Brain Gain in China's Solar Cell Sector

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There's nothing special about a Chinese company making it into the world's top ten in terms of production, since many manufacturers in China are doing exceptionally well at harnessing the country's cheap labor force. What is unusual about Suntech Power Co., Ltd., China's leading solar cell manufacturer, is that it has achieved this notoriety in less than four years. With its December 15 IPO listing on the New York Stock Exchange, the company not only became the first non-governmental Chinese firm to go public on the Exchange, but also paved the way for further expansion and a rise in its global rank.

The success of Suntech is a story of the embodiment of the ancient Chinese wisdom of "perfect timing, advantageous location, and kind assistance," and of the opportune adoption of the western concept of "innovation drives growth."

Founded on January 21, 2001, Suntech flipped the switch on its first polycrystalline silicon solar cell assembly line in September 2002, with a capacity of 10 megawatts (MW)—equivalent to the solar cell capacity in all of China over the previous four years combined. In less than three years, the company has increased its output a staggering 12-fold, to 120 MW in September 2005, producing 60 percent of China's solar cells. A new assembly line now under construction will expand this capacity to 150 MW by the end of the year, positioning Suntech as one of six major solar cell production bases worldwide.

Expansion has brought windfall profits. Having passed the payoff point in 2003, Suntech earned US $18.5 million in net profits in 2004 and a shocking $23 million in net profits for the first nine months of 2005, boasting a year-on-year growth rate of 163 percent. The company projects net profits of $50 million and $90 million in 2005 and 2006 respectively, achieving a return-on-investment rate rarely seen elsewhere.

The rise of Suntech has roots in three major factors, some of which are shared by its domestic counterparts. First, the global demand for solar cells has soared in recent years, driven by concerns over energy security and environmental sustainability. According to Vital Signs 2005, the global production of photovoltaic (PV) cells reached an estimated 1,200 megawatts in 2004, a 58-percent jump over 2003 levels. Production growth rates have averaged 43 percent a year since 2000. This trend is expected to continue for at least another 1-2 years before tailing off by the end of the decade.

Second, Suntech's decision to establish its headquarters in Wuxi city, in eastern China's Zhejiang province, has endowed the company with an abundant supply of cheap and relatively skilled labor. And thirdly, as China embraces clean energy development to offset its power shortages and environmental degradation, Suntech has enjoyed steady assistance from the government, which helped coordinate the company's startup investment and supported its R&D endeavors.

What distinguishes Suntech from the rest of its domestic competitors, and gives it its competitive edge, however, is the company's focus on innovation and building of technical know-how. Its founder and CEO, Shi Zhengrong, a returning Chinese who received a doctorate in thin-film solar cell research in Australia, brought with him dozens of patented innovations, as well as farsightedness about the importance of innovation to business growth.

Suntech, though only four years old, has set up a world class R & D center with more than 20 senior experts. It has developed a series of new PV rooftop solar power components and better polycrystalline silicon solar cells. It is now working on mass production of the second generation of polycrystalline silicon thin-film solar cells and the third generation of super high-efficiency solar cells.

While its domestic competitors boast a conversion rate of less than 15 percent with their products—that is, their photovoltaic cells convert only about 15 percent of the sun's power into useful energy—Suntech achieves a rate of 16 percent for large polycrystalline silicon cells and 17.8 percent for mono-crystalline cells. Its conversion rates are now in line with international standards.

The western concept of "innovation drives growth," though often discussed by Chinese companies, has too frequently remained a slogan on the wall. The success of Suntech, however, illustrates how much a company can achieve by putting these words into practice. As China's emerging renewable energy market lures back more nationals who have been trained overseas, and who bring with them modern technology and concepts, the expected production boom will likely drive down prices and boost quality. With this shift in the Chinese solar market, the "Made-in-China" label will mean products that are not just inexpensive, but also well-made.