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Bottom line: Strong response to Tesla’s
latest EV in China and a major new solar plant plan from
SolarReserve reflect Beijing’s strong promotion of new energy,
which is also creating big waste by attracting unqualified
companies to the sector.
A series of new reports is showing how Beijing’s strong support
for new energy technologies is benefiting both domestic and
foreign companies, as China tries to become a global leader in
this emerging area. But the reports also spotlight the dangers
that come with such aggressive support, which often leads to abuse
of subsidies and other preferential policies that can lead to big
waste and market distortions.
One of the reports centers on US new energy car superstar Tesla
and quotes an executive saying that China has become the second
largest market for its newest and first relatively affordable
electric vehicle (EV). The second report comes from the solar
energy sector, and has US solar plant developer SolarReserve
LLC in a major new partnership to build more than $2
billion worth of solar farms in China.
While both of those developments look positive, and reflect big
government incentives on offer, the third news item highlights the
darker side of Beijing’s largess. That story comes from leading
financial news magazine Caixin, whose investigative report shows
how many of China’s smaller automakers have become addicted to
grants and other subsidies for new energy car development and rely
on such money for their profits.
Let’s begin with the Tesla story, which comes as the company
tries to gain some traction in China after a poor start 2 years
ago. Following positive reviews and strong initial orders for its
new Model 3, costing just $35,000, Tesla’s Asia chief Ren Yuxiang
is saying in an interview that China has become the second largest
market for pre-orders for the new car, presumably after only the
US. (English article; Chinese article)
Ren didn’t give any figures, but Tesla previously said it had
received 400,000 pre-orders for the Model 3, which won’t be
available in China until sometime next year. One Chinese media
report also points out that Tesla has said it is exploring setting
up a manufacturing plant in China, and that local reports have
indicated that plant would be in the city of Suzhou not far from
New Solar Power Plants
Next there’s the solar plant news, which comes in a report that
says SolarReserve and local partner coal producer Shenhua
(HKEx: 1088) will jointly spend up to 15 billion yuan ($2.3
billion) to develop solar farms in China. (English article)
Projects developed by the pair could have up to 1,000 megawatts of
capacity, which is quite a large amount.
We’ve seen many similar initiatives to build solar power plants
in China in response to Beijing incentives and directives, but
this is one of the largest I can recall involving a foreign
company. That’s significant because many Chinese builders have
little experience in the sector, and may be taking their action
more to please the central government than to earn actual profits.
By comparison, this new partnership should be far more
commercially focused, giving it better chances of success.
Finally there’s the Caixin investigative report, which saw a
reporter review many companies’ latest financial statements and
uncover how reliant some smaller automakers have become on Beijing
incentives to develop new energy cars. (Chinese article) The
report points out that many of the companies would be loss-making
if they didn’t have the government support.
I’ve never heard of any of the companies named in the report,
which reflects the fact that China’s auto industry is highly
fragmented with dozens of small players that would never survive
in a more mature market. Many of these companies probably should
have closed or merged by now due to stiff competition. But they
have discovered that Beijing’s largess can prolong their lives for
a few more years, as they develop new energy cars that will
probably never make it to market.
Doug Young has lived and worked in China for 20 years, much of
that as a journalist, writing about publicly listed Chinese
companies. He currently lives in Shanghai where, in addition to
his role as editor of Young’s China Business Blog, he teaches
financial journalism at Fudan University, one of China’s top
journalism programs.. He writes daily on his blog, Young´s
China Business Blog, commenting on the latest
developments at Chinese companies listed in the US, China and Hong
Kong. He is also author of a new book about the media in China, The
Line: How The Media Dictates Public Opinion in Modern China.
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