China’s push into solar energy was supposed to be a proud example of how the country was advancing into hi-tech manufacturing. But now the whole sector is on the brink of bankruptcy.
Two years ago, LDK Solar, one of China’s largest solar panel makers, built a new, state-of-the-art factory in the central city of Hefei.
It sits in one of the city’s industrial parks, a big LDK Solar logo on its wall, with the New York-listed company’s slogan underneath: “Lighting the Future”.
“It cost 2.5 billion yuan (£250m) to build, the majority of the equipment was imported from Germany, and it hired 5,000 staff,” said Jie Xiaoming, a 30-year-old who works at the plant’s quality control and packaging department.
Last month, however, 4,500 of the staff were put on gardening leave. They receive 700 yuan a month to stay at home. The factory has shut down 24 of its 32 production lines.
“There do not seem to be any orders. People are still turning up for work, but mostly just sleeping. The management has not said much, just that the United States has a new policy that is stopping our exports,” said Mr Jie.
Since it was set up in 2005, LDK Solar, along with several other Chinese solar panel makers, has enjoyed heady growth. Solar power, along with biotechnology and aerospace, was declared a “strategic emerging industry” and was given grants and low-cost loans.
It funnelled the cheap credit into an aggressive expansion, hoping to provide an entire industry chain of products and services.
Meanwhile, in Europe and the US, governments provided subsidies to buy Chinese-made panels as part of commitments to boost renewable energy.
But the incentives created a glut of suppliers, and since 2010, the price of polysilicon wafers has fallen by nearly three-quarters. The price is now below the production cost – in the latest quarter, LDK Solar’s gross margin was -65.5pc.