It is no secret that Chinese solar manufacturers are struggling, many flailing under debt loads so big they would be bust if it weren’t for the generous backing of the nation’s banks. What few comprehend however, is just how strategically Beijing views the sector. It is a burgeoning industry China wants to dominate in the next decade.
If that wasn’t clear last week, it should be now, after state news agency Xinhua broke two significant news stories this week:
1) China intends to elevate its upper limit for solar capacity to 40 gigawatts by 2015, from a previously announced 21 GW. This will likely include 3 GW of solar thermal power; and
2) Beijing will double solar subsidies this year.
On Tuesday, Xinhua quoted an industry source saying that the upper limit would be lifted to around 40 GW, although the exact amount is yet to be finalised. The figure would be more than a ten-fold increase on generation capacity as of the end of 2011 and comes after three lifts in the past year and a half.
The latest, in August, saw Beijing raise the target 40 per cent to 21 GW.
Then, on Wednesday, the Chinese government more than doubled solar subsidies dished out in 2012.
The Ministry of Finance said it would allocate another $A1.05 billion to subsidise local solar PV demonstration projects. Earlier in the year it offered around $A900 million, with the funds to be directed to projects that should generate 5.2 GW of solar power, according to Xinhua.
Solar manufacturers have been battling to stay afloat this year as demand drops in the key European market. At the same time, Chinese manufacturers have been confronted with anti-dumping battles that will inflict extra costs on exports to the US and Europe.
An oversupply of panels, plummeting prices and enhanced trade barriers are not conducive to strong performance, which has led Beijing to find an alternative – a home grown solar boom.
The problem to the remedy is that most Chinese manufacturers are selling stock at incredibly slim margins, if they have any margin left at all. Selling more product for no gain (or a loss), won’t take the red off the balance sheet anytime soon – although it will at least lift revenues and potentially alleviate the crippling oversupply.
Crucially, it may keep more Chinese firms afloat, allowing the country to maintain the leading position it has assumed in the past couple of years. And in the end, that’s what the Chinese government is eagerly chasing.
The importance of the news has not been lost on investors in beaten down solar manufacturers, with a universal surge seen in their stock prices overnight. Yingli climbed 18 per cent, Trina 10 per cent, JA Solar 19 per cent, Suntech 10 per cent and JinkoSolar 19 per cent. Not anywhere enough to cover losses this year, but a step in the right direction.