China's Suntech in Bankruptcy Proceedings

It came as no surprise today when the photovoltaics manufacturer Suntech, the world market leader in recent years, filed for bankruptcy in China. The company was well known to be in serious financial trouble and has been under investigation for having spent the equivalent of almost US $700 million for bonds that probably are fraudulent, to provide financial collateral for solar projects in Germany. Last week Suntech forfeited on a US $541 million bond, and the company's chairman, Shi Zhengrong (photo), a scientist widely admired the world over as an innovative entrepreneur, had to step down, as speculation centered on whether the Suntech's municipal sponsor, the city of Wuxi, would step in to save it with some kind of bailout package.

The news, however expected, is nonetheless, stunning. In recent years, Suntech led the pack of low-cost Chinese PV makers who laid waste to commodity manufacturers in Europe and the United States, making life impossible for innovative startups like Solyndra in the U.S. and Germany's Q-Cell, the world market leader when Suntech first emerged as a force to be contended with. But then there was sharp push-back from the United States and Europe, which imposed trade sanctions after their manufacturers complained the Chinese were "dumping" PV modules at below production costs. It now appears those complaints were well-founded, as the Chinese have run up huge debts that they cannot pay back, reportedly from selling their product at a loss. As the old joke goes, for only so long can you do that and make it up in volume.

Looked at another way, the Suntech collapse appears to be a case of a technology revolution devouring its own children. According to Keith Bradsher of The New York Times, who made his reputation as a technology and business correspondent covering the troubled U.S. auto industry, "China’s approach to renewable energy has proved ruinous, financially and in terms of trade relations with the United States and the European Union. State-owned banks have provided $18 billion in loans on easy terms to Chinese solar panel manufacturers, financing an increase of more than tenfold in production capacity from 2008 to 2012. This set off a 75 percent drop in panel prices during that period, which resulted in losses to Chinese companies of as much as $1 for every $3 in sales last year."

Suntech itself is believed to owe its Chinese creditors upwards of $2 billion. "If Suntech seeks bankruptcy protection in the U.S. [as well as China]," reports the Wall Street Journal, "or if its U.S. creditors successfully filed for an involuntary bankruptcy, the company would be the largest and highest-profile Chinese company listed in the West to enter U.S. Bankruptcy Court in recent years. Suntech ranks as the second-largest Chinese company by revenue listed solely in the U.S. through American depositary receipts…"

The implications of the Suntech story go of course far beyond the company's investors and creditors, and indeed well beyond just China, the United States, and Europe. The whole global PV industry has been radically disrupted by the cut-throat tactics of the Chinese manufacturers and their political sponsors. Until the brutal shake-out in manufacturing is complete and the world market has stabilized, we will have no way of knowing the real price of a solar cell.

Photo: Nelson Ching/Bloomberg/Getty Images

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