Yves here. This article offers only a superficial look at how China has come to dominate the wind turbine market. China has made green technologies one of its priority areas. But interestingly, we don’t see any of the typical whinging that subsidies played a role in China taking the lead position. To the extent that this piece fingers a cause, it’s greater profit expectations by US and UK/European players, aka short-termism, and concerns about volatility of input prices.
Reader insights welcome!
By CityAM.com, the online presence of City A.M., London’s first free daily business newspaper. Cross posted from OilPrice
China is quietly dominating another major global sector, wind power.
The country accounted for two-thirds of the entire global build in 2023 and now boasts a 77GW portfolio, more than ten times that of the US, the next largest market.
Data from Bloomberg’s specialist research unit NEF out today shows that Europe added a record 15.3GW last year, 16 per cent more than the amount installed in 2022, but still only 40 per cent of the required annual volume to meet the 2030 500 GW target.
China is strengthening its wind project stock both off its coasts and on land.
Onshore installations hit 69.4GW last year and 7.6GW offshore, the latter making up 67 per cent of global offshore project deliveries.
Meanwhile, the West can only sit back and watch.
The US hit 7.2GW of installed onshore capacity in 2023, while the UK registered just 0.6GW.
The UK maintained its offshore lead ahead of everyone but China, building out 1.1GW of capacity, narrowly beating out the Netherlands, Germany and Norway.
The scale of China’s lead ahead of the pack in terms of wind development is being driven, literally and figuratively, by its burgeoning turbine manufacturing capabilities.
Beijing-headquartered Goldwind built 16GW of onshore and offshore turbines in 2023, nearly equvialent to the UK’s entire wind farm stock, while second-place Envision, also based in Beijing, grew installations year-on-year to 15.4GW of new projects in 2023.
Danish firm Vestas, the largest Western turbine manufacturer and supplier, ranked third globally for the third year running with 13.4GW while US-based General Electric came in sixth with 8.1GW.
Out of the top 15 firms providing turbines, ten are Chinese and delivered 78.4GW out of the 116GW of total global wind power delivered in 2023.
And essentially all of this power is being kept within the country’s borders.
Bloomberg’s report shows that 98 per cent of the capacity added by Chinese turbine manufacturers was used for domestic projects, as opposed to the broad geographical spread of projects fed by US and European manufacturers.
Vestas commissioned wind farm projects in 33 countries last year and is also the only European provider to have secured contracts for Chinese projects.
The US is employing more of an isolationist policy with its development pipeline, with 43 per cent of capacity remaining within its own borders.
China appears perfectly content and capable of fulfilling its own wind needs and ignoring outsourcing opportunities.
This is mostly down to Western manufacturers by and large failing to match competitive pricing and thereby failing to win orders.
That cost-benefit squeeze is the headline issue that has and continues to plague the West’s efforts to drive offshore wind production, with material inflation and project costs still incredibly volatile.
The UK is entering arguably the most critical phase of its net zero journey.
With Labour and Conservatives divided on how much wind power is feasible to be delivered by 2030, the target of 50GW by 2030 is looming larger than ever.
With just 22GW currently installed, the next auction round, where developers and the government haggle for contracts to build UK wind farms, begins today and all eyes will be firmly on its progress as it reaches its expected conclusion later this year.
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The wind turbine industry is a classic example of a market run by economists to promote ‘efficiency’ but actually makes like hell for the people who actually make things.
The complexity of the licensing systems across most western countries means turbine manufacturers have very little indication of demand even 2 or 3 years in advance. They are at the mercy of regulatory and energy authorities gatekeeping permissions and access for wind farms, and multiple individual wind farm operators trying to leverage better prices off individual suppliers. This is what happens when economists and MBA’s are allowed design market systems. What Vesta and GM and Siemens need are secure contracts 5 to 10 years in advance so they can invest in the manufacturing processes. But the competitive energy market system does not allow for this.
The Chinese energy market isn’t a lot better, but they do at least protect their local market (damn the rules) to ensure their manufacturers have some level of certainty, and sheer scale accounts for everything else. Their competitiveness on world markets is more to do with an artificially low currency (yes, despite what some economists argue, it’s clearly kept artificially low). In the short term, this is good news for the world as the unfortunate regular Chinese worker is subsidising everyone else’s cheap wind turbine/solar panel/EV, but in the long term its not so good if it destroys capacity elsewhere.
If the Chinese are holding their currency value artificially low how would you characterize the significant inflation in the US? That recent paper from Summers and the NBER recalculating US inflation was an eye opener. Is this inflation policy in the US on purpose meaning that any effort to control it is just window dressing? The doubling of house prices in just a few years makes one think that in this arena hard earned wages are being incinerated although unearned gains are being realized.
https://www.nber.org/papers/w32163
February, 2024
The Cost of Money is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly
By Marijn A. Bolhuis, Judd N. L. Cramer, Karl Oskar Schulz & Lawrence H. Summers
Unemployment is low and inflation is falling, but consumer sentiment remains depressed. This has confounded economists, who historically rely on these two variables to gauge how consumers feel about the economy. We propose that borrowing costs, which have grown at rates they had not reached in decades, do much to explain this gap. The cost of money is not currently included in traditional price indexes, indicating a disconnect between the measures favored by economists and the effective costs borne by consumers. We show that the lows in US consumer sentiment that cannot be explained by unemployment and official inflation are strongly correlated with borrowing costs and consumer credit supply. Concerns over borrowing costs, which have historically tracked the cost of money, are at their highest levels since the Volcker-era. We then develop alternative measures of inflation that include borrowing costs and can account for almost three quarters of the gap in US consumer sentiment in 2023. Global evidence shows that consumer sentiment gaps across countries are also strongly correlated with changes in interest rates. Proposed U.S.-specific factors do not find much supportive evidence abroad.
I don’t agree inflation is low, nor is falling. Just look at housing prices as Felix_47 noted, and also stock prices. To the moon on both counts. This is the reason the Fed refuses to include housing in it’s fraudulated “inflation” reports, and of course it will never include stock prices although I am open to that it should.
Note how each month, month after month, declines in home prices are expected but keep rising and rising…confounding those who expected a recession (prevented by “monetary emissions?) and falling home prices.
The Fed is liberally injecting money into the economy and the current interest rates have been cancelled out on aggregate. I don’t know the particulars how the Fed is doing this, have not figured out how, but suspect it’s a bit different this time as in not straight out QE, maybe it’s just all those billions of free money we threw at Ukraine coming back to the states and generanting demand, but expect it favors the rich at our expense. See stock prices, home prices.
Housing prices or rather rents which are used in computing inflation by the Bureau of Labor Statistics:
https://fred.stlouisfed.org/graph/?g=MO8n
January 15, 2018
Consumer Price Index for Rent and Owners’ Equivalent Rent, 2017-2024
(Indexed to 2017)
https://fred.stlouisfed.org/graph/?g=HKys
January 15, 2020
Consumer Price Index for Rent and Owners’ Equivalent Rent, 2020-2024
(Indexed to 2020)
Thank you for for confirming housing prices are not used to calculate the Fed inflation reports. Now I suggest you research recent price trends in home sales which are rising despite repeated expectations they would fall.
Because properties are not just for use, but also for investment. Thus banks are happy to lend with collateral in the property to be purchased, as they can always find a new buyer should there be a default. End result is an eternal ratchet, unless some entity was to flood the market at zero profit.
We, also, don’t agree that “unemployment” is low. A Fed dept. revealed a couple months ago, that there were at least 100,000 people w/o jobs.
Michael Hudson has noted even higher figures. A growing population of impoverishment in the US is growing: many are working part-time, low wage jobs.
Meanwhile, rental costs are rising with people forced to leave them simply because they can’t afford those costs, including credit card debt, health care debt, auto loans, etc. etc.
Lastly, that Fed report also discovered at least 556,000 homeless people. Whether that figure is accurate, we’re not sure. It might be far higher than that……….all you have to do is go to any big and medium city, and you’ll see them everywhere.
Sorry to be off-topic.
I don’t believe they keeping the value particularly low as a central part of policy – this is just (for Chinese exporters), a happy outcome of the policy of keeping the currency at a more or less fixed rate against a basket of currencies. It’s more a case of keeping a finger on the currency to stop it rising as fast as it should, rather than an active ‘cheap yuan’ policy. As Prof. Hudson has pointed out in these pages, the Chinese are very good at keeping very firm control at the macro finance level, although this has had all sorts of implications at the regional/local level that are resulting in many unintended consequences – the ‘impossible trinity’ of macro policy applies to China as well as everywhere else.
There is very little doubt but that Chinese industrial surpluses are a strong deflationary force for most western economies – the drivers for inflation are elsewhere (mostly I suspect in debt costs and property costs). I think it will have a very positive impact in the short to medium term in holding down costs, especially if we have some sense and buy up China’s huge surplus in PV and battery production. It’s already having quite a profound impact on electricity production worldwide. Quite simply, PV energy has become ridiculously cheap and its utilisation is running well ahead of the public discourse.
China, of course, has the opposite problem in that it is actively trying to fight deflation, which is (as they are aware from studying Japan), a huge potential problem. There is a massive youth unemployment problem right now in China, and they are really struggling to come up with ways to deal with it. If you think US millennials have it rough now, try talking to any chinese late teens or early 20’s kids.
In the medium to long term of course, it’s not sensible for any country to allow major manufacturing sectors to disappear, which doesn’t mean it won’t happen. It also shouldn’t be discounted that a lot of countries are eyeing up China’s business for themselves, not least Indonesia and Vietnam, which are both (quietly) making huge progress.
I would also predict that a feature we may see soon is Chinese companies following the example of Japanese companies like Sony and Honda in becoming internationalised in order to release themselves from domestic constraints. BYD is building production capacity all over the world, and I suspect a lot of this is motivated by a desire to be seen as being free from Beijing interference.
https://www.nytimes.com/2024/03/27/business/yellen-china-green-technology.html
March 27, 2024
Yellen to Warn China Against Flood of Cheap Green Energy Exports
The Treasury secretary, who plans to make her second trip to China soon, will argue that the country’s excess industrial production warps supply chains.
By Alan Rappeport
The Biden administration is growing increasingly concerned that a glut of heavily subsidized green technology exports from China is distorting global markets and plans to confront Chinese officials about the problem during an upcoming round of economic talks in Beijing…
“But interestingly, we don’t see any of the typical whinging that subsidies played a role in China taking the lead position. To the extent that this piece fingers a cause, it’s greater profit expectations by US and UK/European players, aka short-termism, and concerns about volatility of input prices.”
— Yves Smith
Even when “the Biden administration is growing increasingly concerned that a glut of heavily subsidized green technology exports from China is distorting global markets,” what the administration seemingly never addresses is America’s declining manufacturing productivity problem of the last 12 years.
US manufacturing companies discovered a better path to increased profits than investing in productivity and their employees. For lack of a better word, let’s call it financialization. A mining company makes more profits from betting (with insider info) on price movements of metals than actually selling the metals they mine. A food company like Cargill it’s the same. They make greater profits betting on price movements of food commodities than buying and selling food.
I remember a presentation I did 15 years ago for a farmers co-op to the Soros Group looking to finance an ethanol project. The Soros Group turned up their noses at our proposal. They pointed out that purchasing derivatives on the price of unleaded gasoline and corn (the price of corn and unleaded gasoline determine the profitability of an ethanol plant)was a lot more profitable and lower risk than owning a single purpose facility constructed of steel and concrete.
What is important to notice is a pronounced change in American manufacturing that came about in 2011 and has not been corrected in the 12 years since. Manufacturing productivity, which had risen steadily for more than 20 years, stopped increasing in 2011 and has fallen ever since:
https://fred.stlouisfed.org/graph/?g=m2mB
January 30, 2018
Manufacturing Productivity, * 1988-2023
* Output per hour of all persons
(Indexed to 1988)
https://fred.stlouisfed.org/graph/?g=OfwK
January 30, 2018
Manufacturing Productivity, * 1992-2023
* Output per hour of all persons
(Indexed to 1992)
Is this because manufacturing low cost items has left the us, or are there other reasons?
If the rulers of the USA were true statesmen/stateswomen instead of mere politicians, these kinds of charts should keep them awake at night.
1) Labour productivity depends on the tooling and machinery operated with. Newer and better equipment increases the output per worker. A stagnating, and then eroding productivity means that the USA stopped investing, and even renewing its manufacturing infrastructure.
2) Labour productivity depends on work organization and on workers’ qualification, which improves along the learning curve. A stagnating, then eroding productivity implies that manufacturing the same output takes more effort, meaning the workforce is losing its skills and the organization of production is increasingly defective.
3) Labour productivity measures the value of the output per worker. Stagnating, then eroding productivity implies that the economy is losing those sectors manufacturing high value-added products and is being increasingly confined to low-value activities.
4) Labour productivity depends on the quality of other inputs — raw materials, semi-finished goods, energy. The higher the quality of those inputs, the higher the productivity — better conversion of energy into work with less smoke, heat, slag; higher conversion of raw materials into finished products with less scrap; less rejects when integrating third-party components; etc. A stagnating, then eroding productivity means that the inputs are of increasingly lower quality (crapification), meaning more effort is required to transform and then correct the final products.
In other words: All the explanations I can come up with can be summarized with “this is bad, really bad”. I cannot exclude some statistical artifacts (e.g. changes in measurement methodology), but I cannot see how they would consistently persist over a period of 12 years.
“If the rulers of the USA were true statesmen/stateswomen instead of mere politicians, these kinds of charts should keep them awake at night…”
[ An important and helpful comment, all through. ]
Unrelated graph.
https://fred.stlouisfed.org/series/WFRBLTP1246
https://fred.stlouisfed.org/graph/?g=1h08Q
January 30, 2018
Share of Total Net Worth Held by Top 1%, Top 90 to 99% and Top 50 to 90%, 1992-2023
https://fred.stlouisfed.org/graph/?g=1h09v
January 30, 2018
Share of Total Net Worth Held by Top 1%, Top 90 to 99% and Top 50 to 90%, 1992-2023
(Indexed to 1992)
I’ve seen American officials make similar arguments for years – literally going to Chinese officials and telling them how to run their country, what to make, how to price. What an inane concept. China is in no way responsible for the complete mismanagement of the American industrial base. (I actually seem to remember that China has been warning America this over the years.) Yellen is a creature of Wall St, and it was Wall St and American CEOs that spent over forty years concentrating on how to maximize quarterly profit almost to the exclusion of all else. Well, they succeeded, but I don’t see Yellen going to Wall St and trying to change anything there; they’ll just concentrate on other countries (Mexico) and continue the destruction of American middle class.
“Yellen is a creature of Wall St, and it was Wall St and American CEOs that spent over forty years concentrating on how to maximize quarterly profit almost to the exclusion of all else…”
http://umich.edu/~thecore/doc/Friedman.pdf
September 13, 1970
The Social Responsibility of Business is to Increase its Profits
By Milton Friedman – New York Times *
When I hear businessmen speak eloquently about the “social responsibilities of business in a free-enterprise system,” I am reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his life. The businessmen believe that they are defending free enterprise when they declaim that business is not concerned “merely” with profit but also with promoting desirable “social” ends; that business has a “social conscience” and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers. In fact they are–or would be if they or anyone else took them seriously–preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades. *
* https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html
“Yellen is a creature of Wall St, and it was Wall St and American CEOs that spent over forty years concentrating on how to maximize quarterly profit almost to the exclusion of all else…”
This is a perfect summary of how Milton Friedman formally taught American CEOs to behave from 1970 on. Maximize profits to the exclusion of all else, and that would mean Jack Welch turning GE to industrial banking. Because the Chinese were focused on actually making stuff, American economists thought that India was where to look for growth.
Now, from Paul Krugman to Janet Yellen, American economists want to convince China to stop making stuff even as they want America to turn to making more stuff.
I am so sorry, Milton Friedman’s landmark essay has been restricted by the University of Michigan, so the NYTimes.com link I provided must be used:
https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html
Here however we have a perfect summary:
“Yellen is a creature of Wall St, and it was Wall St and American CEOs that spent over forty years concentrating on how to maximize quarterly profit almost to the exclusion of all else…”
The word “almost” might well be omitted from the summary.
China does have some other advantages that are large and perhaps insurmountable.
1. One is the massive economies of scale from the sheer size of China’s economy, both as a customer and as a manufacturing nation. China also makes a lot of the machine tools. Note in the article the stark difference in the installed capacity of China versus the US or UK.
2. The other advantage is the enormous capital investment in China’ economy into productivity. There’s a reason why China has remained the dominant manufacturing nation, and contrary to many people’s beliefs, it doesn’t have to do with low wages (manufacturing has often remained in China, even with rising wages).
3. Another matter that can’t be quantified is “inertia”. China’s economy is seeing success from investment in this field, so the Chinese see good reason to invest more in manufacturing. The US and UK do not see much success, so they don’t see as much investment. The field simply doesn’t appeal to the decision makers.
The Chinese economy is much less financialized than the Western economy and the fall in real estate prices as of late is going to accelerate this trend.
Other considerations are the Western ruling elite are much more short term oriented, caring about maximizing the short term profit. Issues like share buybacks are not an issue in China, but are in the West. It’s not just a renewable energy only issue. The West likes capital-poor industries like tech with high profits.
I would argue that the big reason why renewable energy has fallen in manufacturing price is mostly due to the massive investments that China has made in this field.
The other side of the coin becomes if China is able to achieve similar remarkable gains in the field of cheap energy storage. Certainly the low costs in battery technology for EVs has been impressive, but there will need to be much more progress in this field for renewable energy to play a bigger role in society.
The West has some tough choices, just like in the automotive field:
1. Buy Chinese turbines and accept the decline of Western manufacturing in this field (this means loss of jobs)
2. Block everything from China and accept the inflation (this means the West is less competitive as an economy on the global field)
3. A middle ground, such as allowing branch plants with some Chinese components
The Western leadership is probably incapable of dealing with this situation effectively, barring a 1991-like collapse.
There has been some talk in the West of “Green New Deal” and the like, but no real discussion about any of the efforts to make the West more competitive. That will come down to the ruling elite dominating society and their determination to avoid any really uncomfortable conversations about the rich being rent seekers.
“China does have some other advantages that are large and perhaps insurmountable.”
[ Really fine comment. ]
About China supposedly taking trade advantage of an artificially low currency value, China since 1994 has had easily the highest real currency value of any of the 5 or 10 or 15 largest economies:
https://fred.stlouisfed.org/graph/?g=yeYT
January 15, 2018
Real Broad Effective Exchange Rate for China, United States, India, Japan and Germany, 1994-2024
(Indexed to 1994)
https://fred.stlouisfed.org/graph/?g=RRwA
January 15, 2018
Real Broad Effective Exchange Rate for China, Indonesia, Brazil, United Kingdom and France, 1994-2024
(Indexed to 1994)
https://fred.stlouisfed.org/graph/?g=jxix
January 15, 2018
Real Broad Effective Exchange Rate for China and Euro Area, 1994-2024
(Indexed to 1994)
According to this article today in South China Morning Post, China’s wind turbines cost one fifth of the cost in the US.
https://www.scmp.com/news/china/science/article/3257036/historic-breakthrough-chinas-installed-wind-turbine-cost-drops-one-fifth-us-green-energy-race?module=top_story&pgtype=homepage
The article also says that PV costs 30% more in the US than China.
It appears that China may be on track to actually meet the 2030 renewable energy goals.
“China may be on track to actually meet the 2030 renewable energy goals.”
https://news.cgtn.com/news/2024-03-14/China-s-green-revolution-The-rise-of-renewable-energy-1rMlMWK1E9q/p.html
March 14, 2024
China’s green revolution: The rise of renewable energy
By Lu Jianfei
According to a report * by The Wall Street Journal, China’s green revolution is quietly succeeding. “China has set a target for 18 percent of 2025 power consumption to come from non-hydro renewable power.” More than this, an International Energy Agency (IEA) forecast shows China is expected to achieve its 2030 target for wind and solar photovoltaic installations in 2024, six years ahead of schedule…
* https://www.wsj.com/articles/chinas-green-revolution-is-quietly-succeeding-b1b12e95
I’ve lived in Chna for twenty plus years. I also keep a close eye on the value of the RMB as compared to the Yankee buck and yes, it’s slipped a bit but what currencies haven’t considered US interest rates? Still, things are looking good here. If you leave the city, you can see solar power ‘farms’ all over the place. It seems like every village now has it’s own field filled with solar panels and that’s just around Beijing. As for air pollution, tremendous changes since I first got here and electric cars are everywhere. Water and soil pollution is still a big problem but they’re working on it. All in all, I think China has a good future so long as the US doesn’t try to nuke the place in its last spasms as a dying empire