Now, however, the Chinese Sputnik has crashed to Earth, and the Sun King has been toppled. Buffeted by fierce global competition, faced with a worldwide manufacturing glut and hobbled by heavy debt, Suntech’s directors ousted Shi on March 4 and defaulted on $541 million worth of convertible bonds 10 days later. The following week, a Chinese court declared the company bankrupt after a petition from eight Chinese banks. On Wednesday, the company announced that its 2012 revenue had plunged 48 percent from the previous year.
Suntech — which in 2011 was the world’s biggest seller of silicon-based photovoltaic modules — was once valued at $13 billion on the New York Stock Exchange; it is worth less than 1 percent of that today. A news report that Warren Buffett might be eyeing all or part of Suntech lifted the battered share price more than 80 percent in one week, but acquiring Suntech could be a risky bet.
In February, Pavel Molchanov, an analyst with the investment firm Raymond James, called Suntech “a proverbial ‘zombie’ company that perfectly exemplifies the Chinese solar industry’s massive overcapacity and consequently distressed balance sheets.”
The collapse of Suntech has broader significance than the damage inflicted on the company’s shareholders and creditors; it has punctured myths about the strength of China’s solar business — and its ability to depend on government support in a pinch.
Until now, policymakers in China have used subsidies to create a world-leading “green tech” industry that would push the country up the economic value chain. But green tech doesn’t guarantee thriving businesses. In the race for global solar supremacy, world manufacturing capacity has grown to 60 gigawatts, most of it in China. That outpaced solar demand, which is expected to reach about 35 gigawatts this year, enough to power about 26 million homes. So prices of photovoltaic panels have plummeted, and it will take three to five years for overcapacity to shrink, says Bill Wiseman, managing partner of consulting firm McKinsey’s Taipei office.
But China’s government has not rushed to the rescue. Last month, another Chinese solar panel maker, LDK, defaulted on a loan payment, citing cash problems. And Chen Yuan, the outgoing head of the China Development Bank, declared in March that the bank should curtail its solar lending.
In the meantime, the manufacturing of silicon-based solar modules has become a commodity business, producing large volumes and, at best, tiny profit margins for products that are virtually indistinguishable to consumers. Innovation took a back seat to expansion, particularly in China. “People are fighting tooth and nail for the last penny of margin,” Molchanov said in a recent interview. Factories making clothes or toys are doing better.