On July 30, 2018 the controlling shareholder of Sinovel Wind, the publicly traded wind turbine manufacturer, whose Shakespearian rise to prominence and subsequent ignominious fall from grace was chronicled in Renewable Energy World over the last ten years, made a filing with securities regulators that presaged yet another humiliating epilogue for Sinovel.
The public statement from Dalian Huarui Heavy Industry Group Co., Ltd. (大连华锐重工集团股份有限公司), Sinovel’s controlling shareholder, indicated that Dalian Huarui had “an interested party” in acquiring its controlling interest in Sinovel Wind. As speculation grows as to what sort of “interested party” would find value in this shriveled beast, now perhaps is an appropriate time to recall the life and death (or near death) of one of the early behemoths of the world’s now largest wind power sector.
Since before the financial crisis, when China’s wind industry was in its infancy and the Renewable Energy Law of the People’s Republic of China had just gone into effect (it did so on January 1, 2007), Sinovel Wind (华锐风电) has been a central character in the story of the development of wind energy in China and has served as a metaphor for both the strengths and weaknesses of China’s development model and China’s fruitful, yet often fraught relationship with the world.
As we documented the rapid growth of the Chinese wind industry that was initially met with great skepticism among financial analysts, China’s localization of wind turbine manufacturing capabilities and the predicable crowding out of non-Chinese brands during the period 2007-2010, we were documenting in real time the familiar story of the creation of yet another industry in China nurtured by China’s focused and often sharp elbowed industrial policies that leaves a lot of detritus along the road to domination.
It also became a story of China’s powerful effect on the world in ways both beneficial and deleterious.
Because Sinovel’s story also was the story of the emergence of China’s renewable energy industry, whose development offered a promise of China addressing the horrific energy and environmental degradation caused by a generation of breakneck, yet sloppy industrialization, we were heartened by China’s determination to join the world community in combating climate change.
The growth of wind turbine manufacturing in the first decade of the new millennium catapulted Sinovel Wind to among the leading wind turbine manufacturers worldwide, on the strength of China’s explosive growth in wind energy. From a statistical asterisk of 500 MW of installed wind capacity in 2000, China’s wind installations skyrocketed to 45,000 MW as of year-end 2010. Sinovel’s leading role at that time was demonstrated by it, Dongqi and Goldwind accounting for nearly 50 percent of wind turbine installations in China in 2010, which totaled 19,000 MW that year. As of the end of the first quarter of 2018, total installed wind energy in China had reached 170,000 MW.
Inevitably, however, the failure of China’s industrial policy to contain the growth it so successfully sparked, as has been played out in countless other industries in China, led to a proliferation of competitors in the burgeoning wind turbine manufacturing industry. We also documented how the newly minted wind turbine industry then predictably repeated the now familiar story of overproduction by too many companies in this space, followed by cutthroat price competition, which in turn was followed by widespread losses among wind turbine manufacturers.
In early 2011, with its net income growing at the rate of 70 percent /annum, Sinovel had a very successful IPO that year. China’s failure to control what it had successfully unleashed, led to a series of missteps by Sinovel that brought about its downfall.
China’s fundamentally flawed industrial policy perhaps invariably led to the intellectual property theft by Sinovel that became another thorn in the U.S.’s relationship with China and another chapter in the Sinovel drama. The fallout from Sinovel’s attempt to cut costs and maintain profitability at the expense of its U.S. supplier (AMSC) resulted in criminal and civil litigation that continues to this day. It also made Sinovel a pariah in those parts of the world where intellectual property rights are valued and protected.
Sinovel’s missteps in turn led to the collapse of Sinovel beginning in 2011. In the seven years after Sinovel’s IPO, the company has accumulated cumulative losses of 10 billion Yuan (~$1.7 billion USD). So while China’s installed base of wind power has grown to be the world’s largest, Sinovel has limped along as a shell of its former formidable self, saved from liquidation by China’s frequently irrational financial system that has allowed large state-owned conglomerates like Dalian Huarui Heavy Industry to carry financial deadweight for so many years.
Sinovel also represented another familiar element in the bittersweet relationship between China and the West: cyber hacking. As an early 2016 episode of CBS’s 60 Minutes revealed, Sinovel was among the many Chinese companies that used cyber hacking to try to gain access to valuable trade secrets of Western companies.
Sinovel’s rise and fall is a cautionary tale for those who view China’s ascent either through rose-colored glasses or under a harsh white light. As we marvel at the impressive energy transition that China now is undergoing, and rail against the unfair advantages that China seizes, it’s important to appreciate the many broken pieces in China’s development landscape that make up what appears from afar to be a beautiful Pointillist painting or an ominous storm.