Doug Young
There are quite a few developments on the solar energy front today, led by the release of new financial results from LDK Solar (NYSE: LDK), the weakest of China’s major solar panel makers, that show a company in the midst of a meltdown. Meantime, Beijing has officially protested a US law that allows Washington to levy punitive tariffs against overseas industries that receive unfair state support, such as China’s solar sector. Both the US and Europe believe China supports its solar sector with unfair subsidies and have taken various punitive actions; and now India is also launching its own similar investigation, dealing yet another blow to the struggling sector.
Let’s start with the LDK results, which show a company teetering on the brink of collapse as it deals with the worst-ever downturn for the young solar panel sector. Not surprisingly, LDK has filed its second-quarter results just 2 weeks before the US-mandated deadline of the end of September, as it attempts to avoid greater attention to its poor performance. Also not surprisingly, the results were quite ugly, with revenue falling by half from the previous year as LDK’s loss ballooned to a massive $254 million.
The company’s shares fell by a relatively modest 3 percent after the news came out, reflecting the reality that investors have heard so much bad news already that this latest downbeat report is really nothing special. One of my sources tells me LDK has actually hired investment bank Morgan Stanley (NYSE: MS) to try and sell the company to one of China’s big state-owned enterprises.
I wouldn’t be surprised if this was true, as LDK is clearly in big trouble and would never be able to attract any private sector buyers. Regardless of the situation, we can probably expect to see some spectacular fireworks from LDK by the end of the year, as the company either collapses or gets bought by an unlucky state-run company under pressure from Beijing or the provincial government of Jiangxi, where LDK is based.
Moving on to the bigger news, China has announced it is lodging an official protest with the World Trade Organization (WTO) over a US law that allows Washington to take punitive actions against overseas industries that receive unfair support from their local governments. China’s protest isn’t aimed at a specific industry, and indeed the US has used the law to levy punitive tariffs against several Chinese products over the last year. But clearly solar panels are one of the main targets of this new WTO protest by Beijing, after the US earlier this year said it will levy big punitive tariffs on Chinese solar panels that now account for more than half of the world’s supply.
While the US has already determined that Chinese solar panel makers receive unfair state support, the European Union also announced last month it is launching a similar probe. And now it seems that India will launch its own probe over the matter, dealing yet another setback to the embattled sector. I’ll repeat my advice to Beijing once again by saying that rather than repeatedly protesting the accusations by foreign governments, China needs to finally admit that perhaps some of the complaints are legitimate and then find ways to address the concerns.
Bottom line: LDK’s latest earnings report shows a company on the brink of meltdown, while Beijing’s latest trade complaint shows it is still in denial about its unfair subsidies to the country’s solar sector.
Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also 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 the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China
