"Instability" in the China-EU PV Price Commitment Agreement

In the case that the optimal result of free trade cannot be achieved, the China-EU PV price commitment agreement is a sub-optimal choice. The biggest worry now is how flexible the pricing rules of the agreement are. Due to technological advances and changes in the replacement of fossil energy markets, there is a large downward pressure on the cost and price of photovoltaic products. If the pricing rules do not fully consider this, Chinese companies may be expelled from the EU market due to the enforcement of high prices.

In the short term, the China Photovoltaic Products Import and Export Chamber of Commerce, China Photovoltaic Industry Alliance and other representatives of China's PV industry and the European Commission's price commitments on China's trade disputes with PV products in Europe are undoubtedly beneficial.

Because this move has prevented China and the EU from the largest trade disputes involved in the case to avoid a full showdown, China's PV products can continue to export to the EU under the trade arrangements negotiated between the two sides, and maintain a certain market share, the industry uncertainty has dropped. In the case that the optimal result of free trade cannot be achieved, it is a sub-optimal choice. Looking at the minimum import price of 0.56 euros per watt, the spot price of China's photovoltaic panels in the European market in July is much lower than the 0.8 euro per watt required by the European Photovoltaic Industry Alliance, which is based on a protectionist stance. It does not reverse the price competitiveness of Chinese PV products in the European market. Moreover, according to Reuters reports, the price commitment agreement reached that China can provide 7 billion watts of photovoltaic panels to the EU market, which is equivalent to 47% of the total consumption of 15 billion watts of photovoltaic panels in the EU last year. 47.6% tariff, such market share is still acceptable. Considering the price increase caused by price commitments and tariffs, it is likely that the demand for PV market in the EU will shrink. In the short term, the share of 7 billion watts in the EU market is expected to be higher than 47%. In fact, since the EU Trade Commission proposed a preliminary tariff program on June 5, demand and sales of PV products in Europe have shrunk significantly. In addition, this price commitment, if combined with domestic industrial restructuring, can also promote the restructuring of the domestic PV industry.

Despite this, there is still some uncertainty in this price commitment agreement.

Since the detailed terms, pricing formula and implementation period of the agreement have not yet been announced, our biggest concern is whether the pricing rules of the agreement are sufficiently flexible. Due to technological advancement and the impact of factors affecting the replacement of fossil energy stocks, the cost and price of photovoltaic products have a large downward pressure in the long run. If the pricing rules of the agreement do not fully consider these factors and the implementation period is too long, Chinese enterprises will be affected in the long run. Expropriated high prices were expelled from the EU market.

The reasonable price of any industry or any product must consider the factors of technological progress.

In general, technological advances in emerging industries such as photovoltaics will be faster than traditional industries, so the cost of photovoltaic industry will decline at a faster pace than traditional industries, and this has been confirmed in the past 10 years. However, in the past 10 years, China's PV industry's technological progress and efficiency improvement, cost reduction pace is much faster than its overseas counterparts, does not mean that overseas counterparts will not achieve significant significant technological progress and efficiency improvement in the next few years, even if the progress is still less than China enterprise. At the same time, the biggest competitor of the global photovoltaic industry is not domestic and foreign counterparts, but traditional fossil energy. The photovoltaic industry is achieving rapid growth in the context of a continuous surge in the price of conventional energy such as oil and natural gas in the bull market of the primary market in the new century. Solar power generation is at a disadvantage compared with conventional thermal power plants in terms of power supply stability. If you can't quickly reduce costs, you will fall into the abyss under the general environment of the primary product market.

Don't take the risk of reducing the cost of photovoltaic products because the international oil price is still floating around 100 US dollars. It is important to know that the international oil price is temporarily high. It is based on the financial market speculation of Arab turmoil, not based on solid fundamentals. In view of the fact that China's Bohai Sea coal price has dropped from 1,200 yuan per ton in the peak period to less than 600 yuan per ton; the US "shale gas revolution" has also exerted a strong downward pressure on the international natural gas market price, as the United States tends to relax and liquefy Natural gas export control and natural gas projects in East Asia such as Australia are being put into production. The world's highest-priced East Asian natural gas market is expected to fall sharply. If the price of replacing fossil energy is shackled, oil prices will continue to rise for a long time.

Under the combined effect of the above two factors, if the pricing rules of the China-EU PV price commitment agreement are too rigid, there will be no timely and sufficient adjustments to the future traditional fossil energy price downturn and technological progress, while the EU and other countries still enjoy pricing. Freedom, after three or five years or even two or three years, there will be traditional fossil energy in the EU market and prices of PV companies in the EU and other countries will fall sharply. Although Chinese PV companies still maintain production efficiency and cost advantages, at this price A reasonable profit can still be obtained, but because the price commitment clause is rigid and can only be artificially eliminated by the market.

We should do our utmost to avoid this and also reduce the risk by launching the domestic market.

Another uncertainty is the relationship between this price commitment agreement and its implementation and the so-called “antitrust”.

The negotiations and the statement were made by five industry organizations including the China Chamber of Commerce for Import and Export of Mechanical and Electrical Products and the Photovoltaic Industry Alliance. It is believed that these price commitment agreements will be implemented in the future. This kind of practice is essentially the practice of setting up a commodity branch through the Foreign Trade and Economic Cooperation Chamber of China to coordinate the behavior of member companies and avoid low-price competition.

However, when overseas trade protectionists attempt to use anti-monopoly as a new weapon against China's trade protection, they hope to use this tool to eliminate the possibility of Chinese industry to enhance its market position and enhance its negotiating ability. The industry maintains a low-price competitive situation, and they are invincible. The Sino-US vitamin C anti-monopoly case has been postponed for eight years. The US New York Eastern District Court jury ruled on March 14 that China’s vitamin C producers monopolized the US vitamin C market. The plaintiff asked Chinese defendants to pay three times the damage they claimed. The amount of compensation has already sounded the alarm to the Chinese industry. China has established and implemented an export commodity price coordination mechanism and similar arrangements, all of which have been referred to by the European and American sides as having "monopoly manipulation." In view of this, the China-EU PV price commitment agreement is completely likely to be referred to as a “monopoly”. We cannot ignore this potential risk. In order to reduce the "anti-monopoly" risk of China's export industry in the EU market, it is necessary to use this case to obtain the EU's formal recognition of the export commodity price coordination mechanism that China has implemented and may implement again in the future, and agree not to classify it as a "monopoly". behavior.

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