Benefit from local or destination? The export expansion of Chinese photovoltaic industry under trade protection

Abstract

The trade pattern of Chinese PV exports has been largely reshaped by the trade sanctions from the US and the EU since 2011. Such a shock stimulates the deflection of Chinese PV export, while why firms expand to certain countries instead of others is still unknown. This paper manifests the PV trade deflection first and then investigates the role of both local and destination spillovers in the process of Chinese PV firms' market reorientation. The results show that about 20 billion dollars of PV products, account for 22.66% of China's overall PV export, deflected to new markets from 2012 to 2016. Both local and destination spillovers are conducive for Chinese PV exports to deflect to countries without extra tariffs. Using a Difference-in-difference framework, we find strong evidence of the trade protection effect, which is mitigated by local agglomeration spillover. For firms that have served the US and the EU markets, previous export experiences undermine their market expansion. State-owned enterprises exhibit inertia in developing new destinations, being less sensitive to both spillovers. Countries with high economic sophistication are attractive for Chinese PV firms.