The bankruptcy of Chinese solar panel manufacturer Suntech Power last Wednesday should serve as a wake-up call to businesses across the country's renewable energy sector that fast development oriented toward mass production is not a sustainable strategy over the long haul.
Tipped by top planners as a key emerging area nearly a decade ago, China's new energy sector has developed rapidly in recent years. But the industry quickly swelled beyond what the market could support. By 2012, China's photovoltaic production capacity reached 40 gigawatts, representing some 60 percent of the world's total production capacity at that time, industry data show. Adding to the industry's woes, trade officials in the US and European Union, two major markets for Chinese new energy products, slapped heavy anti-dumping tariffs on Chinese solar panels.
In the face of dwindling demand and over-supply, panel producers had little choice but to cut their prices, a move which only tightened their dire financial straits. In fact, data from US research firm Maxim Group show that China's top 10 solar energy companies saw their accumulated debts stack up to $17.5 billion by August of last year.
New energy companies have only themselves to blame for their current situation. Many of these enterprises plunged head-first into the new energy sector not based on detailed market research or risk assessment but on blind faith that new energy had a bright future. Many companies were also, of course, eager to take advantage of the generous subsidy money the government was handing out to new energy firms. Case in point: local media reported earlier this year that San'an Optoelectronics Co, an LED chip producer listed in Shanghai, has received over 300 million yuan ($48.3 million) in subsidies over the past three years even though its owner, Lin Xiucheng, had $1 billion in asset.
But China's renewable energy industries can never thrive if they are filled with hundreds of companies all scrambling to build scale for the sake of short-term gains. What solar and related industries need is a handful of innovative players which are capable of plotting long-term strategies.
Reorganizing and consolidating new energy companies can help deal with the problems posed by overcapacity. Some companies are already taking steps along such lines. For instance, Poly Energy and Yingli Green Energy signed an agreement last week that would see the two cooperate on solar panel materials.
Chinese new energy companies should also work on breaking into emerging markets. Shanghai-listed solar energy equipment assembler TBEA, for example, secured a sales deal in India late last year, making it the first Chinese renewable energy company to tap the Indian market.
Suntech probably won't be the last of China's solar energy companies to go bust, but as a former industry leader, its downfall should be a clear indicator that the industry can't survive by holding its present course.