Does China now have its own Solyndra scandal?
An article in Caixin online (h/t Marginal Revolution) traces the downward trajectory of Chinese company LDK Solar Hi-tech Co. Ltd, which has marked similarities to the Solyndra story. As in America, the government sent billions of Yuan to a promising solar company, only to be left holding the bag when the company’s fortunes fell. In the Chinese case, though, the company had become too big to fail.
Since its inception in 2005, LDK Solar enjoyed funding and preferential utility rates from the government in Jiangxi province, which anticipated thousands of jobs for the local economy. But rather than eat crow when the company failed, as the Obama administration eventually did with the Solyndra bankruptcy, the local government doubled down with a massive corporate bailout:
On July 12, the Xinyu city congress said it approved a proposal to incorporate 500 million yuan worth of loans LDK Solar borrowed from Huarong International Trust Co. into its annual budget. Xinyu also sent officials to LDK Solar to get involved in daily operations, and the officials have remained there.
Meanwhile, the government of Hefei, in eastern China’s Anhui Province, where LDK Solar has a production facility, has started to mull bailout measures, a bank source in Jiangxi said.
This is not the first time the government has had to help the company. At the end of 2009, LDK Solar sold stakes in a subsidiary to a provincial government company for 1.5 billion yuan. This was intended to relieve a cash crunch brought on by the global financial crisis.
For years, the Green lobby, egged on by sympathetic pundits, has called for America to support an energy program to rival China’s. Yet early experiments with government funding and loan guarantees for green energy haven’t worked out so well in America, and now it appears that they don’t work well in China either. And with a massive economy and more government money to burn, China may run a higher risk of fallout from its green unicorn hunts.