By Gordon G. Chang, Forbes
In last two years, shares of Chinese solar cell producers have fallen by about half, and more price declines are on the way. The prospects for these manufacturers are poor.
It’s not that Chinese technocrats did not accomplish their ambitious goals. They set out to create an industry that would dominate the world, and they succeeded. They aided solar cell manufacturers with easy credit from state banks—perhaps as much as $18 billion of cheap loans—and, some say, subsidies. As a result of central and local government support, Chinese manufacturers began to expand rapidly. Chinese competitors now own 70% of the world’s wafer-producing capacity.
EU ProSun, a subsidiary of SolarWorld of Germany, has filed a complaint with the European Commission alleging China’s subsidies were illegal. The Commission is already investigating charges that Chinese producers have been dumping production in Europe. In July, ProSun filed an anti-dumping complaint with the Commission. European solar panel makers say Chinese companies have been selling at 80% below their cost.
Chinese producers are clearly worried about the investigations in Brussels. Europe, the world’s largest solar market, accounted for $27 billion of their sales last year. That was about a third of their production and 7% of all Chinese exports to the European Union.
The U.S., on the other hand, takes around 7% of China solar exports, and what is left of the American industry is filing trade actions against Chinese producers as well.
Chinese producers are already bracing for the imposition of stiff penalties on both sides of the Atlantic. As a first step, they are using components manufactured elsewhere.
In any event, Chinese manufacturers know they will have to come up with more permanent solutions to avoid crippling trade penalties. Their latest tactic is to buy European competitors. Guangdong Aiko Solar Energy this summer purchased Scheuten Solar of the Netherlands, and Hanwha SolarOne Co. recently announced plans to acquire Germany’s Q-Cells, a move Hanwha said was designed to avoid European trade sanctions.
The only problem is that locating manufacturing to Europe won’t work due to the high costs—40% higher than China. There are, of course, alternatives. China Sunenergy Co. said it would move panel assembly lines to Turkey this year, and analysts expect Chinese companies will shift production to Thailand, India, and Sri Lanka as well as Taiwan. Yet costs of production will still rise for Chinese producers. In Taiwan, for instance, costs are still 15% above those across the strait in China.
The industry-wide unprofitability means that Chinese technocrats have to throw their world-dominating industry a lifeline. In the last week of September, the China Securities Journal reported that the state-run China Development Bank, which is specifically tasked with implementing Beijing’s policies, would be giving priority to 12 of China’s largest solar companies.
The only real solution is closing production lines to get capacity in line with demand. Suntech Power is shutting down about a quarter of its capacity to manufacture solar cells, and it appears that Trina Solar will also slim down its operations in coming months.
The powerful National Development and Reform Commission wants to see two-thirds of panel makers go out of business. Only the largest producers, which are presently unviable, will survive.