China's state subsidies during the past two decades have caused cycles of boom and bust for major companies in multiple industries. The latest is solar energy.
The bankruptcy declaration this month by Suntech Power, once the world's largest solar-panel producer by sales, has sent shock waves across the industry.
The US-listed company's default on bonds and convertible bonds worth up to US$575 million has left investors, most of them foreigners, licking their wounds. They are expected to get back no more than a few cents on the dollar.
Thanks to government support and cheap credit from state-owned banks in the past decade, the industry looked set on world domination, pushing foreign producers such as Europe's Q-Cells into bankruptcy. But its rapid expansion resulted in overcapacity.
During the global financial crisis, worldwide demand for solar panels collapsed. Suntech was especially vulnerable because of its high debt levels. At US$1.6 billion, its net debt was more than 10 times its market value before its bankruptcy. Many worry the Shanghai-headquartered company may not be the last to fall.
However, there are hopeful signs that Beijing's push for alternative energy may yet bear fruit. Many analysts say growth in capacity on the mainland has halted. Demand is recovering around the world. Even Warren Buffett is investing in solar power installation in the US.
Suntech may have been a casualty of Beijing's overdrive for alternative energy development. But China has been ranked third this month among the Group of 20 countries by Australia's Climate Institute think tank for competitiveness in cutting greenhouse gas emissions. Only France and Japan are ahead. China is erecting an average of 36 wind turbines a day and is exporting solar panels as much as it does shoes.
Hopefully, Suntech's collapse will be no more than a hiccup in an earth-friendly industry for 21st century China.