China’s Renewables Industry Headed For Collapse
Bankruptcies abound as China’s central planners struggle to keep its green industry from rotting.
China’s aggressive push to “green” its economy and become the world leader in renewable energy is admired by many commentators in the West. Those admirers need to look again.
The country’s solar panel industry, which went from zero to become the world’s largest in five years, has crashed, with most producers now suffering from negative profit margins, soaring debt levels and idle factories.
Solar panel manufacturer Suntech, a national champion which became the world’s largest thanks to lavish state subsidies, filed for bankruptcy in March after it defaulted on payment of $541-million of bonds. The government is scrambling to tidy up the mess by offering tax breaks to all solar companies that acquire or merge with their competitors. One state-owned company recently tabled a $150-million lifeline to Suntech as it works its way through bankruptcy proceedings.
Likewise LDK Solar, another leading Chinese producer, was forced this year to turn to both provincial and local governments for protection from its creditors. The brainchild of the local Communist Party Secretary, LDK, received millions of dollars in state subsidies and cheap financing, land and electricity in 2005. The local government is now funnelling funds into the company to keep it from sinking, without complete success it seems – the company has shed 20,000 of its 30,000 employees and its shares are 98% below their peak in September 2007.
Yet China’s solar panel sector remains massively overbuilt. According to Bloomberg, if all of China’s solar producers were to run their factories at full speed, they could produce 49 gigawatts of panels annually – a ten-fold increase from 2008 and 61% more than global installed capacity last year. But demand for those panels has been shrinking as governments in the West cut many of the subsidies that made solar power attractive.
China’s experience with wind power is little different.