The anti-dumping investigation on China's photovoltaic (PV) products announced by the European Union (EU) on Sept. 6 has the potential of triggering a large-scale trade war, costing 130 billion yuan (US$20.6 billion) and affecting the employment of over 400,000 people.

Anti-dumping – EU's defense trade solution: Anti-dumping investigations are a common solution for the European Union in solving trade disputes. For example, the EU launched an anti-subsidy investigation regarding art paper imported from China on April 14, 2010. Soon after, the EU began writing a new chapter on economic policy, and adopted a critical stance on imported Chinese products.

The Chinese government already faces a spate of challenges regarding exports from China's textile and automotive industries to EU and U.S. markets, as well as the exchange rate of the Chinese yuan (RMB) and rare earth policies. The recent photovoltaic dispute adds yet another challenge to China's struggling export-oriented industries.

The EU announced that it will follow up on anti-dumping measures taken by Washington earlier this year, and will investigate imported PV panels, batteries and components made in China, covering a wide range of products.

China on edge of Sino-EU trade war:

Rather than pursuing traditional countermeasures such as negotiation and use of the World Trade Organization (WTO) to prevent an anti-dumping investigation, the Chinese government has adopted a series of efficient and rational policies to protect the country's economic interests.

In August, 2012, four of the nation's largest polycrystalline silicon manufacturers, composing 80 percent of the industry, appealed to the Chinese government amid the “anti” investigations applied by the U.S. and EU for reciprocal investigations against their Western counterparts. The Ministry of Commerce (MOC) is now putting the appeal on its agenda.

The EU has already given the go ahead for an anti-dumping investigation on China's PV products, and if China allows for a reciprocal investigation into U.S. and EU manufactures, it risks a bilateral trade war.

PV industry: promising future, bumpy road:

China's PV industry has accelerated over the past few years due to relatively strong up-stream and down-stream industrial chain in the world. However, technically speaking the PV industry sits low on the global industrial chain when it comes to generating electricity. There are two reasons for this.

First, a myopic overlap of rapid construction and neglect of innovative products has led domestic PV enterprises into blind expansion, resulting in product surplus and non-competitive technologies. Chinese PV manufactures rely on high-pollution and inefficient production methods to create polycrystalline silicon, which has created a bottleneck for healthy industrial growth.

Second, an unfavorable domestic market has shrunk due to a lack of supportive governmental policies, forcing Chinese PV manufactures to turn to overseas markets, mainly Europe and the U.S. Any negative consequences resulting from a European anti-dumping probe will have a major impact on the profitability of the local PV industry.

Chinese PV manufactures must upgrade their manufacturing base and focus their efforts on creating clean, safe and reliable products in tandem with preferential governmental policies for the domestic market.

Li Huiying is the deputy director of the European Department of the International Trade and Economic Cooperation Research Institute of Ministry of Commerce.

The article was first written in Chinese and translated by Wu Jin.

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