Turning the lights out at Wuxi SunTech

We noted last year how China was looking to provide a helping hand to its struggling solar panel industry by getting local governments to push projects using solar power. Beijing approved $1 billion in subsidies for 100 such projects last November. Now stick is following carrot. It is letting Wuxi Suntech, the main operating subsidiary of Wuxi-based Suntech Power Holdings, the country’s leading solar panel maker, slip into bankruptcy.

A group of eight Chinese banks, including some state heavyweights–Commercial Bank of China, Agricultural Bank of China and Bank of China–has initiated insolvency proceedings in a Wuxi court against the subsidiary (though not the NYSE-listed parent). This follows last week’s default by SunTech on $541 million of its bonds. If the bankruptcy petition goes  ahead as expected–Wuxi Suntech has told the court it will not file an objection to undergoing a court insolvency reorganization–it would represent the biggest corporate collapse in China in recent times, and provide a test of the country’s new bankruptcy law.

Yet more significant to this Bystander is the clear unwillingness of its lenders to keep propping up a loss-maker–SunTech owes the eight banks 7 billion yuan ($1 billion)–and particularly one as prominent as Suntech in an industry designated of national strategic importance. It also sends a signal to other Chinese solar panel makers to get their businesses in order as they struggle with global overcapacity, falling subsidies and international trade disputes–or they, too, will be allowed to go the same way as Suntech and many of its European competitors.

Then what is left of a culled industry will be consolidated into a few viable state champions.

China And The EU Drift Towards A Solar Trade War Neither Wants

Politics is complicating the trade dispute between China and the EU over solar panels. Meanwhile, the two are drifting towards a trade war neither wants.

Last September, the European Commission launched an anti-dumping investigation in to China’s $25 billion-worth of solar panel exports (2011 sales) to Europe. Beijing made a tit-for-tat response, threatening duties on EU exports of polysilicon, which is used in making solar panels.

Which is pretty much where things still stand. China’s leadership transition and the likely departure of trade minister Chen Deming in March has left everything in stasis.

Yet the trade disputes clock is ticking down. Beijing is to due to make a decision on polysilicon duties by the end of this month. The outcome of the EU investigation has to decided by mid-April so EU officials can make a formal recommendation in June to the European Commission on how to proceed.

These investigations overwhelmingly lead to the imposition of anti-dumping duties (only in one case over the past four years has it not), though EU leaders have shown no appetite to follow the U.S. in imposing duties on Chinese solar products. They don’t want any retaliation that might make recovery from Europe’s recession more difficult.

Yet there is no wiggle room in the European timetable. That will not leave much time for a new trade minister in Beijing to get his feet under the table, let alone negotiate a resolution to what is anyway a tricky trade dispute.