How Chinese subsidies changed the world
Last month, LDK Solar, a struggling Chinese manufacturer of solar wafers and panels, announced that it had missed US$24 million (S$29.6 million) in bond payments. This news followed the March bankruptcy of Wuxi Suntech, the main operating subsidiary of the world’s largest maker of solar panels.
It is no coincidence that this upheaval in the Chinese solar industry is occurring at the same time that the government subsidies that financed the industry’s explosive expansion have declined — even as problems in the global solar-panel market have soared.
Since 2008, as a result of government subsidies, the manufacturing capacity of China’s solar-panel industry grew tenfold, leading to a vast global oversupply. A surge in exports of Chinese panels depressed world prices by 75 per cent. Last year, China’s top six solar companies had debt ratios of more than 80 per cent. Our research shows that without subsidies, these companies would now be bankrupt.
While it is encouraging to see the Chinese government rethinking its support of the solar-panel industry, it would be foolish to interpret this move as a reversal of its overarching policy of aggressively subsidising targeted industries in order to dominate global markets.
A RISE FUELLED BY SUBSIDIES
For the past five years, we have examined how China swiftly moved from being a global bit player and net importer, to the world’s largest manufacturer and exporter in capital-intensive industries where it had no labour-cost advantage.
During this time, we have witnessed industrialised countries become exporters of commodities and scrap to China. In 2000, labour-intensive products constituted 37 per cent of all Chinese exports; by 2010, that number had fallen to 14 per cent.
In a parallel development, from 2004 to 2011, US imports of technologically-advanced Chinese products grew by 16.5 per cent annually. In 2011, the US imported 560 per cent more technologically-advanced products from China than it exported to that country. Meanwhile, the annual US trade surplus with China in scrap and waste grew from US$715 million in 2000 to US$8.4 billion in 2010.