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.