Interpreting the advantages and disadvantages of Chinese PV companies through the industry chain

The second quarter of 2010 seems to have become the harvest season for Chinese PV companies. According to the second-quarter financial reports issued by ten Chinese-listed Chinese PV companies, their second-quarter shipments have all experienced different degrees of increase. Among them, LDK's shipments were the largest, reaching 584.4MW. In the second half of this year, Chinese PV companies are expected to continue this trend.

Shen Hongwen, a researcher in the new energy industry at China Investment Advisors, believes that as of now, China's photovoltaic companies are playing an increasingly important role in international competition. However, from the perspective of the entire industry chain, China's photovoltaic companies want to compete with the international photovoltaic giant, their own strength has yet to be improved.

First of all, from the perspective of the raw materials in the upstream of the solar photovoltaic industry chain, polysilicon is still the mainstream raw material. The domestic demand for polysilicon is large and it needs a lot of imports from abroad. The current international large-scale polysilicon suppliers have advanced technology, and the polysilicon they produce costs about US$30/kg, which is far more than the price to sell to China. It can be said that it is highly profitable. Polysilicon needs a large number of imports from foreign countries to seriously limit the profitability of Chinese PV companies.

Second, in the midstream, China's PV companies have certain advantages. Wafer production, solar cell manufacturing, and component packaging have become their main source of profit. However, this part of the profits has a tendency to decrease, because now some of the major photovoltaic system installation countries such as Germany announced the reduction of subsidies, the market is facing contraction. According to the "2010-2015 China Solar Photovoltaic Power Industry Investment Analysis and Prospect Forecast Report" released by the China Investment Advisor, the amount of subsidy for roof-top photovoltaic power generation systems built in Germany has decreased by 13% since July 1, 2010. The amount of subsidy in the region was reduced by 8%, while that in other regions was reduced by 12%. From October 1, 2010, the amount of subsidy will be reduced by another 3% on the basis of July 1.

Thirdly, in the downstream application market, the domestic photovoltaic industry’s foreign dependency is as high as 90% or more, and the demand is mainly in Europe, the United States, Japan, and other countries or regions. When the demand in these countries or regions is strong, the photovoltaic industry is a thriving scene. When the market shrinks and demand decreases, companies adopt price cuts to reduce their earnings expectations.

Zhang Zhenlin, research director of China Investment Consulting Co., Ltd. pointed out that an industry that wants to develop rapidly and has a competitive advantage in fierce international competition cannot be separated from the guidance of the national policy, adequate market demand, and the growth of the company itself. If China's PV companies are to become bigger and stronger, they must first start with their own weak links and push forward in layers, so as to bring about economic benefits and bring about good social benefits.