China Development Bank Corp., which listed the former U.S. secretary of state as an advisory board member in a 2010 bond prospectus, agreed last year to lend 232 billion yuan ($35.4 billion) to Chinese wind and solar power companies. The U.S. gave about $4 billion to their American competitors in grants and offered about $16 billion of loan guarantees. Adding in private investment, China also led.
CDB, which has almost twice the assets of the World Bank, is matching U.S. expertise with Chinese financing and manufacturing prowess to dominate a market both nations say is critical to their future. Chinese solar-panel makers such as LDK Solar Co. Ltd. were the biggest loan recipients and for the first time last year supplied more than half the global market, according to Bloomberg New Energy Finance, which begins its annual conference today in New York.
“What China’s doing is really smart,” said Jon Anda, vice chairman of UBS AG’s securities unit in Stamford, Connecticut, who runs the Swiss bank’s environmental markets business. “Without a clear policy path, we’ll get crushed.”
President Barack Obama said in January his country needs another “Sputnik moment” to wean itself of foreign oil. The U.S. had just slipped to third place behind China and Germany in a ranking of nations funding renewable power in 2010 as Republicans in Congress blocked the White House’s energy spending plans, according to a ranking by New Energy Finance.
U.S. Versus China
In addition to the $35.4 billion CDB pledged in corporate loans, state and private interests sank $54.4 billion into Chinese equity and project debt for clean-energy companies last year, up from $39.1 billion in 2009, according to the research company. In the U.S., which led the ranking in 2008, $34 billion was invested, trailing Germany’s $41.2 billion.
“The danger for the U.S. is that by the time it wakes up, in place of the levy it currently pays to oil despots, it will pay a levy to overseas clean-energy companies,” New Energy Finance Chief Executive Officer Michael Liebreich said.
CDB sold 673 billion yuan of debt to investors in 2009, according to the bank’s annual report. The bank that year loaned 635 billion yuan. Clean-energy loans constituted about 28 percent of all lending, according to Vandana Gombar, a New Energy Finance analyst.
CDB cited Kissinger as part of its 15-member advisory board alongside former Australian Prime Minister Paul Keating and ex- American International Group Inc. (AIG) Chairman Maurice “Hank” Greenberg in its October prospectus to sell yuan-denominated bonds in Hong Kong.
Jessica Leporin, Kissinger’s New York-based spokeswoman, didn’t respond to voice and e-mail messages seeking comment. A person in Greenberg’s office who said she was his assistant and wouldn’t give her name declined to comment. CDB officials didn’t respond to messages left by telephone and fax.
The bank’s chairman is Chen Yuan, a former vice-chairman of the central bank whose father was a politburo member under Deng Xiaoping, the Chinese leader who died in 1997. The son “has always been very interested in bringing in ideas from outside,” said Erica Downs, a China specialist at the Brookings Institution in Washington. “It has to do with this desire to be a world-class institution.”
China’s state-driven investment hasn’t always paid off. Chairman Chen faced criticism from the Chinese media and the public when London-based lender Barclays Plc fell as much as 93 percent following his 2.2 billion-euro investment in July 2007.
Still, CDB’s 35.3 billion-yuan profit in 2010 exceeded Morgan Stanley’s and its own 30.2 billion-yuan net in 2009.
“They intend to leapfrog the U.S. in these technologies,” Will Coleman, a partner at Menlo Park, California-based Mohr Davidow Ventures, told the Senate Energy Committee on March 17. “If we don’t move forward urgently, I’m concerned that we will not only cede the current opportunity, but we’ll lose the knowledge and the experience necessary to compete.”
Obama is struggling to win support for his energy policy. The Republican-controlled House passed a budget proposal in February that will cut 2012 funds for the Department of Energy’s Energy Efficiency and Renewable Energy programs by 35 percent to $1.5 billion, according to the Natural Resources Defense Council. The president proposed almost twice that amount.
“We’ve run into the same political gridlock, the same inertia that has held us back for decades,” Obama said during a speech at Georgetown University in Washington last week when he set a goal to cut U.S. oil imports by a third.
The president plans to discuss his plans for U.S. energy supply with factory workers at Gamesa Corporacion Tecnologica SA’s wind turbine plant in Fairless Hills near Philadelphia on April 6 in a town hall meeting.
In his Jan. 25 State of the Union address, Obama said the U.S. must “reach a level of research and development we haven’t seen since the height of the space race.”
After the Soviet Union in 1957 launched the beach ball- sized Sputnik, the first man-made satellite, President Dwight Eisenhower set up the National Aeronautics and Space Administration to energize the space program and take the lead from the Soviets. President John F. Kennedy set the goal of landing a man on the moon, and by 1965 NASA’s annual budget reached the equivalent of $37 billion in 2011 dollars.
China will invest about twice that in clean-energy projects each year for a decade in a 5 trillion-yuan program aimed at steering the economy away from fossil fuels, under a five-year plan announced last month. CDB loans are expanding the manufacturing base, driving down the cost of the renewable- energy equipment it exports.
LDK, Suntech, Yingli
CDB’s lending to the clean-energy industry rose 32 percent last year as it granted a five-year credit line to LDK Solar, the world’s largest maker of solar wafers, for the equivalent of $9.1 billion. The bank also loaned $7.6 billion to Suntech Power Holdings Co. and $5.5. billion to Yingli Green Energy Holding Co., according to New Energy Finance data.
Baoding-based Yingli, which this year began building new plants in Tianjin and Hengshui, Hebei province, will supplement its CDB credit with syndicated loans as it expands, Investor Relations Director Miao Qing said in a telephone interview.
The loans will allow China’s solar companies to sell more cheaply than global competitors by developing less-expensive panels and will protect them from hedge funds that are shorting their shares, said Antony Froggatt, a senior research fellow on the energy and environment at Chatham House, a London-based policy adviser.
“It gives them a competitive edge which we don’t have,” Andreas Wiltsdorf, head of sales for the German solar-panel maker Conergy AG (CGY), said in an interview in London. “Speak to the Chinese guys here, and they say, ‘We have such cheap loans from the state -- Easy!’”
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