It was only a few months ago that Jeffrey Immelt, CEO of General Electric (GE), had criticized the Chinese leadership during a Financial Times interview when he said, “I am not sure that in the end they want any of us to win, or any of us to be successful.”[i] Last week GE announced it had formed a joint venture with Harbin Power Equipment Company with a minority stake, while Harbin takes a 49% stake in a Shenyang-based wind turbine factory. And just a couple weeks before the news, Suzlon, the Indian wind turbine producer, and Gamesa, the Spanish turbine maker, announced new sales into the Chinese market with sober projections of upwards of 30% of their business growth coming from China. Ironically, the very same central planning policies Mr. Immelt criticized will actually benefit the likes of GE, Vestas and Gamesa.
By the end of 2009 the central government realized China’s wind turbine manufacturing industry had spawned too many manufacturing wannabees. In 2004 there were only six wind turbine manufacturers. By the end of 2009 the wind power market saw 70 turbine makers. Electrical capacity – the ability to make electricity though not necessarily transmit that power – grew more than 25-fold during the same period from a base of 760 MW[ii].
China’s political and geographic regionalism are the Achilles Heel of its plan to have 150GW of its electricity come from wind power in 2020: the central government declares wind power generation goals for each province; provincial governments spawn their own champions with their own approach to local markets; and the local markets use their local supply chains to address implementation issues. The free-for-all has resulted in uncoordinated over-capacity conditions that have driven profit margins for domestic makers to razor-thin levels, forcing all but the national champions out of investments in much-needed R&D. In other words, local players have created a tangle of underbrush in the marketplace that actually retards achievement of the goals for capacity the central government has declared. The same tangle also foiled international bids for market share in China. The central government has committed to rationalizing the wind power marketplace specifically to meet its wind power generation goals, and it knows it cannot do it without the established international players.