Europe wants solar power sovereignty from China

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Europe generates a lot of solar power, most of it using photovoltaic (PV) modules imported from China. Now, in the name of energy sovereignty, the European Union (EU) and its solar industry firms want to reduce that dependence. 

The organizers of the Intersolar Europe 2023 trade exhibition and conference, held in Munich, Germany, from June 14 to 16, put it this way in their introduction to the event:

“PV production is set to return to Europe – with strong political tailwinds. In order to achieve energy sovereignty and make its energy system permanently resilient, Europe must minimize its technological dependencies and supply chain disruptions… Politicians and economists agree: Photovoltaics production must be brought back to Europe.”

That was a follow-up to a statement made last October by European Union Commissioner for Internal Market Thierry Breton when the European Commission formally endorsed the continent’s new Solar Photovoltaic Industry Alliance: 

“To meet Europe’s renewable energy objectives — and avoid replacing a dependency on Russian fossil fuels with new dependencies — we are launching an industrial alliance for solar energy. With the alliance’s support, the EU could reach 30 Gigawatt of annual solar energy manufacturing capacity by 2025 across the full PV value chain. The alliance will foster an innovative and value-creating industry in Europe, which leads to job creation here. Europe’s solar industry already created more than 357,000 jobs. We have the potential to double these figures by the end of the decade.”

30GW would be 3.6 times the 8.3GW estimate of European PC module capacity in 2021 issued by Intersolar. More recent data is hard to come by – McKinsey & Company gave a range of 6GW to 8GW in a report issued at the end of 2022, which seems oddly low,  

But if Europe’s capacity is currently 10GW, then that would be just 15% of the 68.6GW installation demand forecast for Europe by market researcher TrendForce in February. Most of the rest comes from China.

The EU wants to raise its self-sufficiency in PV module production to 40% by 2030. That might sound like a modest target, but the EU also wants to increase Europe’s total installed solar power generating capacity from a bit more than 200GW in 2022 to 320GW by 2025 and nearly 600GW by 2030. 

This will require financing amounting to tens of billions of euros, which will be mostly private but directed and supported by EU policy funds. 

Intersolar Europe is part of the so-called “smarter E Europe.” This year, it was held in conjunction with three related exhibitions: ees Europe (batteries and energy storage systems), Power2Drive Europe (charging infrastructure and electric vehicles) and EM-Power Europe (energy management and integrated energy solutions). 

The smarter E Europe, which bills itself as “Europe’s largest platform for the energy industry,” promotes renewable energy, the decentralization and digitalization of the energy industry, and coordination of the electric power, heating and transport sectors.

Intersolar Europe 2023 alone attracted 1,372 exhibitors; the combined events attracted 2,469 exhibitors from 57 countries and more than 106,000 visitors from 166 countries. 

Source: TrendForce data; Asia Time chart

Exhibitors included manufacturers of solar wafers, cells, modules, PV production equipment, and providers of related services. In addition to the product exhibitions, there were presentations on cell and module technologies and production equipment made in Europe. 

While Europe has a legitimate solar power supply chain, it still lacks economies of scale. According to McKinsey & Company, European companies have only 11% of the global market for solar polysilicon, 1% for ingots and wafers, 1% for solar cells and 3% for PV modules. 

By 2025, those shares are expected to increase to 12%, 4%, 4% and 5%, respectively. Wacker is the only European maker of solar polysilicon and the only European company in the industry with a significant market share. 

However, as noted by Intersolar:

“The European PV industry is already taking action in response to the growing demand. Here are some recent examples: SMA Solar Technology (Germany) is building a 20GW factory for system solutions for large-scale PV plants in Hesse. Inverter manufacturer Fronius (Austria) is investing 233 million euros in expanding its production capacity this year. Belinus (Belgium) is planning 5GW module factories in Belgium and Georgia, respectively, and FuturaSun (Italy) is planning a 2GW module factory in Cittadella (Veneto). Italian utility company Enel is building a 3GW module factory in Sicily and Lithuanian module manufacturer Solitek is investing in a new factory in Italy.”

Sources: REPowerEU, market research company data; Asia Times chart

China is far and away the largest producer and user of solar power, producing close to 80% of the world’s solar silicon, 95% of its solar ingots and wafers, 75% of its solar cells and 70% of its solar modules, according to McKinsey & Company. 

More than half of Chinese-made PV modules were exported in 2022, according to PVTIME, and the largest market for those modules was Europe. 

According to the International Renewable Energy Agency (IRENA), China accounted for 37% of total worldwide installed PV solar energy capacity in 2022, followed by the EU at 19%, the US at 11%, Japan at 7.5% and Germany and India at about 6% each. 

Source: IRENA data; Asia Times chart

Moreover, China is likely to install more than twice as much PV capacity in 2023 as Europe and 3.7 times as much as the US, according to data from TrendForce.

Source: TrendForce data; Asia Times chart

Seven out of the top 10 suppliers of PV modules are Chinese. One is headquartered in Canada but makes most of its products in China, one is American and one is South Korean. 

Lists compiled by other market research outfits are slightly different, but all of them show a preponderance of Chinese companies and no European companies except for Q-Cells of Germany, which was rescued from bankruptcy and acquired by South Korea’s Hanwha Group in 2012.

China’s enormous production capacity, supported by a complete supply chain of materials, equipment, production and assembly, gives it unmatched economies of scale and a cost advantage it is unlikely to lose even if Europe reaches its energy sovereignty goals. 

The gap is wide: Market research and consulting company Wood MacKenzie reports that Chinese PC modules were sometimes less than half the price of modules made elsewhere in 2022. But issues of energy security and the long-term development of European industry are taking priority over price. 

The difference will have to be made up with subsidies and the restriction of imports. Nevertheless, by its own calculations, Europe will remain dependent on China for a large share of the solar power capacity it plans to install for years to come. 

On the other hand, the revitalization of the European solar power manufacturing industry should speed up the move away from fossil fuels and contribute to the development of new clean technologies.

The EU aims to scale up production of solar photovoltaic products and components in order to accelerate the deployment of solar power and make its energy system more robust. 

The final version of its Solar Energy Strategy, announced last year, names EIT InnoEnergy as the leader of its Solar Photovoltaic Industry Alliance, with Solar Power Europe and the European Solar Manufacturing Council also on its steering committee.

EIT InnoEnergy brings together innovators and industry, entrepreneurs and investors, graduates and employers to facilitate the development of sustainable energy and decarbonization. It supports education and invests in start-ups and companies with untapped growth potential. So far, it has invested in about 180 companies. 

SolarPower Europe is an association with some 300 members that connects policymakers and the solar industry. The European Solar Manufacturing Council represents the interests of the European PV manufacturing industry. 

Follow this writer on Twitter: @ScottFo83517667

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US is losing Asia’s multilateral trade game

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Digital trade has reduced the costs of engaging in international trade, facilitated the coordination of global value chains and connected a greater number of businesses and consumers globally. 

Digital technologies will undoubtedly create new products, services, markets and opportunities for business development. The United States and China have sought to capitalize on this growth potential, albeit with varying levels of success.

Digital economy contributes to more than 15% of global GDP according to the World Bank — much of this comes from digital trade, which spans from the trade of technological goods to digitally-enabled services.

Recently, approaches to digital trade are diversifying, especially in China and the United States. Both have increased their influence in digital transformation through various economic frameworks, including the Regional Comprehensive Economic Partnership (RCEP) and the Indo-Pacific Economic Framework for Prosperity (IPEF). 

RCEP is a thorough trade agreement that goes beyond trade liberalization, including digital trade. The IPEF is also a substantial economic partnership that covers diverse sectors such as digital trade.

The IPEF was initiated by the United States on May 23, 2022, inviting Australia, Brunei Darussalam, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand and Vietnam to join the framework. The IPEF aims to define shared objectives around four pillars — trade, supply chains, clean economy and fair economy.

The trade pillar highlights the urgency of digital trade cooperation and aims to promote an inclusive digital economy by increasing access to the internet and information, facilitating digital trade, resolving discriminatory practices and enhancing the security and resiliency of digital infrastructure.

Joe Biden’s Indo-Pacific Economic Framework aims to counterbalance China’s rising power and influence in Southeast Asia. Image: Facebook

Through the IPEF, the United States differentiates itself from China’s data sovereignty approach by encouraging free and open data flow. The IPEF seeks to reduce localization requirements and limitations on cross-border data flows to promote more open digital trade. 

The IPEF further affirms its commitment to supporting reliable cross-border data flows, an inclusive digital economy with sustainable growth and responsible utilization of emerging technologies — it is more extensive than RCEP.

By contrast, as the largest trading bloc, RCEP offers tariff adjustments, dispute settlement mechanisms and trade remedies that induce better cooperation and commitment to achieve common objectives. All ASEAN members and five external partners — Australia, China, Japan, South Korea and New Zealand — have signed it.

RCEP addresses digital trade as electronic commerce, referencing trade in traditional commodities delivered with the assistance of digital technologies. 

RCEP will create digital economy opportunities by promoting cooperation in research and training activities, capacity building and empowering small and medium-sized enterprises to utilize e-commerce platforms. 

This is an important benefit as digital trade is relatively new in the global trade regime and most RCEP members need different levels of assistance for digital transformation. China plays a significant role in influencing the digital economy system for RCEP members. Its digital economy model has become the leader in the Indo-Pacific region. 

Several major Chinese companies — including WeChat and Alipay — have pioneered cross-border payments and developed practices that others can emulate. China’s digital economy has also produced many business opportunities.

By asserting its influence in RCEP, China is expected to contribute to the revitalization of the digital trade regime in the Indo-Pacific region. Because of China’s growing influence, the IPEF may have been created because of the Biden administration’s concern about its weakening influence in Asia, rather than because of economic considerations.

RCEP comes with a take-it-or-leave-it approach which obliges member states to comply with provisions outlined in the agreement. But in implementing e-commerce provisions, RCEP respects the national interests of member states to determine appropriate measures that suit their circumstances.

In contrast, the IPEF adopts a flexible approach that allows member states to opt out from any pillar they are not interested in, exemplified by India’s refusal to join Pillar 1 focused on trade. This renders some commitments of the framework unexecuted. 

If there is no guarantee that domestic reforms will be implemented equally, member states will be reluctant to initiate reformative steps, resulting in ineffective partnerships. The lack of economic incentives — including tariff adjustments — reduce the framework’s appeal to member states.

Indian Prime Minister Narendra Modi talks to then-Chinese Premier Li Keqiang (center) and Thai Prime Minister Prayut Chan-ocha during the third RCEP Summit in Bangkok on November 4, 2019, on the sidelines of the 35th ASEAN Summit. Photo: AFP / Manan Vatsyayana

Regarding compliance mechanisms, RCEP members can resort to trade remedies and dispute settlement mechanisms. But RCEP’s e-commerce chapter does not fall under the jurisdiction of its dispute settlement mechanisms, making any disputes over interpretation and implementation subject to good faith negotiation. 

RCEP’s upcoming five-yearly general review allows member states to re-evaluate whether these dispute mechanisms should apply to e-commerce-related disputes.

Yet the absence of dispute settlement mechanisms or other trade remedies in the IPEF signifies its unenforceability. It is undecided whether the IPEF will adopt a binding dispute settlement mechanism or any trade remedies. 

The IPEF does not offer tariff adjustments or traditional market access commitments, creating hesitation about whether the provisions will be enforceable. Trade agreements tend to be ineffective without retaliatory tariff measures as a deterrent — the absence of these aspects will only make it difficult for the IPEF to achieve its objectives.

The United States needs to put in more effort to counter China’s regional influence as the IPEF has not offered viable benefits such as tariff adjustments, mutual market access, capacity building and technical assistance in developing digital trade frameworks — all are present in RCEP. 

The IPEF should discuss trade liberalization, compliance mechanisms and tangible incentives to become a prominent economic framework.

Ulfah Aulia is a research assistant at the Economic Research Institute for ASEAN and East Asia (ERIA) based in Jakarta. Sheila Alifia is a non-affiliated researcher based in Jakarta.

This article was originally published by East Asia Forum and is republished under a Creative Commons license.

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Geopolitics moves into the underwater world 

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Dmitry Medvedev, deputy chairman of the Russian Security Council, has claimed that Russia could undermine the Western network of communication cables at the bottom of the Atlantic.

For the record, only 1-4% of data is distributed via communications satellites; the rest comes via fiber-optic cables. Thus if Medvedev’s threat were to materialize, the consequences for the world economy would be comparable to a nuclear strike.

For example, a 2006 earthquake damaged eight cables around Taiwan, disrupting communications and trade across Asia and affecting the Hang Seng Index accordingly. In 2008, 75 million people in the Middle East and India were left without communication because of a badly dropped anchor by a passing ship.

The obvious conclusion is that whoever owns the cables chooses the tune. The United States is well aware of this and is doing everything possible to keep unfriendly competitors out of the market. The State Department’s efforts have prevented at least six deals with Chinese companies.

An widespread attack on ocean networks would affect everyone, from tankers to the neighborhood coffee shop, and the losses would be in the trillions. It is unlikely that anyone with common sense would order such a global blackout, but a local one is entirely possible.

Incidentally, in February, Chinese boats allegedly cut two cables near the Matsu Islands off Taiwan.

In general, even if the threats remain threats, the popularity of satellite communication channels may grow, as well as the services of General Dynamics, Boeing, Northrop Grumman, and SpaceX, so it may be a good time to add some of the prospects to the stock screener.

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Keeping poor kids at school

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Anirut 'Saming' Thongdech, 11, smiles after returning to school. Kruwandum Facebook
Anirut ‘Saming’ Thongdech, 11, smiles after returning to school. Kruwandum Facebook

Anirut Thongdech has a broad smile when he learns that he will have a chance to return to school this term after having dropped out for two years.

The 11-year-old boy, also known as Saming, was forced to leave school due to his parents’ inability to afford his education, a problem in Thai society that has worsened since the Covid-19 pandemic.

Saming was born to a family living a hand-to-mouth existance. His parents earn money by collecting recyclables and selling them to junkyards. He has two siblings, a 14-year-old brother, who dropped out of Grade 4 three years ago for the same reason as Saming, and a two-year-old sister.

The family had no place to live, so the abbot of Wat Trangkhapum Putthawat, a temple in Trang province’s Kantang district, let the family reside at the temple and ordained the eldest son. The son brings food to his family after daily alms rounds in which monks collect food or offerings from followers nearby.

With the help of the director of Wat Trangkhapum Putthawat Municipal School, near the temple, Saming was offered the opportunity to be a Grade 1 student again.

School director Kalasit Petkong told the Bangkok Post that many students had to give up school during the Covid-19 pandemic after their parents lost their jobs.

Saming is one of those students. His parents became unemployed after the pandemic hit, losing their home and forcing them to make a living by collecting and selling rubbish, Mr Kalasit said.

“We offered Saming school uniforms and some money for stationery and textbooks,” he said. “We would like to help as much as we can to get him back to school.”

The temple school is small, with 97 kindergarten–Grade 6 students and 18 staff. External factors, such as finance and family conditions, still disrupt the children’s attendance.

Chatree Bunmee, the school’s deputy director, said 60–70% of the students come from broken homes. Most parents do not earn much and are likely to relocate with their children to wherever their next job might be.

Mr Chatree said the school has offered his parents work as vegetable farmers at the school so they can use its unused land to grow plants and sell them to earn money.

“We also took Saming’s older brother, Smith, back to school. He is now studying in Grade 4,” he said. “Even though Smith is a novice, the school welcomes him together with his monkhood.”

Many teachers at the schools and locals in Kantang district have donated small amounts of money to help Saming’s family get by. However, the school director acknowledges that temporary subsidies can only keep their heads above water.

He said that the Department of Local Administration offers stipends for low-income households whose members make less than 3,000 baht per month each.

Another stipend, listed under the Conditional Cash Transfer (CCT) project, also provides 3,000 baht per student per year, he said.

“The school can ease student burden but state welfare will better prevent dropouts in the long run,” he said.

Increased dropout rate

In March, Unicef Thailand pointed to a study on youths who were “not in education, employment or training (Neet)”, which found that 70% of students who drop out have no plans to further their education.

Meanwhile, some 70% of drop-outs are young women who quit school to take care of their families, it said.

Data from the Equitable Education Fund (EEF) also shows that out of the 7 million students in both public and private schools, over 800,000 are from extremely poor families, making them at risk of dropping out.

Students from extremely poor families are also excluded from education by other factors. A survey by EEF found that many students do not have access to clean water, electricity, transport or the internet. Some are required to stay home to take care of disabled or unemployed family members, it said.

Even though the nation’s 15-year compulsory education programme claims to be free of charge, students and parents are still required to pay additional expenses.

Kraiyos Patrawart, EEF managing director, said parents are faced with application and admission fees on top of the cost of uniforms and stationery.

“Many families have to borrow from pawn shops or loan sharks before the term starts,” he said. “The data shows that students from extremely poor families are often slow to enrol in school despite their age because it takes a long time for their parents to save up money for school-related expenses.”

Such expenses can dissuade low-income parents from enrolling their children at all, he said.

‘Four uniforms in 1 week’

Mr Kraiyos said school regulations need to be less restrictive and the education system decentralised to prevent students from dropping out.

“Education should be more lenient for students from unprivileged backgrounds,” he said. “Some schools require their students to wear a basic uniform, a gym uniform, a scout uniform and, in some provincial schools, an ethnic-inspired uniform. That is four sets of uniforms in one week.”

He said schools should offer alternatives for students with different needs, and should be allowed to raise funds for students from low-income families.

Changes appropriate for provincial schools can be quickly endorsed if the government decentralises the system, he added.

Provincial authorities, such as the governor and district and village chiefs, can approach the matter by drawing on their knowledge of the needs and difficulties of locals.

Mr Kraiyos said schools in different provinces do not share the same challenges. Low-income families certainly have different needs in different areas, he said.

“The EEF is advocating for school autonomy,” he said. “We believe local authorities can reduce inequality [in the system].”

Aiming for zero dropouts

The election has brought hope of positive change in many aspects of society, including education. However, Thais are still unsure when the next government can take office.

The name of the next education minister still remains unknown, yet the EEF has proposed three policies which it says should be adopted urgently by the next government.

Mr Kraiyos said the EEF focuses on the concept of universal education security, which aims to provide free education from kindergarten to Grade 12, more leniency in schools and assistance in the system, and its decentralisation.

Education security needs to be guaranteed to prevent student drop-outs, it says. Mr Kraiyos said the CCT stipend only covers recipients in Grades 1–9.

The EEF proposes the new government not only extend the eligibility of CCT recipients but also raises the amount for the first time in 14 years.

A more lenient education system also is expected to offer alternatives to students, such as self-designed programmes or a national credit bank to allow students to study in any institution across Thailand any time they wish, to encourage life-long learning.

Mr Kraiyos said that more technologies will be applied to develop online learning platforms, a project which should be pushed along with government-funded internet and tablets for students.

Lastly, decentralisation of the system will contribute greatly to preventing students from dropping out. Local administrations can share their problems and mutual goals to improve the lives of students from underprivileged backgrounds.

Additionally, the EEF is pushing a provincial hub to manage human resource information in each area and help labourers stay competitive in the workforce.

Mr Kraiyos suggested the government promote a tax exemption for companies who may sponsor scholarships to students from low-income families, an incentive that would aid many students more quickly than the government’s funds.

“Thailand is the first country among developing nations to be officially an aged society. We cannot afford to have even a single dropout in our education system,” said Mr Kraiyos.

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US reliance on China’s capital goods rules out decoupling

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NEW YORK – The bad news is that America hasn’t invested much in manufacturing during the past 20 years. The worse news is that most of the manufacturing capital equipment that America uses came from imports.

Not only does the US have a US$1 trillion trade deficit, but about $300 billion of that deficit comes from imports of capital goods, namely goods that make other goods.

Federal subsidies for chip fabrication plants and green energy have recently bulked up the numbers for factory construction, but orders for capital equipment remain depressed. The subsidy-driven increases in factory building help explain an enormous surge in US imports of capital goods.

America’s dependence on foreign capital goods reached an all-time high in 2022, as capital goods imports exceeded domestic production of capital goods for home use, according to Asia Times’ calculations.

To reduce its $1 trillion trade deficit, the US would have to invest in capital goods. But it would need to import most of these capital goods, which means that the trade deficit would have to increase in the short term in order to shrink in the long term.

That rules out a broad “decoupling” from China, which accounts for the largest share of America’s trade deficit. Decoupling has become a shibboleth in US politics, and calls for a trade cutoff with China will grow shriller as the 2024 presidential election approaches.

But advocates of a broad decoupling are arithmetically challenged: America’s atrophied capital goods industry can’t supply the needs of existing production.

Rather than trying to de-couple existing industries from China at a prohibitive cost, America should direct its investment resources to leadership in key Fourth Industrial Revolution technologies and leapfrog China in strategic industries.

The US now imports as many capital goods as it produces at home for domestic customers. That is, imports of almost $900 billion of capital goods now equal US manufacturers’ annual orders for nondefense capital goods (excluding aircraft).

Nearly $500 billion of capital goods made in the United States are exported (again, excluding aircraft), so the net supply of capital goods to domestic users (domestic production minus exports) is roughly $300 billion. That’s about equal to the trade deficit in capital goods.

“Orders Net of Exports” in the above chart means domestic nondefense capital goods production (ex-aircraft) for domestic use, that is, net of exports. This is now smaller than the volume of capital goods imports (ex-aircraft).

It’s important to note that the numbers shown in nominal dollars in the above charts look much smaller after taking into account inflation. The chart below shows US manufacturers’ orders for nondefense capital goods (again excluding aircraft) in constant 1982 dollars (using the Producer Price Index for Private Investment Goods).

Deflated, the volume of orders stands at an annualized $450 billion, a 30% decline from the 2013 level. Most of that decline reflects the boom and bust of fracking.

Capital spending by industrial companies in the S&P 500 has also fallen substantially from previous peaks.

China is one of America’s largest suppliers of capital goods, which include everything from industrial machinery to circuit boards.

Mexico exports a great deal of semi-finished goods to the US which fall under the rubric of capital goods. A growing part of Mexico’s exports to the US, however, represent the re-export of Chinese goods to Mexico.

Asia Times showed in an April 6, 2023 study (“The Great Re-Shoring Charade”) that Mexico, Vietnam, India and other “friend-shoring” venues increased their imports from China in lockstep with their exports to the United States.

A granular analysis of individual industries would be required to specify America’s degree of dependence on Chinese imports. Last year, China exported nearly $140 billion of electronic devices and equipment to the US, as well as $125 billion of industrial machinery, boilers, and power plant equipment.

A cutoff of Chinese imports would thus create immediate and devastating supply shortages across a wide range of US industries.

Follow David P Goldman on Twitter at @davidpgoldman

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Indonesia orders 13 long-range military radars from Thales

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PARIS: Indonesia has ordered 13 long-range military radars from Thales to boost airspace surveillance efforts across its immense archipelago, the French manufacturer and state-owned Indonesian defence firm PT Len Industri said on Sunday (Jun 18). The Ground Master 400 Alpha (GM400a) radars will allow the Indonesian military to “benefit fromContinue Reading

Tech giants ‘de-risk’ from China, but selectively

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It’s been an interesting week for Siemens and China. In a meeting with China’s Minister of Industry and Information Technology Jin Zhuanglong in Beijing on Wednesday, Siemens AG’s Chief Executive Roland Busch said the company will strengthen cooperation with China in areas such as advanced manufacturing and digital transformation of SMEs.

On Thursday, Siemens said it will also spend €140 million (US$153 million) to expand its digital factory in Chengdu to serve markets. It will set up a new digital R&D Innovation Center in Shenzhen to speed up development of motion control systems with its digitalization and power electronics technology.

Prior to this, Busch had told the Financial Times On May 24 that it was “not an option” for Siemens to pull out of China’s market, which accounts for 13% of the company’s revenues. On Thursday, however, the company said that it will build a new factory in Singapore for €200 million.

Wirtschaftswoche, a Germany magazine, reported that Busch had originally favored China as a location for the new factory but he faced resistance from Siemens’s supervisory board, which had concerns over the growing geopolitical tensions. 

There’s a larger trend here: Due to those rising geopolitical tensions combined with a sluggish economic recovery in China, only 55% of German companies plan to invest further in China within the next two years, compared with more than 70% that did so in 2020 and 2021, according to a survey conducted by the German Chamber of Commerce (DIHK) in China.

Like Siemens’s Busch, not a few Western technology gurus have visited China in recent months to try to figure out how they can continue to stay in Chinese markets and make money – in the end meaning, ideally, geopolitical-risk-free money.”

Siemens China headquarters in Beijing. The company is careful to leave a substantial number of eggs in its China basket., Photo: Siemens

Contributing to the geopolitical tensions, G7 leaders said in a joint statement on May 20 that they have a common interest in preventing a narrow set of technological advances from being used by some countries to enhance their military and intelligence capabilities to undermine international peace and security. They said G7 countries will seek to de-risk from China.

And China has not hidden its dissatisfaction with Western companies that are seen as following their countries’ policies too closely, to China’s disadvantage. On the same day, May 20, the Cybersecurity Review Office, a unit of the Cyberspace Administration of China, banned the country’s key national infrastructure operators from purchasing products from Micron Technology, a US chip maker which has downsized its China business since 2019.

Diversifying investments

But China is walking a fine line. In recent weeks, Beijing has encouraged foreign technology bosses to visit.

On Friday, Chinese President Xi Jinping met with Bill Gates, founder of Microsoft and co-chair of the Bill & Melinda Gates Foundation, in Beijing.

Calling Gates an “old friend,” Xi said China is ready to carry out extensive cooperation with all countries on scientific and technological innovation.

In late May, Tesla’s Chief Executive Elon Musk departed for Beijing and hoped to meet with Chinese Premier Li Qiang. But he could only meet Vice Premier Ding Xuexiang.

On June 8, 36Kr, a Chinese IT news website reported that during his China trip Musk had asked Chinese suppliers to move to Mexico to support Tesla’s flagship factory. It said some Chinese suppliers are told that they will miss some big orders if they do not take action to react to Tesla’s requests now. 

A Shanghai-based columnist on June 12 published an article titled, “Is Elon Musk fleeing from China? Tesla builds a factory in Mexico, and demands Chinese suppliers to go with it.”  

“At present, China is not only a world factory but also the world’s second largest consumption market,” he writes. “American companies cannot leave China’s productivity and consumption markets.”

The columnist says that while Tesla is building a factory in Mexico, it cannot abandon the Shanghai one. He says that for a very long period of time in the future, Tesla’s Shanghai factory will stay put, going nowhere.

FDI and ODI

Tesla’s Gigafactory Shanghai commenced production in October 2019 with a production capacity of 500,000 electric vehicles per year. It was shut down for two weeks in early 2020 due to the Covid-19 epidemic. Its production was disrupted again between March and May last year due to Shanghai’s lockdowns.

Tesla logo. Photo: Wikimedia Commons

In March this year, Tesla announced its plan to build a gigafactory in Mexico with an annual production capacity of one million vehicles.

“The growing Sino-US tensions and intensifying geopolitical risks have prompted the leaders of multinational companies to adjust their investment plans,” a Hunan-based writer says. “Most multinational firms have chosen the ‘friend-shoring’ or ‘China + N’ model to rebuild their supply chain.”

He says more and more Chinese capital will go overseas to get close to their customers or they will lose orders. He says this is why China’s foreign direct investment (FDI) is falling while overseas direct investment (ODI) is growing.

In the first four months of this year, China’s FDI dropped 3.3% to US$73.5 billion while ODI increased 17.1% to US$52.8 billion.  

Meanwhile, some commentators said the G7’s call for de-risking is not very meaningful. They said the so-called re-shoring and friend-shoring merely substitute Chinese exports of intermediate goods for exports of assembled products to the US.

They said China is shifting capacity to Southeast Asia and some other countries while foreign investors in China are following suit.

In recent months, China has attracted some foreign technology firms to set up factories in the country. 

In March, KMWE, a supplier of the Dutch chip-making equipment maker ASML, said it will build a new factory in Sichuan to produce robot arms for chip packaging machines, which are not covered by the US sanctions.

On June 7, STMicroelectronics, a Sweden-based chipmaker, said it had signed an agreement with China’s Sanan Optoelectronics to create a new 200mm silicon carbide (SiC) device manufacturing joint venture in Chongqing.

Sanan will build the new fab, which will commence production in the fourth quarter of 2025. STMicroelectronics will contribute its technology to owe a 49% stake in the JV. 

On Friday, Micron announced that it will US$603 million over the next few years in its chip packaging facility in the city of Xian.

Western companies doing business in China generally don’t go out of their way to be precise about the tradeoffs both sides find themselves needing to make.

Take Siemens’s Busch. Here’s what he said about the week’s bidirectional investments: “The investments underpin our strategy of combining the real and the digital worlds – as well as our focus on diversification and local-for-local business. We are clearly doubling down on our strong global presence to support growth in the most relevant markets in the world.”

The non-Chinese recipients of new investments, however, are not hesitant to express their pleasure. Ping Cheong Boon, Chairman of the Singapore Economic Development Board (EDB), exulted that “Siemens’s new high-tech factory in Singapore will leverage our trusted hub status and strong advanced manufacturing capabilities to meet rising demand across Southeast Asia’s high-growth markets.”

Read: China, US move closer to high-level official talks

Follow Jeff Pao on Twitter at @jeffpao3

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