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Just five years ago, General Electric (GE), Denmark's Vestas, and other foreign wind turbine makers controlled 71 percent of China's market. But as Beijing has supercharged spending on renewable energy, the Western companies have faced increasingly aggressive local competition. By last year, their share had fallen to 14 percent, although sales are still headed upward. "It's a tough market," says Jesus Zaldua, president of Gamesa China, a subsidiary of Spain's Gamesa that has four wind turbine factories in the northeast city of Tianjin. "Some companies will have to leave China in the next five years."
Buoyed by $47 billion in stimulus spending earmarked for green energy over two years, China has become the world's fastest-growing market for renewable energy. This year the mainland is on track to add 18 gigawatts of wind capacity, double what's expected in the U.S., the No. 2 market, according to Bloomberg New Energy Finance.
Vestas, the top foreign player in China, installed turbines with a total capacity of 620 megawatts there last year, New Energy Finance estimates. The biggest mainland company, Sinovel, sold turbines with a capacity of 3,523 Mw. Sinovel and Goldwind, the second-biggest Chinese wind turbine maker, are ranked among the top five global turbine manufacturers, even though they make almost no sales overseas.
Chinese companies have kept costs down by licensing older technology from overseas rivals, including Vestas, Japan's Mitsubishi, and others that sell their own turbines in China. While the Chinese pay royalties to the foreigners, those payments don't come close to making up for the business the foreign companies are losing in China. China's so-called buy local policy steers most state-financed energy contracts to domestic players. "There's no question preference is given to Chinese companies," says Magued Eldaief, a top GE Energy (GE) executive who formerly oversaw its Asia Pacific unit. "It's a reality you have to live with."
To get back in the game, the foreigners are introducing newer technology. Siemens (SI) this year expects to open an $80 million plant in Shanghai that can produce 3.6 Mw turbines, bigger than anything made by a Chinese company. Gamesa plans to build 2 Mw turbines. These machines cost nearly a third more per Mw than Chinese models do, but they're more reliable, according to Beijing-based renewables consultancy Mint Research. "Competing on cost isn't the way to go. It's about quality," says Jens Tommerup, president of Vestas China. Chinese manufacturers say they are improving their quality, and Goldwind plans to introduce newer, higher-output turbines next year.
The foreigners' head start in technology could pay dividends, particularly as the Chinese venture abroad. Western bankers, who would likely finance any big projects outside of China, tend to have greater faith in U.S. and European turbine makers because of the companies' years of experience, says Keith Hays, global wind research director at Emerging Energy Research in Barcelona. "For now, the West has an advantage in quality," says Hays. "But the Chinese are catching up fast."
The bottom line: Foreign wind turbine makers' market share in China has shriveled. Their strong suit is quality, as Chinese rivals compete abroad.
With Dexter Roberts and Stuart Bigg