(Yicai) Aug. 3 -- Many Chinese solar companies are mulling or have already started building factories in Europe and the US to better meet the needs of local customers and to bypass trade barriers as China’s photovoltaic products dominate the global market, Yicai learned from a series of interviews.

Until recently, Chinese PV firms were investing in Southeast Asia to avoid trade risks, but in March, the situation changed when the US Department of Commerce launched probes into solar products that originated from Vietnam, Malaysia, Thailand and Cambodia.

In June, the US granted a 24-month tariff exemption on solar goods from the four countries. But this is a temporary reprieve and the risks have not been eradicated, executives from at least two Chinese PV firms told Yicai. 

If the EU or the US start to impose anti-dumping and anti-subsidy measures on solar products from countries other than China, then it makes more sense for Chinese firms to invest directly in the EU or the US, they said.

Arctech Solar Holding is one such firm. The PV tracking and fixed bracket maker is looking at bypassing Southeast Asia and investing directly in the US.

"Demand in Southeast Asia is not as strong as that in the Middle East and the US," said Zhou Shijun, senior vice president at the Kunshan, eastern Jiangsu province-based firm. Solar products made in China are enough to meet the needs of the Southeastern Asian market.

Manufacturing goods destined for the European and US markets in those countries can help lower costs. But boosting capacity at Chinese factories to realize an economy of scale can also cut costs, he added.

Testing the Waters

Some Chinese PV firms are testing the manufacturing ecosystems in the US and Europe through asset-light investments.

Arctech Solar is supplying its brand and technological patents to US partners who are then responsible for production, Zhou said. Although this means that Archtech Solar is not eligible for local government grants to manufacturers, without making a heavy investment the firm is able to quickly expand or exit the country.

Industry leaders Longi Green Energy Technology and JA Solar Tech have already said that they will build factories in the US. Longi is linking arms with US clean energy developer Invenergy to construct a plant in Ohio to produce solar panels with an annual output of five gigawatts. The factory will be one of the biggest of its kind in the US once it comes online at the end of the year.

While JA Solar has said it will invest USD60 million to build a solar panel plant with a yearly capacity of two GWs in Phoenix, Arizona. And Jinko Solar was given the greenlight in April to invest USD52 million to hike production at its PV module plant in Jacksonville, Florida.

Chinese PV firms are also shifting focus to Europe. In June, Longi President Li Zhenguo said the Xi’an, central Shaanxi province-based company will build a factory in Germany. It will be one of only a handful of investments by Chinese solar companies on the continent if it goes ahead.

Hiking efficiency is not the top priority for Chinese solar firms when investing in Europe and the US. Rather, they mostly aim to circumvent trade barriers, said Jiang Weipeng, executive president of GCL System Integration Technology.

At present, all of Suzhou, eastern Jiangsu province-based GCL's production is in China, Jiang said. But we are assessing the feasibility of constructing factories in the US or Europe, he added.

Incomplete Industrial Chains

Incomplete industrial ecosystems are a drawback faced by Chinese PV firms building in the EU or the US as this will be a drag on the firms' investment efficiency and extend their payback period.

"Building plants in Germany or somewhere nearby are the only viable options if you want to have a presence in Europe," an executive of a Chinese PV firm said. “This is because across the continent, these are the only places with a relatively complete industrial chain. This situation definitely restricts business development in Europe.”

It may be necessary for Chinese firms in different parts of the PV industrial chain to band together when investing in the EU and the US, he added.

Also, building a plant in Europe and the US also takes much longer than in China. "It only takes five to six months to put up a battery plant in China, but it is quite a different timeframe in the US and EU,” Jiang said.

China produced 86 percent of the world’s polycrystalline silicon last year, 97 percent of silicon wafers, 90 percent of battery cells and 85 percent of solar panels, according to data from the China Photovoltaic Industry Association. The proportion of these products that are made in China kept rising last year with the exception of silicon wafers which remained basically unchanged as it was already so close to 100 percent. 

Editors: Tang Shihua, Kim Taylor