EU says China guilty of giving illegal aid to solar industry

An employee dries newly made solar panels at a factory of a photovoltaic company in Jiaxing, Zhejiang province June 5, 2013.

Credit: Reuters/William Hong

By Robin Emmott

BRUSSELS | Tue Aug 27, 2013 5:30pm BST

BRUSSELS (Reuters) - The European Union has warned Beijing it has evidence Chinese solar companies benefit from illegal subsidies, people close to the issue said on Tuesday, but Brussels says it will not take action for now following a deal to defuse the row.

European companies accuse Chinese rivals of benefiting from unfair state aid allowing them to dump about 21 billion euros (18 billion pounds) worth of solar panels at below cost in Europe last year, putting European firms out of business.

The solar dispute, by far the biggest between China and the EU, threatened a wider trade war in goods from wine to steel until Brussels and Beijing agreed a minimum price for panels from China in late July and eased tensions.

But a nine-month investigation by the European Commission into China's solar industry has found Beijing broke World Trade Organisation rules by handing out cheap loans, land, interest-free credit lines and tax breaks to companies, people with knowledge of the situation told Reuters.

"There are clear indications that (Chinese) government policy influences the decision-making of the banks when deciding on the terms of financing to solar companies," said one person who declined to be named because the findings are not public.

A second person said Beijing, as well as Chinese and EU manufacturers, had been given the results of the investigation.

Under EU law, the Commission cannot impose more sanctions on Chinese solar exporters following the deal to set a price floor, but its investigation could influence EU free-trade advocates such as Germany and Britain that oppose limits on Chinese goods.

Wary of offending China's leaders and losing business in the world's second largest economy, Berlin and London have argued that concerns about Chinese solar dumping are secondary to the much larger EU-China trade relationship.

Europe is China's most important trading partner, while for the EU, China is second only to the United States.

Chinese solar panel production quadrupled between 2009 and 2011 to more than the world's entire demand as it took advantage of a growing market for green energy to tackle climate change.

Chinese companies deny receiving illegal subsidies, saying economies of scale allow them to sell at lower prices than their European rivals.

Beijing has also accused Europe of subsidising its solar industry. The European Union says aid to final users of solar energy is lawful to stimulate green energy, arguing China is wrong to directly help companies to produce solar products.

EU governments must decide in December whether to back the July price deal brokered by EU Trade Commissioner Karel De Gucht so it can run until 2015. It was seen as a compromise in dealing with China because a majority of EU governments were against prohibitive duties on Chinese solar panels.

The Commission's investigation could also have implications for Chinese telecoms companies that De Gucht, who has said China subsidises "nearly everything", has publicly accused of dumping products in Europe.

De Gucht, who handles trade issues for the European Union's 28 members, has threatened to launch an investigation that could lead to hefty duties on Chinese telecoms companies' equipment.

(Editing by Jeff Coelho)

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Stocks suffer as China seeks to overhaul industry

LONDON (AP) — Stocks mostly dropped Friday on concerns that a brusque overhaul of China's industry could slow down the world's second-largest economy and after retailer Amazon.com reported a surprise loss.

Beijing has ordered companies to close factories in 19 industries where overproduction has led to price-cutting wars, affirming its determination to push ahead with a painful makeover of the economy. That move followed weak manufacturing data on Wednesday.

Communist leaders are trying to reduce reliance on investment and trade. But a slowdown that pushed China's economic growth to a two-decade low of 7.5 percent last quarter had earlier prompted suggestions they might have to reverse course and stimulate the economy with more investment to reduce the threat of job losses and unrest.

China's Shanghai Composite dropped 0.5 percent to 2,010.85.

In Europe, Britain's FTSE 100 index was down 0.5 percent to 6,557.49 while Germany's DAX fell 0.7 percent to 8,243.24.

France's CAC-40 bucked the trend, rising 0.3 percent to 3,969.76. It was boosted by a 4.1 percent rise in the shares of LVMH, the luxury goods maker, after it reported higher earnings. Meanwhile, shares in French media company Vivendi were up 2.6 percent after it agreed to sell most of its majority stake in video games maker Activision.

Wall Street opened lower as shares in Amazon.com fell 1.6 percent after the company reported a loss for the second quarter. The Nasdaq, on which the company is listed, fell 0.3 percent, while the broader S&P 500 was down 0.4 percent at 1,683.88. The Dow was 0.5 percent lower at 15,482.90.

Overall, trading has been quiet in recent days as a lot of people wait for next week's meeting of the Federal Open Market Committee in the U.S. for guidance on when the central bank will start reducing its monetary stimulus.

Since late last year, the Fed has been buying $85 billion in Treasury and mortgage bonds a month — a move that has kept long-term rates near record lows and supported economic recovery.

In Asia, Japan's Nikkei 225 index fared worst on Friday, closing 3 percent lower at 14,129.98, due to a big rise in the yen, which risks making the country's exports less competitive on international markets.

Japan on Friday said consumer prices rose in June for the first time in more than a year, an early sign that the government's stimulus policies are working. While that is a promising sign in the long-term, the signs of inflation suggest interest rates could eventually increase — higher rates tend to strengthen a national currency. The dollar was down 0.9 percent against the yen, at 98.34 yen.

Elsewhere in the region, Hong Kong's Hang Seng gained 0.3 percent and Australia's S&P/ASX 200 rose 0.1 percent.

In energy trading, benchmark crude was down 54 cents at $104.95 a barrel in electronic trading on the New York Mercantile Exchange.

The euro was little changed at $1.3273 from $1.3277 late Thursday.

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Teresa Cerojano in Manila, Philippines, contributed to this report.

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Stocks suffer as China seeks to reform industry

LONDON (AP) — Stocks mostly dropped on Friday on concerns that a brusque overhaul of China's industrial sector could cause a sharp slowdown in the world's second-largest economy.

Beijing has ordered companies to close factories in 19 industries where overproduction has led to price-cutting wars, affirming its determination to push ahead with a painful makeover of the economy. That move followed weak manufacturing data on Wednesday.

Communist leaders are trying to reduce reliance on investment and trade. But a slowdown that pushed China's economic growth to a two-decade low of 7.5 percent last quarter had earlier prompted suggestions they might have to reverse course and stimulate the economy with more investment to reduce the threat of job losses and unrest.

China's Shanghai Composite dropped 0.5 percent to 2,010.85.

Japan's Nikkei 225 index fell even further, closing 3 percent lower at 14,129.98, due to a big rise in the yen, which risks making the country's exports less competitive on international markets.

Japan on Friday said consumer prices rose in June for the first time in more than a year, an early sign Prime Minister Shinzo Abe's stimulus policies are working. While that is a promising sign in the long-term, the signs of inflation suggest interest rates could eventually also increase — higher rates tend to strengthen a national currency. The dollar was down 0.6 percent against the yen, at 98.67 yen.

In Europe, Britain's FTSE 100 index was down 0.3 percent to 6,571.71 while Germany's DAX was 0.5 percent lower at 8,258.18. France's CAC-40 bucked the trend, rising 0.4 percent to 3,973.45, thanks to a 5.7 percent rise in the shares of LVMH, the luxury goods maker, after it reported higher earnings.

Wall Street was expected to drop slightly on the open, with S&P 500 futures down 0.3 percent and Dow futures 0.2 percent lower.

Overall, trading has been quiet in recent days as a lot of people wait for next week's meeting of the Federal Open Market Committee in the U.S. for guidance on the tapering of U.S. government bond purchases, he said.

Since late last year, the U.S. Federal Reserve has been buying $85 billion in Treasury and mortgage bonds a month — a move that has kept long-term rates near record lows and supported economic recovery.

Elsewhere in the region, Australia's S&P/ASX 200 rose 0.1 percent to 5,042. Stocks in South Korea and New Zealand finished slightly higher while benchmarks in the Philippines, Malaysia, Indonesia and Taiwan fell. Hong Kong's Hang Seng was up 0.3 percent to 21,968.95

In energy trading, benchmark crude was down 75 cents at $104.74 a barrel in electronic trading on the New York Mercantile Exchange. It rose 10 cents to close at $105.49 on Thursday.

The euro was little changed at $1.3275 from $1.3277 late Thursday.

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Teresa Cerojano in Manila, Philippines, contributed to this report.

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