier, Massachusetts-based Evergreen Solar announced it was closing its manufacturing facility due to competition from China.
This agglomeration of not-so-good news for the U.S. renewable energy industry highlights three trends in the U.S.–China relationship that seem to have converged in 2011:
- China’s increasing integration into the global arena.
- Heightened competition in the renewable energy sector.
- Continuing intellectual property disputes.
Integration into global trade
Since the unveiling of China’s “Going Out” policy at the onset of the millennium, the nation’s activity in diverse areas and sectors around the world has become a dominant factor in the political economy of the globe. At the middle of 2011, China’s outward direct investment reached almost $330 billion while inward foreign direct investment (FDI) totaled some $1.6 trillion. Most significantly, by 2016, China’s total share of world output will surpass that of the U.S.
These figures highlight a fundamental shift in world politics that will require major readjustments in the prevailing views of the world. Signs of that realization were evident in the Eurozone’s calculation that China (and Russia) will have to play a major role in the Greek bailout deal.
Green economy and renewable energy
Renewable energy and clean technology will play an increasingly important role in that transition, and the latest ruling manifesto from the Communist Party affirms that view. As a report to the U.S. Economic and Security Review Commission states, “the economies of scale in alternative energy that China would need to achieve to meet this goal would have the potential to radically transform global energy markets and enable China to offer unmatchable prices on alternative energy to the rest of the world.” China, according to a prominent political academic from that country, is emphasizing the three lows: low carbon, low polluting and low energy-consumption. Suntech Power Holdings (NYSE: STP), the world’s largest solar cell maker by capacity, expects China to benefit from falling solar prices, and forecast that China could become the largest solar market by 2015. In a notable example of government subsidy in another over-the-horizon sector, the state owned investment holding company SDIC is planning to quadruple capacity (and presumably losses) at an unprofitable desalination plant in Tianjin. But, as the plant’s general manager was quoted as saying, “Someone has to lose money,” (NYTimes 10/26/11) in order to benefit membrane technology research and position China for future growth in providing clean water.
For decades, a major concern of foreign businesses has been the transfer of technology to Chinese firms, whether by design or theft. Although competitive intelligence is not limited to Chinese copying of Western lines of code, China’s public insistence on technology transfer has made it easy to fall back on intellectual property (IP) issues as a China versus U.S. issue. But industrial espionage involving China and the West has not always been a one-way street, as 6th century Nestorian monks smuggled silkworms out of China on behalf of the Byzantine emperor. In the 1920’s, Chinese calls for learning from the West (Mr. Democracy and Mr. Technology) in the aftermath of the overthrow of empire resonate today with contracts being reserved for foreign companies willing to share their technologies with local partners. The key to resolution of this issue is the open, protected and conscious use of technology in creating a competitive advantage without regard for country of origin. The resolution of industrial espionage problems will increase in importance domestically, especially as Chinese companies start to see their own innovations copied and revenue lost. The first IP infringement lawsuit brought by a Chinese company against another one was in 1992, whenWangma sued Dongnan for copying its Chinese character typing software. The results were not encouraging: after an initial victory in 1993, the verdict and judgment were reversed a year later when the underlying basis of the software was found to be in the public domain. But since then, specialist courts have been established to hear IP disputes and increasingly more effective lawsuits are being waged by both foreign and Chinese companies.
Given these trends, and other macro-economic conditions, the choices for American companies are stark. With declining markets in the U.S. and Europe, China and the rest of Asia will inevitably play a larger role in corporate and government investment choices. Will new corporate structures follow GM’s strategy, where the headquarters are located in the U. S., but the majority of its profits come out of China? Or will truly global companies straddle American and Asian borders? And how can these models bring prosperity to the U.S.?
In order to meet the challenges of this transition period, we must focus on our own comparative advantages. A culture of creativity and innovation, an extremely vibrant cluster of educational institutions, a rich cultural life and supportive government provide a strong ecosystem for attracting and retaining talent and investment. All in all, we’d still rather live in Boston than Beijing, and we want what’s left of our money to stay here.