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UPDATED: April 1, 2013 NO. 14 APRIL 4, 2013
The bankruptcy of Wuxi Suntech brings uncertainty to China's solar panel industry
By Lan Xinzhen

TO BE DELIVERED: A worker scans the information of Wuxi Suntech's products ready to be shipped. The company is now undergoing restructuring under bankruptcy proceedings (SHEN PENG)

The Intermediate People's Court in Wuxi, east China's Jiangsu Province declared on March 20 that the largest subsidiary of Suntech Power Holdings Co. Ltd., one of the world's biggest solar panel manufacturers, must undergo restructuring under bankruptcy proceedings.

Nine commercials banks filed a petition asking the court to declare the subsidiary, Wuxi Suntech Power Co. Ltd., insolvent for failing to issue a plan to repay its debt worth 7.1 billion yuan ($1.13 billion).

Suntech's woes add fuel to the fire of an industry already plagued by oversupply and tariffs.

Dr. Zhengrong Shi founder and Executive Chairman of Suntech Power Holdings Co. Ltd.

Suntech Power Holdings Co. Ltd. was founded in January 2001 by Australian Chinese Zhengrong Shi and grew to become a leading player in the industry. In 2005 the company was listed on the New York Stock Exchange. Suntech became the world's largest solar panel manufacturer in 2011, with a production capacity of 2.4 gigawatts. It runs branches in a dozen countries across the world and employs 11,000 workers.

Reasons for bankruptcy

In 1991, Shi earned his Ph.D. from the University of New South Wales, where he studied under Professor Martin Green, known as the father of global solar energy. He became an Australian citizen in 1993 and returned to China in 2000. The photovoltaic industry was one of the industries the Chinese Government vowed to develop at the time, prompting Shi, with the backing of the Wuxi Municipal Government, to found Suntech.

In the next few years, Suntech continued to grow at a remarkable speed. In 2006, the company's stock price climbed to $40, and Shi became the richest in China with a fortune of $2.3 billion. Shi often mentioned that Suntech would not have become the giant it was without the support of the Wuxi Municipal Government.

During the past decade, however, the development of photovoltaic and new energy industries grew rapidly, and by the end of 2011, China had more than 500 photovoltaic producers, owning 80 percent of the world's production capacity. Hoping to cash in on the booming industry, real estate developers, dressmakers and even food producers were investing in photovoltaic companies.

The disorderly development supported by various local governments ultimately caused overcapacity and disorganized competition. To increase market share, many photovoltaic producers drastically lowered their prices, thereby eroding profits.

More serious problems soon emerged. Zhang Shuguang, a researcher with the Institute of Economics of the Chinese Academy of Social Sciences, says various local governments offered cheap land and loans with favorable terms to photovoltaic companies, ballooning oversupply in the market. Many companies saw their debt-asset ratios rise fast, sparking a crisis in the photovoltaic industry.

Furthermore, China's photovoltaic products have been export-oriented and are highly dependent on the U.S. and European markets. Beginning in 2011, the United States and European Union launched anti-dumping and countervailing duty litigations against Chinese photovoltaic products, seriously hurting the industry and having contributed to the oversupply in China.

Since most investments are made with government-assisted loans, debt crisis breaks out after oversupply intensifies and corporate profitability declines. This is the main reason for bankruptcy of Wuxi Suntech.

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