China’s US$20 billion solar industry is avoiding loan defaults and mergers by taking aid from local governments, preserving jobs at money-losing companies such as LDK Solar Co (江西賽維), the world’s second-biggest maker of solar cells.
LDK agreed last month to sell a 19.9 percent stake to a renewable-energy investor part-owned by the city of Xinyu, home to its headquarters. Suntech Power Holdings Co (尚德電力), the world’s largest solar-panel maker, got a US$32 million loan in September organized partly by Wuxi, the city where it is based. The aid helps as the companies prepare to report combined losses of US$987 million for this year, analyst forecasts compiled by Bloomberg show.
The moves counter efforts by the central government to engineer mergers that create a handful of larger solar companies, said Jeremy Haft, founder of BChinaB Inc, a New York-based consulting company that specializes in Chinese business practices. The country has previously pushed consolidation to strengthen industries such as steel and coal.
Provincial governments mostly want solar manufacturers “to keep the lights on and not lay people off,” Haft said.
“There are a lot of people unemployed” in China and local government officials do not want to see solar factories close, he said.
Local aid efforts have not sparked a rally in LDK and Suntech. They have lost 38 percent and 17 percent respectively in the last three months, outpacing the 9.6 percent loss for the 17-member Bloomberg Global Large Solar Energy index over the same period. LDK gained 1.1 percent to US$0.90 at the close in New York on Friday. Suntech closed at US$0.906.
At the same time, GCL-Poly Energy Holdings Ltd (保利協鑫能源), the world’s biggest solar wafer maker, has increased 15 percent in the last three months. The company has been mentioned in Chinese news reports as a possible merger partner.
The China Securities Journal said national government-run China Development Bank Corp (國家開發銀行) is encouraging consolidation between panel makers, pledging financial support for 12 companies. The move may lead other struggling solar manufacturers to close their doors or agree to be bought, the journal said in a Sept. 25 report.
China Development Bank is motivated to keep struggling solar firms afloat, especially those that have borrowed from it, Washington-based Center for American Progress policy analyst Melanie Hart said. The lender is putting pressure on local governments to support companies so they will repay loans, she said.
The bank is telling local officials “we won’t lend anymore to anyone in your region until they pay us back,” she said.
Those local efforts contrast with China’s national goals, which are commonly described as “grasping the big, letting go of the small,” Hart said.
Help from local governments may be the biggest obstacle to making China’s solar industry competitive, Boston-based GTM Research solar analyst Shyam Mehta said.
“Until they stop supporting the uncompetitive manufacturers, this won’t go away,” Mehta said. “If LDK was allowed to fail, the market reaction would actually be positive.”
Suntech is evaluating various financing options and cutting costs, and in September temporarily reduced production in Wuxi, Suntech spokesman Rory Macpherson said in e-mail. He did not say whether the company expects additional support from the community. Telephone calls to LDK spokesman Li Longji went unanswered.
The country’s state-owned electricity distributor, China State Grid Corp (國家電網), announced incentives on Oct. 26 to encourage smaller solar projects, with capacity of less than 6 megawatts, such as rooftop systems. It will buy the electricity and exempt owners from certain fees.
Other Chinese communities are supporting local solar manufacturers. A company controlled by Dongying, a city in Shandong Province, offered US$10 million for a 50.38 percent stake in CNPV Solar Power SA’s sole asset, CNPV Dongying, on Nov. 1.