In this webinar, Ishana Ratan shared her views on recent trends in the relocation of solar manufacturing to Malaysia and explored the reasons behind the difficulty that renewable energy manufacturing faces in creating linkages for local solar installation.
REGIONAL ECONOMIC STUDIES PROGRAMME WEBINAR
Friday, 8 March 2024 – The US-China trade war has created new opportunities for developing countries to attract foreign investment in solar manufacturing, which has historically remained concentrated in the US, Germany, and China. To avoid the tariffs imposed by the US and EU on solar panel imports, Chinese solar panel manufacturers have relocated to Malaysia, Vietnam, Thailand, and Cambodia. To discuss the implications of this relocation on the Malaysian economy, the Regional Economic Studies Programme of the ISEAS – Yusof Ishak Institute organised a webinar featuring Ms Ishana Ratan, PhD candidate in the Political Science Department at UC Berkeley, and Project Director at the Berkeley APEC Study Centre. The event was moderated by Dr Cassey Lee, Senior Fellow at ISEAS.
Ms Ratan began her presentation by explaining how China overtook the US and EU in solar module exports, thanks to its favourable domestic policy (2005-2009) that brought down the cost of manufacturing. However, in order to protect their local solar industries, both the US and EU imposed high tariffs on the import of Chinese panels starting from 2012 and 2013, respectively. Consequently, China relocated solar manufacturing to a select group of Southeast Asian countries – including Malaysia, Vietnam, Thailand, and Cambodia – to avoid these tariffs.
Whether the Chinese solar manufacturing investment benefits the local solar industry in the host countries – in this case, Malaysia – depends on a variety of factors, including: 1) the availability of raw materials; 2) attaining economies of scale in production; 3) ownership structure of firms; and 4) efficiency of related services such as project development, engineering and procurement, installation, and operations and maintenance. Furthermore, Ms Ratan argued that Chinese firms in solar panel manufacturing can support Malaysia’s domestic industries through linkages to local buyers and by employing local workers.
Based on her interviews with 17 individuals representing 13 Malaysian solar companies, Ms Ratan found that, while Chinese solar firms employ local workers, they do not create adequate local company forward linkages. Specifically, Chinese firms invest in Malaysia’s industrial parks intentionally to use highly skilled local engineers; only uppermost management is foreign. Additionally, Chinese firms employ roughly the same number of workers-per-dollar to other solar manufacturers in Malaysia. But, 99 per cent of solar panels in Malaysia (solar installations) are imported from mainland China, Ms Ratan reported. Chinese manufacturers in Malaysia find it more profitable to export from to the EU and US than sell to locals. Moreover, the industry is too weak to lobby for local benefits. New escalations in the US-China trade war, however, could change this.
The 90-minute webinar was attended by an audience composed of research scholars, students, policymakers, and the general public. The speaker also answered their questions on an array of topics, including the potential supply chain chokepoints in the manufacturing of solar panels, the policy framework of the Malaysian government with regard to the development of the solar panel sector, the employment creation opportunities in the segment, and the impact of data limitations related to solar panel components on the overall analysis.