By Melanie Hart via CAP. The PDF has all citations.
In President Barack Obama’s first term, economic issues were often a source of friction between the United States and China, particularly regarding clean energy. But things started off relatively well a few years ago: President Obama made his first trip to China as president of the United States in November 2009, and energy cooperation was high on the agenda. President Obama and Chinese President Hu Jintao signed multiple agreements pledging to cooperate on a range of important energy initiatives such as the U.S.-China Clean Energy Research Center and a U.S.-China renewable-energy partnership.
These initiatives are important. The United States and China are the world’s biggest energy consumers and biggest greenhouse gas emitters. Our two nations have similar energy and climate problems but different comparative advantages for addressing those problems. The United States leads in cutting-edge clean energy innovation, and China leads in the rapid commercialization and deployment of those technologies.
Working together on clean energy just makes sense. If U.S. and Chinese clean energy enterprises can have open access to both markets, that access will improve their abilities to achieve good economies of scale and drive down costs. If both markets are competitive, that will give enterprises in both countries strong incentives to innovate, and innovation will lead to new technologies and new business models that should speed our transition to a clean energy economy. That would be good for U.S. and Chinese consumers, good for our economies, and good for the planet as a whole.
Despite those macro-level incentives to cooperate, however, things can get a bit more complicated when we actually delve into the details. Although we want to cooperate at a macro level, the United States and China are also big competitors at a market level. Both countries want to see their own companies dominate in critical industries such as solar and wind. Neither Washington nor Beijing is happy about being too reliant on energy products or services provided by foreign enterprises. Balancing cooperation with competition and our respective national ambitions is always difficult, and clean energy is no exception.
Although the United States and China expanded bilateral cooperation with critical projects such as the Clean Energy Research Center, throughout President Obama’s first term we increasingly butted heads in the trade realm. U.S. steel workers filed a World Trade Organization petition against China’s wind-power equipment subsidies in 2010; U.S. solar panel and wind turbine manufacturers filed U.S. Department of Commerce countervailing duty petitions and antidumping petitions against Chinese manufacturers producing those same products in 2011; and the American Semiconductors Corporation is still engaged in an ongoing legal battle with China’s Sinovel Wind Group over alleged intellectual property theft.
These U.S.-China clean energy trade frictions are serious, and unfortunately they are unlikely to disappear anytime soon. China’s regime to protect intellectual property rights is still developing. Some local officials in China are still more interested in protecting local companies than in adhering to international trade laws, and China’s relative lack of administrative transparency can make the resultant trade complaints very hard to resolve.
One area in which the Obama administration has proven especially adept, however, is approaching the U.S.-China relationship issue by issue without letting frustrations on one issue spill over and impede cooperation elsewhere. As my colleague Nina Hachigian recently wrote, President Obama has taken a “clear-eyed, nuanced and effective approach” toward China. Where cooperation makes sense, the president has been ready to deal. Where he feels American interests are being harmed, he has not hesitated to get tough.
This is exactly what we will need more of in U.S.-China relations in the clean energy sector. We need to continue to keep an eye on clean energy trade to ensure that American companies have a level playing field, but trade frictions should not hold us back from pursuing promising opportunities with China in other areas.
One of our most promising opportunities for U.S.-China clean energy cooperation is inward Chinese direct investment. Many Chinese companies want to come to the United States, directly invest in this country, and create jobs here. That is exactly what our economy needs, particularly in sectors such as renewable energy generation that generally do not pose national security concerns and will require large amounts of investment capital to develop. The problem is, however, that we do not have a good policy framework in place to encourage these investments.
In President Obama’s first term, the White House signaled general support for increasing Chinese direct investment. During Vice President Joe Biden’s August 2011 China trip, for example, the vice president stated:
President Obama and I, we welcome, encourage and see nothing but positive benefits flowing from direct investment in the United States from Chinese businesses and Chinese entities. It means jobs. It means American jobs.
From the perspective of most potential Chinese investors, however, those general statements of welcome are not enough to make the U.S. market look like a good bet. These investors need to be able to predict how the U.S. government will respond to particular foreign-invested business models—and that requires actual policies. The only policies we have at present are the national security review policies of the Committee on Foreign Investment in the United States, which are designed to block foreign direct investments that could pose national security concerns. National security protections are very important, but we should pair those protections with additional policies designed to encourage foreign investment in the sectors where security is not an issue. In this era of economic difficulty, we should not let those opportunities go by the wayside.
This issue brief will outline the opportunities and current problems in attracting Chinese direct investment and offer policy recommendations for how the United States can make the most of Chinese capital and knowledge in the clean energy sector.