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Not long ago, it seemed that China was on its way to owning the solar energy business. China was making solar panels far more cheaply than U.S. companies. Now things look a little more complicated. China's Suntech was forced into bankruptcy yesterday. It's one of the world's largest solar panel makers. Suntech has to reorganize after defaulting on a bond payment of more than half-a-billion dollars.
Its falls reflects problems in China's approach to the global solar industry. NPR's Frank Langfitt reports.
FRANK LANGFITT, BYLINE: A few years back, President Obama praised China's approach to green energy. Here's how he put it in his State of the Union address in 2009.
(SOUNDBITE OF STATE OF THE UNION ADDRESS)
PRESIDENT BARACK OBAMA: We know the country that harnesses the power of clean, renewable energy will lead the 21st century. And yet it is China that has launched the largest effort in history to make their economy energy efficient.
LANGFITT: That effort doesn't look quite so impressive today. In fairness, some of Suntech's troubles are due to a lack of demand from a weak global economy. But analysts here also blame China's state-driven model of capitalism. It's a system that rewards local growth and can spark overproduction.
Gary Liu is an international finance specialist at the China Europe International Business School, here in Shanghai. He says local officials...
GARY LIU: (Through Translator) Local governments are the real trouble-makers here.
LANGFITT: Liu says local officials have pushed solar energy to meet national growth and environmental goals, even though the market isn't yet big enough to support it
LIU: (Through Translator) So the local governments feel they need to do something, as kind of their political performance - and solar industry can create big GDP. Without the encouragement and the subsidy from the local government, there wouldn't be so much investment in this industry.
LANGFITT: Chinese companies have pushed some foreign competitors out of business. Now, a number of Chinese firms are fighting for their own survival.
Patrick Chovanec sees more trouble ahead. He's chief strategist at Silvercrest Asset Management in Beijing.
PATRICK CHOVANEC: There are several Chinese solar companies that are in a great deal of financial difficulty. There was a senior official in China's central government, who, a few months ago, said that two-thirds of China's solar companies need to go out of business in order to make the industry viable. The problem, though, is which one?
LANGFITT: In long the run, Gary Liu remains optimistic about China's solar business. But for the industry to succeed, more companies will probably have to follow the path of Suntech.
Frank Langfitt NPR News, Shanghai.
(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.