When solar panels became job killers

NEW YORK — Mr Russell Abney raised two children on solar power. The 49-year-old Georgia Tech graduate worked for the past decade in Perrysburg, Ohio, a suburb of Toledo, pulling a good salary as an equipment engineer for the largest American solar-panel maker.

On the other side of the world, Mr Gao Song boasted his own solar success story. A former organic fruit retailer who lives in the dusty Chinese city of Wuhan, he installed solar panels on his roof four years ago and found it so lucrative that he went into business installing them for others. By last summer, he and a team of 50 employees were installing solar-panel systems on nearly 100 roofs a month.

Then, China shook the global solar business — and transformed both their lives.

“A small vibration back in China can cause an avalanche in prices around the world,” said Mr Frank Haugwitz, a longtime solar industry consultant in Beijing.

Late last summer, Chinese officials began publicly toying with slashing the subsidies they offer domestic solar-panel buyers. Mr Gao’s business dried up, and he laid off half of his workers. “I have been working hard and was just off to a good start,” he said. “Now I have to start over.”

China’s solar-panel makers cut their prices by more than one-quarter to compensate, sending global prices plummeting. Western companies found themselves unable to compete and cut jobs from Germany to Michigan to Texas and points beyond.

Those points included Perrysburg — where Mr Abney and about 450 other employees suddenly found themselves out of work. “Within just a few months, it all came crashing down,” said Mr Abney. “It’s like a death in the family. People feel awkward talking about it.”

President Donald Trump, who pressed President Xi Jinping of China on trade and other issues this past week when they met at Mar-a-Lago in Palm Beach, Florida, has vowed to end what he calls China’s unfair business practices. Much of his oratory has involved old-fashioned smokestack industries such as steel — industries in which the jobs were disappearing even before the rise of China.

But economists and business groups warn that China’s industrial ambitions have entered a new, far-reaching phase. With its deep government pockets, growing technical sophistication and a comprehensive plan to free itself from dependence on foreign companies, China aims to become dominant in industries of the future, such as renewable energy, big data and self-driving cars.

With solar, it has already happened. China is home to two-thirds of the world’s solar-production capacity. The efficiency with which its products convert sunlight into electricity is increasingly close to that of panels made by American, German and South Korean companies. Because China also buys half of the world’s new solar panels, it effectively controls the market.

The story of China’s rise in solar panels illustrates the profound difficulties the country presents to Mr Trump, or to any US president. Its size and fast-moving economy give it the ability to redefine industries almost on a dime. Its government-led pursuit of dominance in crucial industries presents a direct challenge to countries where leaders generally leave business decisions to the businesses themselves.

Already, China is the world’s largest maker and buyer of steel, cars and smartphones. While it does not necessarily dominate those industries, its government ministries are moving to replicate that success with robots, chips and software — just as in solar.

“(Chinese panel makers) have the capital, they have the technology, they have the scale,” said Mr Ocean Yuan, chief executive of Grape Solar, a distributor of solar panels based in Eugene, Oregon. Of American rivals, he said: “They will crush them.”

ROOTED IN FISH

Before he became one of the solar industry’s most powerful players, Mr Liu Hanyuan raised fish. The son of peasants from China’s hardscrabble south-west, Mr Liu sold some of the family’s pigs in 1983 for what was then about US$100 (S$140) to buy some fish. Soon he went into the even more lucrative business of selling fish feed, and he eventually moved into pig feed and duck feed. The brand name, Keli, is a combination of the first and last Chinese characters from a famous paraphrasing of Karl Marx by Deng Xiaoping, the father of modern China: Science and technology are primary productive forces.

According to Mr Liu’s authorised biography, he faced local criticism at first for his embrace of capitalism and responded by saying that his fish feed was an improved product that followed Deng’s dictum. “When my business grows bigger,” he said at the time, “I will build another floor for labs.”

Plans to shift into computer chips did not pan out, so, by 2006, he shifted to solar technology, after taking control of a company that made chemicals for the production of polysilicon, the crystalline raw material for solar panels. That move proved fortunate: China was just then embarking on a concerted effort to become a solar-industry powerhouse.

During the next six years, Beijing pushed state-owned banks to provide at least US$18 billion in loans at low-interest rates to solar-panel manufacturers and encouraged local governments to subsidise them with cheap land. China had more on its mind than just dominating solar exports: Its severe pollution problems and concerns that rising sea levels from climate change could devastate its teeming coastal cities lent urgency to efforts to develop green technology.

At the same time, China also became a major player in wind power through similar policies.

With ample assistance, China’s solar-power production capacity expanded more than tenfold from 2007 to 2012. Now, six of the top 10 solar-panel makers are Chinese, including the top two, compared with none a decade ago. The solar division of Mr Liu’s company, the Tongwei Group, which discloses few financial details, is one of the fastest-expanding players in the industry.

That growth forced many US and European solar-panel manufacturers into a headlong retreat. Two dozen of them filed for bankruptcy or cut back operations during former US president Barack Obama’s first term, damaging the heady optimism then about clean energy.

In 2012 and 2013, the US and the European Union concluded that Chinese solar-panel makers were collecting government subsidies and dumping panels, or selling them for less than the cost of producing and shipping them. Both imposed import limits. Chinese manufacturers and officials denied improper subsidies and dumping, and still do.

Several large Chinese manufacturers that had previously overexpanded and had been selling at heavy losses for years then closed their doors. But Western solar companies say Chinese banks still lent heavily to the survivors despite low loan-recovery rates from the defaults of big Chinese solar companies such as Suntech, Chaori and LDK Solar.

HIGH-TECH HOPES

Like the Chinese solar industry as a whole, Mr Liu’s Tongwei is thinking bigger. His company bought an enormous solar-panel manufacturing complex in central China in 2013 from LDK Solar, which had run into severe financial difficulties. Now it plans to build factories in the cities of Chengdu and Hefei. At the same time, Mr Liu is dismissive of companies in the West that pioneered many solar technologies but have lost their market shares to China. “They are very jealous,” he said, “and cannot catch up with China’s pace.”

From an environmental standpoint, China’s solar push has been good for the world. Solar-panel prices have fallen close to 90 per cent in the past decade. Many of the solar panels in the US’ backyards and solar power plants are made by Chinese companies.

But, for the solar industry, Chinese expansion could mean an extended period of low prices and cutbacks for everybody else.

China now hopes to replicate its solar industry’s growth in other areas. Under a plan called Made in China 2025, China hopes to become largely self-sufficient within seven years in a long list of industries, including aircraft, high-speed trains, computer chips and robots. The plan echoes the solar-panel and wind-turbine buildup a decade ago, but with a larger chequebook. Made in China 2025 calls for roughly US$300 billion in financial backing: Inexpensive loans from state-owned banks, investment funds to acquire foreign technologies, and extensive research subsidies. If successful, Made in China 2025 would represent a fundamental shift in how China deals with the world.

US and European business groups have warned that the China 2025 plan means a much wider range of Western businesses will face the same kind of government-backed competition that has transformed the solar industry.

“The policies started in solar and are now starting to infect the higher reaches of the economy with Made in China 2025,” said Mr Jeremie Waterman, president of the China Centre at the US Chamber of Commerce in Washington.

RIPPLES FROM WUHAN

In the end, China did not slash subsidies for rooftop solar panels and cut them only slightly for large power-plant arrays. But prices barely rebounded from last year’s slump.

Mr Gao from Wuhan said that his business had depended not on homeowners but on profit-minded investors who made use of the subsidies.

The investors would pay three-fifths of the cost of a homeowner’s system. The homeowner would take only enough electricity from the panels to power the home. The investor would sell the rest of the electricity to the grid at a high, government-assisted price.

The suggestion that the government might cut the subsidy, even though the government did not follow through on it, panicked Mr Gao’s investors. So they stopped financing further deals.

“They fear that the year after next, they may have nothing,” he said. He recently hired four more employees to drum up sales, even as installations creep along at a small fraction of demand a year ago.

In Perrysburg, Mr Abney lost his job at First Solar, the largest solar-panel manufacturer based in the US, and looked in vain for a job in the auto industry in the Toledo area. He ended up taking a job several weeks ago at a building materials company in Lancaster, Pennsylvania.

First Solar struggled with improving Chinese technology as well as dropping prices. It laid off workers in Perrysburg partly because it decided not to produce its Series 5 generation of panels, which represented a limited improvement over its Series 4 panels. First Solar, to better compete with Chinese producers, will wait for its lower-cost, high-efficiency Series 6 panels to be ready for production next year. In the end, First Solar, laid off 1,600 people worldwide.

“It’s just kind of a shock factor when a lot of families realise they’re no longer going to have a job,” said Mr Michael Olmstead, the Republican Mayor of Perrysburg.

Although Mr Abney has started his new job at almost the same pay as his previous one, he said part of him pined for the days when the US still led in solar energy.

“It was great while it lasted,” he said. THE NEW YORK TIMES