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China’s solar industry faces turmoil of its own

BEIJING — China in recent years established global dominance in renewable energy, its solar panel and wind turbine factories forcing many foreign rivals out of business and its policymakers hailed by environmentalists around the world as visionaries.

But now China’s strategy is in disarray. Although worldwide demand for solar panels and wind turbines has grown rapidly over the past five years, China’s manufacturing capacity has grown even faster, creating enormous oversupply and a ferocious price war.

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The result is a looming financial disaster, not only for manufacturers but for state-owned banks that financed factories with approximately $18 billion in low-rate loans and for municipal and provincial governments that provided loan guarantees and sold manufacturers land at deeply discounted prices.

China’s biggest solar panel makers are losing as much as $1 for every $3 of sales this year, as panel prices have fallen by three-fourths since 2008. Even though the cost of solar power has fallen, it still remains triple the price of coal-generated power in China, requiring substantial subsidies through a tax imposed on industrial users of electricity.

The outcome has left even the architects of China’s renewable energy strategy feeling frustrated and eager to see many businesses shut down, so the most efficient companies may be salvageable financially.

In the solar panel sector, ‘‘If one-third of them survive, that’s good, and two-thirds of them die, but we don’t know how that happens,’’ said Li Junfeng, a longtime director general for energy and climate policy at the National Development and Reform Commission, the country’s top economic planning agency.

Li said he wanted banks to cut off loans to all but the strongest solar panel companies and let the rest go bankrupt. But banks — which were encouraged by Beijing to make the loans — are not eager to acknowledge that the loans are bad and take large write-offs, preferring to lend more money to allow the repayment of previous loans. Many local and provincial governments also are determined to keep their hometown favorites afloat to avoid job losses and to avoid making payments on loan guarantees, he said.

Li’s worries appear to be broadly shared in Beijing.

Chinese solar company executives blame their difficulties partly on US decisions last spring to impose tariffs on solar panel imports, and on the European Union’s recent decision to start its own anti-dumping investigation.

‘‘It is not a Chinese industry problem. It is a global solar industry problem,’’ said Rory Macpherson, a spokesman for Suntech Power, one of the largest Chinese solar panel manufacturers. ‘‘

Li said the solar industry’s problems were the result of overcapacity in China and not the fault of trade restrictions.

Yet he insisted that if the Chinese government could turn back the clock and revisit past renewable energy decisions, it would not do anything differently.

The problem lies in the eagerness of Chinese businesses to rush into any new industry that looks attractive and swamp it with investments, he said. Chinese companies and their bankers are then far more reluctant than Western companies to admit defeat for investments that prove unprofitable.

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