Date
21 October 2018
Yingli became a household name in China after it joined the list of sponsors for the 2014 World Cup, but has since seen its fortunes plummet. Photo: CCTV
Yingli became a household name in China after it joined the list of sponsors for the 2014 World Cup, but has since seen its fortunes plummet. Photo: CCTV

The bitter lesson to draw from Yingli meltdown

Football fans can see illuminated signs and field-side advertisements in Chinese at the World Cup. Among FIFA’s 12 official partners, four are from China. They are Mengniu Dairy, Dalian Wanda, Vivo, and Hisense.

Looking back at the World Cup in Brazil four years ago, there was only one Chinese sponsor: and it once became the world’s largest solar panel producer.

Ironically, the company has now been delisted from the New York Stock Exchange as it failed to maintain the minimum market capitalization.

Yingli signed the FIFA sponsorship back in South Africa 2010. It was the first Chinese firm to sponsor the sporting event. That was considered a sign of rising Chinese economic clout.

The solar panel maker was founded by Miao Liansheng in Hebei province in 1998, and was listed on the New York bourse in 2007.

The company has been unraveling for years. It aggressively rammed up capacity with government policy support. Yingli was the world’s largest solar panel manufacture between 2010 and 2014 in terms of capacity.

Its market value hit a peak of nearly US$10 billion, when Yingli Solar’s logo was seen on World Cup’s field-side advertisements.

However, China’s solar industry has quickly become a bubble thanks to government subsidies.

In order to pocket generous subsidies, several companies borrowed aggressively to expand capacity, and then flooded the market with low-end products.

However, infrastructure providers, corporate and household users won’t have sufficient incentive to use solar without huge government subsidy.

The market and technologies were, in fact, not ready yet and real demand for solar panels was limited.

Excessive capacity expansion resulted in overcapacity, and authorities were eventually forced to suspend subsidy schemes.

The removal of government subsidy has become the trigger for meltdown of numerous solar companies in China. Yingli is just one of them.

Yingli posted a loss of 5.6 billion yuan in 2015, 2.1 billion yuan in 2016 and 3.3 billion yuan last year.

The company is on the verge of bankruptcy. And its share price has plunged to US$1.43 on June 29, from the peak of over US$400.

Its market value has slid to US$26 million, which failed to meet the requirement to maintain an average market capitalization of at least US$50 million for 30 consecutive trading days. And the company was degraded to the OTC Pink Sheet.

By contrast, the four Chinese companies that sponsored this year’s World Cup are all in highly commercialized markets, such as diary, shopping malls, smartphones, and home appliances. That has demonstrated the progress of China’s market reform.

That said, the fall of Yingli highlights the risks of the Made in China 2025 plan. The ambitious blueprint has outlined the roadmap for promoting ten emerging industries with government support. Hopefully, Beijing would learn from its past mistakes and implement various measures rather than merely hand out subsidies.

If the ten hi-tech industries targeted develop into new bubbles, it may prove even more harmful than the solar bubble.

This article appeared in the Hong Kong Economic Journal on July 3

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

RC

Hong Kong Economic Journal columnist

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