One of China's star stock sectors is under fire and unlikely to
emerge unhurt in the long run.
The Chinese green energy sector had been a top performer until
this weekend. But politics got in the way. The sector has fallen
victim to currency politics between Washington and Beijing.
On Friday, the U.S. Treasury was due to report on whether it
would investigate China for being a "currency manipulator". The
Obama administration is under heavy pressure to deal with
complaints about job losses to China as mid-term elections
approach. But to the surprise of some, Treasury Secretary Tim
Geithner took a soft line with Beijing.
The Treasury delayed the release of a report on whether China
"manipulates" its currency. Noting that the yuan has climbed more
than 1 percent a month since Sept. 2nd, Geithner relented. The
Treasury said this pace, "if sustained...would help correct" what
the U.S. considers an undervalued currency.
Geithner had warned that branding China a manipulator wouldn't
accomplish anything. In fact the consequences of such a label could
worsen the currency wars that are brewing among many nations - not
just between China and the U.S.
But, the U.S. did not let trade tensions pass without firing a
shot across China's bow. In a good cop/bad cop routine, the U.S.
aimed its ire at China's much vaunted green energy sector.
Shooting Down China's Star
For more than a month, the Obama administration has come under
pressure from the United Steel Workers to crack down on Chinese
green technology products. The USW accuses China of blocking access
to materials used in green technologies, illegally linking
subsidies to export sales, curbing imports and demanding that
foreign investors hand over technology secrets.
The USW also accused China of providing more than $216 billion
worth of subsidies to green tech makers. The union charges that
Chinese subsidies amount to "more than twice as much as the U.S.
spent in the sector, and nearly half of the total 'green' stimulus
With America's green energy industry lagging, Obama acted. U.S.
Trade Representative Ron Kirk took up the complaint. It alleges
that China's policies have caused the annual U.S. trade deficit in
green-technology goods. It accuses China of being the top
contributor to the U.S. global trade deficit in the sector. China
denies the allegation, calling it groundless and irresponsible.
The U.S. decision caused steep losses in the Chinese solar
||Suntech Power Hldgs.
||Trina Solar Limited ((ADR))
||JA Solar Hldgs. Co.
||Yingli Green Energy
||Solarfun Power Hldgs
||Canadian Solar Inc.
||LDK Solar Co., Ltd.
||China Sunergy Co., Ltd.
Now that China's green energy sector has become embroiled in the
currency wars, shares should be affected for some time to come.
Investors will be wary of a sector that could be hit at any time by
trade sanctions or other measures.
The U.S. plans to pressure Beijing to continue edging the value
of the yuan upward. America also expects to have allies at a
meeting of foreign ministers from the Group of 20 nations next week
in South Korea, and at a summit there in November.
As I've mentioned before, there is a danger of a currency
The U.S. isn't alone in feeling that China has undervalued its
currency. Several other countries including Japan and Brazil have
taken measures to drive the values of their currencies down. The
U.S. policy of "quantitative easing", better known as printing
money, is another strategy to weaken to greenback, making U.S.
exports more competitive.
As for green energy stocks, the timing of the two U.S. actions
suggests currency tensions and Chinese green stocks are now linked.
Sorting out a new global of regime currency valuation won't be
easy. And it won't be quick. For the time being, we can expect
China's solar stocks to linger under a cloud of currency
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