Chinese solar panel makers that grew rapidly over the past decade are suffering major losses because of slumping global sales plus a price war that threaten an industry seen by communist leaders as a role model for hopes to transform China into a technology leader.
Financial issues are most likely to force painful adjustments in the Chinese business including feasible mergers, bankruptcies, factory closures or layoffs, industry analysts say.
“The next 1 1/2 years will be extremely difficult,” stated Frank Haugwitz, a renewable energy consultant in Beijing.
Companies have been hurt by weak sales, especially in debt-crippled Europe, the leading global solar market, still at the same time by Chinese government policies that encouraged hundreds of small companies to rush into the market. They flooded the market and depressed costs.
Several bankruptcies of solar manufacturers in the United States and Germany have developed political pressure for action against China, exactly where the government has made it a national priority to expand manufacturing capability for renewable energy.
As new solar panel factories continue to open in China, the industry’s surplus ability increases, with downward pressure on costs, stated Yotam Ariel, the managing director of Bennu Solar, a research organization in Shanghai.
“Everyone talks about the struggle of the U.S. producers, yet it appears that the Chinese producers are in a struggle of their own,” he said.
Suntech’s founder, Shi Zhengrong, a Chinese-born Australian scientist, was lauded by the communist government as a leading entrepreneur. Industry profits soared in 2007-09 as the United States as well as other new markets stepped up installations.
That good results encouraged communist professionals who saw solar, wind and other renewable energy as a way both to curb China’s increasing reliance on imported oil and gas and to take the lead in an emerging industry without established competitors.
Solar energy, along with such fields as biotechnology and aerospace, was declared a “strategic emerging industry” targeted for development as portion of efforts to transform China from a low-wage country of farmers and factory workers into a creator of technology.
The Chinese Commerce Ministry has complained repeatedly, numerous lately in a statement Monday, that renewable energy programs by five state governments in the United States discriminate against imports from China, having said that it has not stated no matter whether it may file a predicament using the World Trade Organization. The ministry is also investigating a complaint from Chinese market that the United States is exporting polysilicon, the primary ingredient for solar panels, at prices below manufacturing expenses.
Since 2010, the price of polysilicon wafers used to develop solar cells has plunged by 73 percent, according to Aaron Chew and Francesco Citro, analysts for Maxim Group, a financial firm in New York City. The price of cells has fallen by 68 percent and that of modules by 57 percent.
“The solar manufacturing market has been wracked by a collapse in pricing,” said Chew and Citro in a report.
The massive Chinese manufacturers have accumulated a total of $17.5 billion in debt, leaving balance sheets “at the breaking point,” they said.
Beijing is unlikely to allow big producers to go bankrupt yet rescue measures could possibly contain capital injections that would dilute or wipe out the value of shares held by foreign investors who have put billions of dollars into the industry, Chew and Citro said.
Haugwitz said people in the market have told him at the very least 300 smaller manufacturers have suspended production and others are generating at under 50 percent of their capacity.
The industry at the same time faces the prospective effect of U.S. and European anti-dumping measures in response to complaints Beijing improperly subsidizes businesses. Foreign competitors complain that makes it possible for Chinese suppliers to sell abroad at unfairly low prices, wiping out American and European jobs abroad — an explosive issue at a time of high unemployment.