This article from the NY Times discusses China’s gradual taking a lead in wind and other alt energy markets.

Apparently it did so by a. giving massive financial backing to local manufacturers in the form of low-interest loans and cheap land; b. giving priority to local players in contracts with state-owned power companies; and last but not least, c. forcing foreign companies to manufacture a substantial percentage (70%) of wind turbines using local producers, which basically equals disseminating the know-how locally, fueling the local industry and bringing it rapidly up to international standard. This local industry, which was nearly non-existent 5 years ago, now take 85% of the local and around 50% of the international market.

Now, it seems that the foreign companies are so intent on not losing out on the massive Chinese market that they put up with what is a clear repeating strategy by the local government, a story which has already happened in the computer and solar panel market and is set to occur in many others. Neither do they complain, for fear of angering the authorities.

Such practices are, of course, contrary to WTO (which China joined in 2001) trade rules, but in a similar fashion to the ongoing skewing of the Renminbi exchange rate the Chinese are happy to put the needs of the local industry (as part of the “growth whatever the cost” strategy) above all, including agreements they have signed (but then again, agreements are there to be violated, aren’t they?)… Under pressure from the US, keen to support its own green energy sector, the Chinese revoked the local production requirement in 2009 – by which time all the know-how was already in local hands.

So, subsidies, local production rules…protectionism in general is supposed to be what the WTO is all about defeating. Unfortunately, the organization is more effective at getting countries to abolish current trade infringements than getting compensation for ones that have already been used effectively and abolished.

While this post is about China, lets not be naive – there is no doubt that many WTO signatory countries practice some degree of protectionism, and the US is not an exception. Trade wrangles are part and parcel of the game. The blatancy with which this is done on the Chinese side however (in the same vein as exchange rate fixing), together with weak yet innocent-sounding denials (““It was localization support”; “China is a developing country, and developing countries need to do what they can to foster industrial development”), really puts them a level apart.

It should be added, of course, that the largest Chinese manufacturer now wants to expand abroad in light of a local market facing saturation. Would the Chinese authorities be happy with other countries playing the same game as they have done (such as Canada has recently done with a 25% local content rule)? I doubt it – it is more likely they will rush to lodge a complaint with the WTO regarding any perceived wrongdoing.

What is certain is that international trade relations are a very interesting, and very political (and thus cynical) field.