November 18th, 2016

A Collision of Expectations

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This article is written as the contribution to GIIC as their commissioner.

The world’s economy is quickly approaching a potential crisis, and the impact could be far reaching. The crisis stems from a collision of conflicting expectations involving one of the largest economies ever, and includes tangible, large-scale impacts on real communities. At this late hour, it is unclear whether the crisis can be averted and if so, what the consequences of trade-offs might be.

In July, 2001 China concluded negotiations with the World Trade Organization (WTO) and an agreement was ratified in December, 2001. Part of China’s understanding was that they would be granted Market Economy Status (MES) on the 15-year anniversary of the agreement, which will occur in December of this year. However, that understanding is not held by the other countries of the WTO and this disagreement has the potential to significantly impact economies around the world.

The accession to WTO opened up opportunities for Chinese industries, but has also brought about a number of unintended consequences. In the 90s, Europe was moving aggressively towards the use of renewal green energy, however manufacturing of solar cell in Europe was very costly because of the European environment protection regulations. The Europeans found a manufacturer in Wuxi, China who was able to provide solar cells very cheaply because of China’s less restrictive environmental protection regulations. The manufacturer became very successful and soon other companies began making solar cells. Unfortunately, the new manufacturers did not seek to enhance the original product, but chose to simply produce exact copies, which is usually the case in China. The “copycat” mindset often leads to overcapacity, and such was the case for solar cells in Wuxi. The European Union took notice of the situation and in 2011 cut back on demand, resulting in a large glut of solar cells, causing prices to plummet by nearly half.

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