{"id":24860,"date":"2023-08-18T10:58:16","date_gmt":"2023-08-18T14:58:16","guid":{"rendered":"https:\/\/www.bu.edu\/gdp\/?p=24860"},"modified":"2023-08-21T13:10:51","modified_gmt":"2023-08-21T17:10:51","slug":"trade-offs-developing-malaysias-solar-industry-amid-the-us-china-trade-war","status":"publish","type":"post","link":"https:\/\/www.bu.edu\/gdp\/2023\/08\/18\/trade-offs-developing-malaysias-solar-industry-amid-the-us-china-trade-war\/","title":{"rendered":"Trade Offs: Developing Malaysia\u2019s Solar Industry Amid the US-China Trade War"},"content":{"rendered":"
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Kuala Lumpur, Malaysia. Photo by Azim Zainudi via Unsplash.<\/figcaption><\/figure>\n

By <\/span>Ishana Ratan<\/span><\/a><\/p>\n

China is the<\/span> global leader<\/span><\/a> for low-cost solar panel manufacturing, but their industrial scale up has provoked tariffs from rival competitors: the European Union (EU) and United States (US) imposed antidumping (AD) duties on solar module imports in 2012 and 2013, respectively.\u00a0<\/span><\/p>\n

After the EU and US escalated the initial tariffs on imported solar modules from China, Chinese firms rearranged supply chains to manage the new transaction costs of Western trade partners. Chinese firms including JinkoSolar, JA Solar and LONGi relocated and ramped up manufacturing facilities in neighboring Southeast Asian countries, namely Malaysia, Thailand, Cambodia and Vietnam.<\/span><\/p>\n

These emerging economies are all trying to develop a domestic solar industry, both to decarbonize and develop a strategic sector in the global green economy. Attracting foreign direct investment (FDI) in manufacturing has<\/span> historically been a strategy<\/span><\/a> of industrializing economies seeking to move up the value chain and gain expertise with the technology of new innovative industries. Indeed, China learned about solar manufacturing from foreign firms operating solar panel production facilities in China. In the same vein, can manufacturing investment from China support renewable energy industry growth in Southeast Asian countries?<\/span><\/p>\n

In a <\/span>new working paper<\/b><\/em><\/a> published by the Boston University Global Development Policy Center, I investigate how Chinese manufacturing investment relocation shapes local solar value chains, focusing on the case of Malaysia. I draw upon data mapping trade flows of solar modules, spatial data on local solar installation and interviews with 12 firms (15 officials) in the Malaysian solar industry to evaluate whether solar manufacturing investment created forward linkages to the downstream solar industry.<\/span><\/p>\n

A growing literature on global value chains <\/span>suggests<\/span><\/a> that local firms<\/span> can gain expertise and learn from foreign firms operating in manufacturing under certain conditions, including<\/span> skilled local labor and available technology inputs<\/span><\/a>. These foreign investors can work with locals, raise awareness of solar technology via demonstration effects and reduce the costs of procuring equipment. Foreign manufacturing investment, on balance, should reduce the<\/span> transaction costs of technology acquisition<\/span><\/a>, in this case solar panels, for local firms. However, despite the availability of skilled labor and technology in Malaysia, evidence indicates that cost reductions to Malaysian solar investors did not occur through manufacturing localization.<\/span><\/p>\n

The unique circumstances surrounding Chinese manufacturing relocation complicate the likelihood of forward linkages to local firms developing solar projects. First, while Chinese solar firms shifted their manufacturing and assembly facilities to Malaysia, they source input components, from polysilicon to inverters, from China. Per an interviewee, Malaysia\u2019s only real local solar manufacturing is mounting structure production. So, Chinese firms largely import their own components, and only manufacture and assemble solar panels in Malaysia.<\/span><\/p>\n

However, even these panels manufactured and assembled in Malaysia are not used by local firms. When exports from mainland China decreased to the EU and US after the imposition of antidumping duties, panel exports increased to the rest of the world, providing countries like Malaysia with a new source of solar panel supply. Figure 1 illustrates this trend, plotting total value of Chinese solar imports to the EU, US and rest of world over time. While the EU and US taper off in Chinese import growth after the tariffs of 2012 and 2013, and increased slightly over subsequent years, imports soared elsewhere.<\/span><\/p>\n

Figure 1: Solar Imports from China (Total Value)<\/b><\/p>\n

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Source: Boston University Global Development Policy Center, 2023.<\/figcaption><\/figure>\n

As exports from Malaysia, Thailand, Cambodia and Vietnam increased to the US and EU after the tariffs were imposed against China, these countries came under investigation by the US Department of Commerce for tariff circumvention. Simply put, panels manufactured in Malaysia were exported to countries with tariffs against China, not purchased by local firms seeking to install solar. While Malaysian firms did use Chinese panels when installing local solar, they imported from China rather than using locally manufactured panels. Figure 2 shows that solar imports from China do increase to these four Southeast Asian countries (left), yet so do exports from these states to the US and EU (right), consistent with a strategy of tariff circumvention.<\/span><\/p>\n

Figure 2: Solar Imports to (left) and Exports from (right) SE Asia (Percent of Total Value)<\/b><\/p>\n

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Source: Boston University Global Development Policy Center, 2023.<\/figcaption><\/figure>\n
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Source: Boston University Global Development Policy Center, 2023.<\/figcaption><\/figure>\n

Evidence from 12 background interviews with 15 Malaysian solar industry professionals reinforces the narrative that Malaysian solar firms are using panels imported from mainland China rather than those produced in Malaysia itself. Interviews with both large and small firms overwhelmingly suggest that solar investors import panels directly from mainland China. Multiple firms, both small and large, indicated the vast majority \u2013 99 percent by one interviewee\u2019s estimate \u2013 of solar panels installed on Malaysian rooftops are imported from mainland China. Chinese factories on the mainland profit more from selling to Malaysia, and the rest of the world, relative to the US and EU after the imposition of tariffs. Chinese firms producing in Malaysia, on the other hand, reap a higher profit from exporting solar back to the US instead of selling to locals.<\/span><\/p>\n

Despite the lack of localized production networks, firms of all sizes report easily accessing Chinese imports. This is perhaps most surprising for small firms without clear connections to global solar component suppliers. Yet, even for smaller investors like warehouse owners and boutique construction companies, importing solar panels from mainland China is the most cost-effective procurement strategy. While large firms are contacted by Chinese suppliers in search of likely customers, smaller companies work with large engineering, procurement and construction (EPC) firms with connections to mainland Chinese suppliers. Since the Malaysian solar industry has a variety of both large and small domestic players, small firms can draw on the experience of their larger industry peers. Other Malaysian-made solar panel alternatives cannot compete with imports from Chinese manufacturers: firms stated that American, Japanese and South Korean panels manufactured in Malaysia are now relatively costly in comparison to Chinese imports, though in the early days, these alternative suppliers were the only (costly) option.<\/span><\/p>\n

China’s impact on the global economy has made its mark on Malaysia not through production localization, but by lowering the cost of components and subsequently the high capital costs of clean technology. In sum, the cost of components\u2019 steady decline, fueled by China and its industrial policies in manufacturing, allowed for industry growth abroad. Production localization, on the other hand, had minimal impact on the local market beyond the few thousand workers directly employed in manufacturing factories, with slim positive externalities for local solar installation.<\/span><\/p>\n

*<\/span><\/p>\nRead the Working Paper<\/a>\n

Never miss an update: <\/span><\/i>Subscribe to the Global China Initiative Newsletter.<\/span><\/i><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By Ishana Ratan China is the global leader for low-cost solar panel manufacturing, but their industrial scale up has provoked tariffs from rival competitors: the European Union (EU) and United States (US) imposed antidumping (AD) duties on solar module imports in 2012 and 2013, respectively.\u00a0 After the EU and US escalated the initial tariffs on […]<\/p>\n","protected":false},"author":21625,"featured_media":24861,"comment_status":"closed","ping_status":"open","sticky":true,"template":"","format":"standard","meta":[],"categories":[398,1070,156,72,1075],"tags":[3318,394,3729,3005,510,585,409,1473,1406,1047,3732,2197,3733,436,1591,1191,3008,2152,3004,2473],"_links":{"self":[{"href":"https:\/\/www.bu.edu\/gdp\/wp-json\/wp\/v2\/posts\/24860"}],"collection":[{"href":"https:\/\/www.bu.edu\/gdp\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bu.edu\/gdp\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bu.edu\/gdp\/wp-json\/wp\/v2\/users\/21625"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bu.edu\/gdp\/wp-json\/wp\/v2\/comments?post=24860"}],"version-history":[{"count":6,"href":"https:\/\/www.bu.edu\/gdp\/wp-json\/wp\/v2\/posts\/24860\/revisions"}],"predecessor-version":[{"id":24920,"href":"https:\/\/www.bu.edu\/gdp\/wp-json\/wp\/v2\/posts\/24860\/revisions\/24920"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.bu.edu\/gdp\/wp-json\/wp\/v2\/media\/24861"}],"wp:attachment":[{"href":"https:\/\/www.bu.edu\/gdp\/wp-json\/wp\/v2\/media?parent=24860"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bu.edu\/gdp\/wp-json\/wp\/v2\/categories?post=24860"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bu.edu\/gdp\/wp-json\/wp\/v2\/tags?post=24860"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}