Umm, Yeah, About Those Amazing Chinese Solar Subsidies...

Over the last several years, China's subsidization of its domestic solar panel industry has attracted ire and envy in the United States.  Bankrupt US solar producers and the US politicians who subsidized them have been quick to deride pernicious Chinese subsidies - rather than their own corporate or policy mismanagement - as unfairly creating a global export juggernaut that has doomed their business.  I've already discussed the US Department of Energy's 2011 "blame China" parade following Solyndra's collapse, and it appears that Abound Solar and its political champions are following suit:

Abound Solar filed for bankruptcy earlier this month, succumbing to intense competition from China that has sharply driven down the cost of solar panels, said Thomas Tiller, who served as Abound's chairman.

Tiller said the Chinese government provided about $35 billion in subsidies to Chinese solar companies, resulting in sharp growth in production capacity that outpaced demand and pushed down the price for panels by more than 50 percent in just a year.

"Such a severe market change made it difficult for Abound and others to survive," he said in remarks prepared for a House of Representatives oversight committee hearing.

Prior to filing for bankruptcy, Abound received about $70 million of a $400 million loan guaranteed by the U.S. Energy Department.

The drop in the solar panel price was bigger than the Energy Department and other experts expected at the time the Abound loan was finalized, David Frantz, acting executive director of the department's loan program, said in prepared testimony.

Meanwhile, American industrial policy fetishists have been quick to note the dominance of the Chinese solar industry as proof that the US should have mirrored China and thrown even more taxpayer money at our solar panel producers.  For example, here's FP's Clyde Prestowitz throwing out a blatant I-told-you-so back in March of this year:

The solar panel industry was identified by the Chinese government long ago as a target of special attention. Indeed, I recall being in a White House meeting in 2009 to discuss the prospects for the U.S. solar panel industry. I told the administration's top economists then that unless they were prepared to match the enormous incentives China was planning to provide to its industry ,the U.S. industry would be blown out of the water. They weren't prepared to match and the industry is, in fact, now being blown out of the water. Anyone who had had the experience with Japan or who had an ounce of understanding of how strategic industry targeting and export-led growth works could have foreseen exactly what has come to pass as China has poured about $34 billion of subsidies into its industry which exports about 95 percent of its production. That would be the loss of several thousand U.S. jobs and the bankruptcy so far of 12 U.S. companies. This is not to mention the inevitable reductions in R&D spending and innovation in the face of the tsunami of imports from China.

Prestowitz, much like the US Steelworkwers union, appears to think that the billions in subsidies that the US government has thrown as American solar producers are woefully insufficient, and that just a few billion more would have all but guaranteed a globally-dominant US industry that's just brimming with profitability... you know, just like the, err, Chinese industry:

China’s top ten photovoltaic makers have accumulated a combined debt of 17.5 billion U.S. dollars so far, leading the whole industry to the brink of bankruptcy, data from U.S. investment agency Maxim Group showed.

LDK Solar, the world’s second-largest maker of solar wafers, and Suntech Power, the world’s largest solar panels producer, are the mostly likely to be headed for bankruptcy, Maxim noted....

Based on preliminary results of domestically traded photovoltaic companies for the first half, nearly 80 percent have slashed their earning forecasts while the top ten brands, listed overseas, posted a loss of 612 million U.S. dollars in the first three months this year.

Yingli Green Energy Holding Co., another leading solar power company in China, said over the weekend that the company cut its delivery growth forecast of photovoltaic modules from 15 percent to 13-14 percent for the second quarter, and gross margin from previous 4.5-4.9 percent to around 4.5 percent for the period.

“A gross margin of 4.5 percent indicates a loss, for sure, in the second quarter,” said Meng Xiangan, vice chairman of the Chinese Renewable Energy Institute. According to Meng, gross margins for China’s ten leading photovoltaic makers were all below 10 percent in the first quarter, led by Canadian Solar, who earned a gross margin of 7.7 percent but still reported a loss of around 20 million U.S. dollars. What’s worse, cash flows in Chinese solar makers are even tighter as many have rolled their debts over to 120 to 180 days, according to investment firm Helix Investment Management.

Gee, so what happened?  How could the subsidized Chinese juggernaut now be on the brink of disaster?  If only someone could have predicted this.  Oh, wait:

As tensions heighten over questionable subsidies and anti-dumping cases against China’s solar panel manufacturing sector, most non-Chinese citizens are quick to claim that China is robbing the industry from other countries. Indeed, China’s doubling of solar panel exports in 2009 and 2010 was followed by a string of bankruptcies of solar firms in other countries, including Germany and the US, in 2011. However, despite China’s huge gains in its global market share, its solar sector now likely faces a serious consequence of its explosive growth: overcapacity. Manufacturing capacity of solar panels is outpacing global demand, and as a result the prices of solar products have plunged; and now many Chinese solar manufacturers “face ‘suicidal’ prices on excess output” and are slashing prices in order to liquidate inventory.

So, it appears that all those Chinese (and American and European and...) subsidies have led to massive overproduction and a collapse in solar prices, and Chinese solar companies (and their global counterparts) simply can't stay afloat in the current market.  Of course, the current US antidumping and countervailing duty investigations of Chinese solar panel imports certainly aren't helping the Chinese industry's bottom line, but those cases very likely wouldn't have happened without all that sweet, sweet government cash to depress prices and make the industry vulnerable to anti-subsidy allegations.

Thus, the very subsidies that were designed to ensure Chinese solar industry dominance have helped cement its near-term demise (and brew up a couple trade disputes in the process).  Yes, the Chinese government might swoop in and "save" its ailing solar industry - it certainly has enough spare cash lying around to do so - but that salvation would come at a clearly huge expense.  The debt-ridden US government has no such "luxury," but considering the past few years of subsidized failures like Solyndra, Abound Solar and the rest, coupled with the experience of the super-subsidized Chinese solar failures, one must really wonder if maybe - just maybe - we're better off for it.