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Arunabha Ghosh: China's solar flares burn some

Arunabha Ghosh 

Arunabha Ghosh

On May 20, the world's most valuable listed company's stock collapsed 47 per cent. Trading in Hong Kong-listed (HTF)'s stocks were suspended after the share prices dropped in less than one hour. The fall was as steep as HTF's rise was meteoric. Even last October, the stock was valued at HK$1.50, but then rose rapidly to a high of HK$9.07. On the day of the crash, shares opened at HK$7.32 and settled at HK$3.91, wiping out nearly $19 billion in value. The news was barely picked up in India, strangely for a country with vast ambitions for What should we make of these developments?

is a subsidiary of the Beijing-headquartered and unlisted Hanergy Group. Its promoter, Li Hejun, owns nearly 75 per cent of the shares and, thanks to the rise of the stock value, became one of China's richest men. Earlier this year, Financial Times identified two reasons to worry about First, since Mr Li owned a large share, small volumes of trading in the thinly traded stock could have a big impact on the share price, either rapidly pushing it up or pulling it down. Analysis of two years of data found that much of the price surges happened towards the last 10 minutes of daily trading.

The second concern was more worrying. In 2010-13, nearly all of the sales of had been to its parent company. Hanergy Group uses equipment to manufacture thin-film panels. In turn, most of this production goes to Hanergy's own installations. Despite much lower sales than its competitors, managed to post profit margins in excess of 63 per cent in 2013 and ended up being more valuable than the entire Chinese sector combined. The market regulator has initiated an investigation.

Investors in clean tech enterprises look for at least three elements that could affect expected returns. First, the technology, related innovations and associated risks. Secondly, overall market direction, as a result of technological advances; falling costs; incremental energy demand; international negotiations; or domestic policy. Thirdly, the certainty and longevity of domestic policy signals. has tempted on all three fronts, but at times damagingly.

Hanergy placed its bets on thin-film technology, making strategic acquisitions in Germany and the United States to give it a market edge. But some analysts have questioned this move, since thin film is still just about 10 per cent of the global market. In fact, China's manufacturing has been almost entirely with crystalline silicon photovoltaic (PV) technology. In 2013, thin-film production was about 300 megawatts (one per cent of total PV production in China).

Overall, manufacturing capacity continues to be added in and costs keep falling (though the pace has dropped). The top 10 manufacturers, alone, produced more than 14,000 Mw of modules in 2013. There are, by some estimates, well more than 500 manufacturers in China, which now dominates global production. In 2013, had 42 gigawatts out of 60.5 Gw of global production capacity. Production was lower, at 27.4 Gw, still 69 per cent of global PV production that year. And there is a strong export orientation. In 2011, 90 per cent of PV production was exported; in 2012, it was 86 per cent; and in 2013, it was 61 per cent.

The policy direction has also been steadfast. has elevated the status of clean tech in its new vision for industrial policy. Under its current 12th Five-Year Plan, named seven new strategic and emerging industries, which included energy saving and environmental protection, new energy (nuclear, solar, wind, biomass) and vehicles. Last year, 10,560 Mw of were installed bringing total capacity to more than 28,000 Mw. By 2030, Bloomberg estimates, is likely to have more low-carbon electricity capacity than the total US power generation capacity.

Given India has one-fifth the power generation capacity of China's, its large targets (175 Gw planned by 2022) are, in relative terms, even more ambitious. In 2010, India's share in electricity generation was already more than twice that of China's (if large hydro were excluded) and will be a much larger share in future. As I argued in this column in February (, India's manufacturing will need more competitiveness.

But China's experience offers sobering lessons for India. First, cherry-picking technology is dangerous. It is far better to create direct price signals through explicit carbon taxes, which would help to create a level playing field for energy technologies.

Secondly, easy credit distorts markets and reduces competitiveness. accounts for 70 per cent of global excess capacity (another major manufacturer, Yingli, saw its shares drop 37 per cent on May 19 due to its inability to service debt). After another market leader, Suntech, went bankrupt in 2013, the Chinese government announced a list of 134 enterprises that met PV manufacturing norms. This list is reviewed every six to 12 months. But Chinese firms are now tapping into the country's shadow banking system. Better regulatory oversight is critical.

Finally, trade disputes over clean tech will likely grow. Seven of the top 10 Chinese manufacturers were also among the top 10 exporters of modules in the world. Unless the Chinese domestic market absorbs a growing share of production, mercantilist competition in global markets will increase. India's strategy to promote clean tech manufacturing must work around these three risks.

The writer is chief executive, Council on Energy, Environment and Water (
Twitter: @GhoshArunabha

First Published: Mon, June 15 2015. 21:46 IST