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Bottom line: Beijing should promote
cutting-edge companies like Tesla that can help advance its new
energy agenda, while abandoning ones like Yingli that use old
technology to make cheap copycat products.
Two green energy stories were in the headlines last week,
spotlighting China’s drive to become a global leader in the new
technology and also the right and wrong ways to achieve that aim.
An item involving US electric vehicle (EV) powerhouse Tesla
represented the right approach, with reports that the company
might near a deal with Beijing to build a manufacturing plant in
China. Meantime, former solar panel heavyweight Yingli
was in the wrong approach column, announcing that its
ill-conceived model of using old technology and cheap prices to do
business had pushed it to the brink of insolvency, despite ongoing
local efforts to rescue the company.
Beijing should take note of these 2 examples and do more to
promote companies like Tesla that can develop cutting-edge
technology for use in widely-respected products that the market
wants. At the same time, it should abandon copycats like Yingli
that don’t innovate and can only compete by offering cheap
products using old technology.
In keeping with that approach, the government should finally pull
the plug on companies like YIngli by letting them fail, while at
the same time giving even bigger support to innovators like Tesla.
Such a policy may cause some short-term pain due to plant
closures, layoffs and lost investment for the copycats. But it
will ultimately leave China with a field of healthier, more potent
companies that can help it achieve its goal of becoming a global
new energy leader.
China has made development of green industries a top priority
over the last decade, with the aim of developing cutting-edge
technologies that can be used both at home and exported abroad.
That drive has gained added urgency in recent years as the nation
grapples with worsening pollution, the result of years of
breakneck growth with only minor attention to environmental
One of Beijing’s earliest focus areas was the solar panel sector,
whose products create pollution-free electricity using sunlight.
Thanks to a wide range of incentives including tax reductions,
cheap loans and low-cost land rights, the nation quickly built up
a manufacturing complex that now produces more than half of the
world’s solar panels.
Lack of Experience
But many companies that entered the field had little or no
experience in the area, and instead relied mostly on cheap, older
technology to produce low-end panels that were most attractive for
their low prices. One of the biggest players to use that model was
Yingli, whose cheap and relatively low-tech panels allowed it to
quickly grow into the world’s largest solar panel maker.
But that strategy has sputtered due to a prolonged industry
downturn created by too much capacity, and Yingli announced a year
ago that it was running into serious financial difficulties. The
company is now struggling to pay off its debt, and last week said
there was “substantial doubt as to its ability to continue as a
going concern” as it posted a loss of about 5.8 billion ($900
million) yuan last year. (company announcement)
While Yingli’s situation looked dire, things were much better for
Tesla, which has previously said it would consider manufacturing
its popular cutting-edge electric cars in China if given the right
incentives. Tesla’s story was in the headlines late last week when
its Asia chief Ren Yuxiang met with Xin Guobin, a vice minister
from the Ministry of Industry and Information Technology (MIIT),
which oversees the new energy auto sector. (Chinese article)
Both sides were eager to publicize the meeting, releasing photos
of the men sitting together, heating up talk that the pair were
closing in on a deal to build Tesla’s first manufacturing facility
outside its home US market. Tesla’s ride into China hasn’t been
easy mostly due to infrastructure and marketing issues, but its
actual cars have been well received for their strong performance
and cutting-edge technology. The company took a major step towards
making its high-end products more affordable for average car
buyers with the release last month of its latest car, the Model 3,
which retails for a relatively affordable $35,000 before tax
Beijing should be commended for working hard to bring Tesla’s
technology and manufacturing to China, which could ultimately help
to promote similar development of China’s own domestic sector. At
the same time, the government finally appears to be losing
patience with Yingli after some quiet attempts to revive the
company, and should work to conduct an orderly wind-down for this
failed low-tech template for development in the fast-moving and
fiercely competitive solar energy sector.
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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