As we talked about in class, China has embraced a dual-economy of private ventures and government run companies. There is a large issue, with interesting factors coming into play, with the failing solar panel industry in China. 
According to the the nation’s top economic planning firm, China should (and is trying to) consolidate the number of solar panel companies down to 15. The government is trying to reel in the excess supply created by the solar panel manufacturing boom. The problem is that this gigantic expansion was a debt-fueled expedition. China’s largest solar panel manufacturer has over have a billion dollars worth of debt payments to make to foreign investors on March 15th. The government has been helping Suntech Power Holdings considerably by funding them even when they have been operating at a significant loss. Recently, the government has come out and said that they will stop funding such ventures in order to limit the number of solar panel companies operating in their market. This will (hopefully) reduce the amount of dumping and excess supply. The government has a big decision coming forward. They’ve expressed their desire to leave these companies to fight it out in the markets to eventually realize the economically desirable number of solar panel companies. However, will they leave their largest company out to dry and all of the foreign investors as well? Will this dissuade foreign investment in China if the company defaults? The March 15th date is rapidly approaching and will be something to keep track of going forward. This decision has implications well beyond the solar panel sector.
I wonder what impact this decision is going to have on China’s environmental issues. If supply of solar panels was greatly exceeding demand, then these extra panels were never going to see action anyway. Nonetheless, it still doesn’t sound good from a PR perspective that China is pulling funding from a “green” energy industry, in light of the nation’s pollution problems. It may end up that this decision has no real impact on China’s environment, but it doesn’t inspire confidence that China is really going forward with trying to reduce pollution.
I don’t think that the supply of solar panels is necessarily exceeding demand. Two important factors are the anti-dumping policies of other countries that also produce solar panel units (like the US and EU) and the downturn in the European market (many Chinese solar panels started up because of the high demand in Europe).
It seems like this competition will have been beneficial for the government, considering only a handful of quality firms will remain after the market forces decrease the number of competing firms. What kinds of losses come from mergers of firms?
Suntech failed to make the debt payment Friday. Analysts think an involuntary bunkruptcy filing will follow. The company is the ninth largest Chinese firm listed solely in the United States. A number of Chinese companies took listings in the U.S. over the past decade because they had trouble raising capital and entering foreign markets when dealing with government-owned agencies in China. Interestingly, a number of these firms have left the U.S. after issues with credibility.
Source: WSJ online
A couple issues here. One is a global “green” bubble with lots of firms jumping in. A W&L alumnus headed a now-bankrupt electric commercial van venture; the electric car company Fisker is in bad shape, and various others (Aptera) have also failed. Ditto solar panels: because they’re not yet cost effective compared to standard thermal plants, their market is contingent on the “feed-in tariff” governing the price at which their power can be sold into the grid as well as tax incentives. Given the Great Recession in the US and the still-unfolding Euro crisis, those are gone or at risk. So good-bye solar panel makers.
Will the best man win? When it comes to bankruptcy, the proximate cause is running out of cash. So in the short run the definition of “best” is a function of how they structured their finances, not how cost-effective their panels are. Listing on the US stock market is a positive, but there’s also a track record of shady finances by Chinese companies, basically running stock scams, enabled by weak accounting systems. Now that may not be the case with Suntech Power, but it is a wider issue: bubbles and get-rich-quick schemes go hand-in-hand.
The solar energy issue is particularly intriguing for China. One major player, Suntech power, now has an outstanding debt of $2 billion, most of which is owed to state owned banks. Furthermore, the European Commission has revealed its intentions to conduct an anti-dumping investigation of government subsidies for producers. I am curious to see if the government carries through with its plans to limit its funding of solar panel ventures under such pressure.