The Mother of All Solyndras
China’s solar power debacle.
Jan 21, 2013, Vol. 18, No. 18 • By YING MA
LDK Solar, the largest maker of solar wafers in the world, faces a mountain of debt totaling about $3.6 billion. Xinyu, the company’s hometown in Jiangxi Province, has come to the rescue. Last July, the city government approved a measure to fund approximately $80 million of LDK’s loans. Then in October, LDK raised some $23 million by selling a 19.9 percent stake to Heng Rui Xin Energy, a renewable energy company partly owned by Xinyu.
Suntech, the world’s largest solar panel maker, also needed a bailout from its local government. Burdened with over $2 billion of debt, it received nearly $32 million in emergency funds in September. The loan was organized by the city of Wuxi in Jiangsu Province, where Suntech is headquartered, and was extended by the local branches of state banks, including the Bank of China and the China Development Bank.
Local bailouts provide much-needed cash to large employers, but they do not necessarily please central planners. Beijing, well aware of the overcapacity, has instructed China’s solar industry to consolidate. In late December, Premier Wen Jiabao chaired a meeting of the State Council, China’s cabinet, to reemphasize what everyone knew to be Beijing’s wish: Let the solar industry reduce production and undergo mergers and reorganizations. Local governments, frightened by the prospect of massive layoffs if large solar employers go bankrupt, have ignored Beijing’s call. Whatever the Obama administration may believe about state omnipotence or the Chinese government’s power to push clean energy projects with a snap of the fingers, state planning is hardly so simple or efficient in practice.
For a state-driven economy like China’s to outcompete market liberalism, it would have to routinely pick the right winners and losers, according to Peter Thiel, president of Clarium Capital Management. But Thiel, founder of PayPal, an early investor in Facebook and LinkedIn, and a man who knows something about picking winners and losers, noted in a phone interview nearly three years ago that he is skeptical that central planning can get the job done, especially when it attempts to shape industries not yet proven and innovation not yet seen.
The Obama administration lacked the same foresight, and its hubris and hostility toward free markets have led it to waste taxpayer money on Solyndra and other clean energy projects. Some of the companies that have filed for bankruptcy since Solyndra’s failure include electric car battery maker A123 Systems, which received $249 million of stimulus money; energy storage systems maker Beacon Power Corp., which received a $43 million loan guarantee from the Energy Department; and solar conversion technology developer Satcon Technology Corporation, recipient of a $3 million grant.
The investment losses incurred by the Obama administration in its green energy portfolio no doubt pale in comparison to the billions spent by the Chinese government to nurture and prop up its renewable energy companies. Nevertheless, the turmoil in the Chinese solar industry teaches that massive state spending cannot forestall changes in market conditions, though it can distort market incentives and lead to overcapacity, inefficiencies, and other unintended consequences. The logic of the free market applies across national borders and without regard to the wishes of big-government dreamers.
Ying Ma is the author of Chinese Girl in the Ghetto. Her website is yingma.org.