Journal of Financial Risk Management
2013. Vol.2, No.4, 84-86
Published Online December 2013 in SciRes (
Open Access 84
The Challenge of Managing Government-Industry Relationships
—The Case of Suntech and Wuxi
Shi Li
Renmin University of China, Beijing, China
Email: history
Received July 30th, 2013; revised August 30th, 2013; accepted September 7th, 2013
Copyright © 2013 Shi Li. This is an open access article distributed under the Creative Commons Attribution Li-
cense, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work
is properly cited.
Suntech, once the star of China’s PV industry, now is a highly distressed company under bankruptcy pro-
tection towards restructure of business activities. From Suntech’s founding to its uncertain future pros-
pects, the paper discussed the company’s growth story as a good case study to discuss the opportunities
and risks resulting from China’s approach to industrial development, which is motivated by booming lo-
cal economic growth. In the article, we first stated the evolution of Suntech and analyzed the risk factors
which lead to the bankruptcy of Suntech under Kaplan’s new risk management and risk categorization
framework. A conclusion that the broader strategy of booming economy should be oriented in the healthy
enterprise-growth based approach is introduced at the end of the paper.
Keywords: Suntech Wuxi Government-Industry Relationships in China System Risk
A Lighthouse “Angel Investment”: Wuxi’s
Case for Suntech
A number of industry observers and journalists have sug-
gested that the Chinese government’s support of the PV indus-
try was part of a broader strategy to boom star industries, such
as re- newable energy, TMT, biotech, etc. However, looking at
how the PV industry grew in China and how this growth was
managed, the idea of a grand scheme overestimates the Chinese
state’s executive capabilities. Furthermore, it is far too simplis-
tic because it does not consider the difficult power relationships
and competition between Chinese regions and private actors.
The reality of industrial development in China is much more
complex and the central government’s capability to oversee and
influence local decision making should not be over-estimated.
The way Suntech’s relationship with the Wuxi local govern-
ment evolved over time indicates how the Chinese specifics
provide good opportunity for growth, yet at the same time also
entail very specific risk characteristics.
In regard to the development of an advanced industrial base,
Chinese cities and provinces are in a stiff competition against
each other. The competition reaches down to the level of giving
direct support to individual companies (Steven, 2009). One ty-
pical program is the city of Wuxi’s Young Talents Program. It
proved to be effective. When in 2000 Suntech’s founder, Zhen-
grong Shi, began to look for opportunities to start a company in
China, he was introduced to this program through Zhang Wei-
guo, a manager of the local government-owned Wuxi High-
Tech Venture Capital who funds Dr. Shi provided 2 million
which includes a 1.6 million technology-joined stock along
with 8 major local SOEs facilitated the rest 75% original stock
for the company’s formation. This was the beginning of Wuxi’s
relationship with Suntech. The development approach that
Wuxi pioneered, local SOEs directly provided equity capital
and local government led in support fund, bank loans and pro-
duction factors to promising companies, became known as the
Wuxi Model.
In the years after its incorporation in 2001, Suntech success-
fully ramped-up production. However, sales were unsatisfac-
tory and the local government had to infuse liquidity into the
company. It did so in 2003 and 2004 by signing two loans of
RMB 50 million and channeling RMB 40 million worth of sup-
port fund to Suntech (Xiao Liu, 2012,
When former Premier Wen Jiabao in 2005 introduced the
11th five year plan to the public, he explicitly stated that the
commercialization of renewable energy industries is a key area
of development. The announcement coincided with accelerating
growth of the international PV markets, especially in Europe.
For the local government of Wuxi, a city in Jiangsu province,
this was the starting call to improve the city’s positioning with-
in the solar industry. Local officials saw showing clear support
for the new plan as beneficial to the local economy and poten-
tially their future career prospects. Setting quantifiable goals for
local government officials is an important tool for China to
align regional and national aspirations. Once an official beats
the benchmark numbers assigned to him, the official would be
recognized as a strong leader in booming local economic and
might expect a promotion within the state system. Due to the
importance of this process for the future career, aspiring offi-
cials are highly compelled to beat the numbers with virtually
any means at their disposal. Often, the race to deliver the right
numbers by individual local officials is in disregard to any
long-term consequences because the risk of being reprehended
for a past decision is very low.
Also, they expected that creating a success story in Wuxi
could kick-start the development of a local PV chain industry,
further creating jobs and tax income. Suntech was eventually
identified as an optimal target for government support. It read
like the right story for future success. The idea of Suntech as a
lighthouse investment was born; international private equity in-
vestors replaced the state-owned shareholders. It was designed
to be a private-industry success story.
Lopsided: A Partnership Just for Sunny Days
With support of the wuxi government, Suntech was listed at
the New York Stock Exchange by the end of 2005. The public
support for the company was seen as a risk-limiting factor that
attracted the private investors. The move seemed to be benefi-
cial to all parties involved: The investors could multiply their
investments, Suntech raised about $400 million for further ex-
pansion and the government had a success to show for Yi, D.
(2005) Suntech continued to expand in all directions: Produc-
tion capacity, international presence and acquisitions of other
technology companies. Between 2006 and 2011, the number of
companies in the Jiangsu PV sector grew more than ten-fold,
from 100 to 1100. Suntech was seen as a successful catalyst for
the growth of a whole industry (21 Century Business Herald,
The sunny days continued throughout 2007, before the stock
peaked in December 2007 and lost over 50% of its value in the
flowing months. The stock price decline reflected the looming
problems overshadowing Suntech’s future:
1) The Wealth Effect—Other provinces copied the Wuxi Mo-
del on a dramatic scale. The number of domestic competitors
exploded. Private capital was mobilized as well.
2) Economic Stimulation Policy Influence—State-owned en-
terprises could also move into the sector. These companies were
able to take on loans at an extremely low rate from state-owned
banks because of the economic revitalization program introduc-
ed in 2008.
3) High dependence on exports—The economic crisis caused
a decline of international sales and the risk of trade conflicts be-
came evident with the EU and US governments implementing
import tariffs in 2010.
The relationship between Wuxi and Suntech changed. Where-
as in the early years the goals and perceptions of the future were
closely aligned, the crisis caused a break and a growing mis-
alignment between the two parties. While Suntech saw the need
to slow down the expansion in light of the imminent market cri-
sis, the government turned to pushing Suntech forward to keep
up its fast expansion, ignoring the market development. The go-
vernment didn’t realize Suntech has become a global company
which is responsible for international investors’ benefits. The
government’s influence in the earlier stage of forming Suntech
as a super angel investor and the channel of venture capitals,
should be withdrawn when it was listed on stock market. The
supervision role of Suntech should have been transferred to in-
ternational investors.
For the relationship of Wuxi and Suntech, the rainy days had
begun. Sources involved in the process indicated that Wuxi was
able to continuously influence the decision-making of Suntech
towards further expansion. Also, at that time the government
did not yet further investigate reports of Suntech’s unusual bu-
siness practices or might ignored it intentionally because Sun-
tech has became “too big to fail”. On the other side of the table,
the Suntech management knew that if they can keep a working
relationship with Wuxi, the city would be compelled to reign-in
once financial troubles arise from the crisis that the manage-
ment knew was on the horizon. Wuxi’s ongoing commitment
was seen by the company management as a protection from the
huge gamble Suntech engaged in.
A good example for the increasing distance between govern-
ment and company goals occurred in 2011. Suntech’s finances
already were limited, nevertheless the local government pro-
posed a “five years recreating Suntech” target. The target re-
quired Suntech to create 50,000 additional jobs within a certain
time-frame, on land provided by the government. To that date,
Suntech had about 20,000 employees in total. Meanwhile, Sun-
tech management is presumed to involved in related transaction
with Asia Silicon Co., Ltd. (BVI) in 2013, a Qinghai province
based polysilicon company whose major shareholder is recog-
nized as Dr. Shi.
Unclear Boundaries: Suntech’s Risk Factors
The Suntech bankruptcy is recognized as a combination of
many complex reasons: shrink of market, the change of foreign
PV policies, overfunctioning of local government, management
immorality, etc. This ambivalent power relationship with its un-
clear boundaries between government and private sector inter-
ests creates a number of problems: Perverse incentives and
missing risk management played the key roles in creating the
massive oversupply in the market. Under Kapla n’s new risk ca-
tegorization framework, Suntech bankruptcy could be listed in
three risks categories: external risk, strategy risk and interior
risk (Robert, S. K. & Anette, M., 2012).
External Risk
External risks are risks arising from outside the company
which the company cannot prevent from occurring, the com-
pany management could identify and mitigate these events to
prevent the damage to the company. Sources of these risks
include major economic, political events, as well as natural
Start from 2004, major countries such as US, Germany, Spain
and Italy carried out policies favorable for the global PV Indus-
try. However the emerge of financial crisis crashed down the
PV industry, trade protectionism aroused in US and EU in the
name of anti-dumping and anti-subsidy which breached the
oversea market of Chinese PV companies including Suntech.
US subsidized its renewable energy industry of 25.2 billion
USD in the year of 2009.
In China, risk management is in a poor state caused by the
lack of institutional memory. Perverse incentives are created if
the government’s quantitative goals and policies are not design-
ed very careful ly. During the early stages of the market’s rapid
expansion, the goal-setting by the national government and the
Wuxi administration both worked in Suntech’s favor. It provid-
ed the company with the necessary means to file for a public
offering and to develop into a global leader. However, largely
because of Suntech’s impressive success, the incentive system
started to work against the company. The number of competi-
tors equally supported by other local governments rose quickly,
creating the unsustainable overcapacity that crashed the market.
Because officials will be posted to a specific position at a local
government for a limited time only, and are measured using
external benchmarks, they often do not have meaningful incen-
tives to create long-lasting structures in their institutions. These
structures would offer little or no immediate benefit to their
Open Access 85
Open Access
often aggressive growth agenda and are of low priority.
With its constant pressure on Suntech to expand, the local
government increased the company’s exposure to market risk.
When the risks became real and Suntech’s bankruptcy was
threatening the local industry and social order around Wuxi, the
government had to come out and capture what is left of Sun-
Strategy Risk
Strategy risks are risks which company voluntarily accepts
based on the company’s performance and strategy, which might
generate a better performance and potential return. Risk-mana-
gement system is a key part in operational process of modern
entrepreneurship. Companies are supposed to identify and re-
duce the probability of the assumed risks to improve the com-
pany’s performance. Strategy risks include shifts in production,
market strategy, business model, corporate finance, improve-
ment of management team.
In the case of Suntech, it became a global competitor through
production-line capacity expansion, oversea market expansion
and diversified productions to take risks in order to capture po-
tential gains. The expansion of Suntech was however too ambi-
tious without careful goal-setting: its production-line capacity
increased 54 times from its first production-line put to opera-
tion in 2002 to 2007, which might took some companies 30
years. Meanwhile, Suntech completed 5 - 6 corporate market
expansion by signing long-term raw material contract, setting
up oversea offices, M&A with foreign PV companies.
Interior Risk
The internal risks which arisen from within the organization,
are controllable and ought to be eliminated or avoided. Exam-
ples are the risks from employees’ and managers’ unauthorized,
illegal, unethical, incorrect, or inappropriate actions and the
risks from breakdowns in routine operational processes. To be
sure, companies should have a zone of tolerance for defects or
errors that would not cause severe damage to the enterprise and
for which achieving complete avoidance would be too costly.
But in general, companies should seek to eliminate these risks
since they get no strategic benefits from taking them on. A
rogue trader or an employee bribing a local official may pro-
duce some short-term profits for the firm, but over time such
actions will diminish the company’s value.
Comparing with major PV companies in EU and US, the
management of Suntech has not build up long term corporate
strategy and its interior risk exposed. The founder Dr. Shi is a
scientist background entrepreneur who might has limited
knowledge of corporate management and somehow has a strong
will of controlling Suntech. The management also realized its
poor corporate management by introducing new individuals
who have major multinational companies into the company
however the relationship between Dr. Shi and the management
collapsed. In an interview of him, he also said he would prefer
to be named as an “adventurer” rather than a “scientist” or “en-
trepreneur”. Before the Suntech bankruptcy, Suntech manage-
ment is presumed to involved in related transaction with Asia
Silicon Co., Ltd (BVI), a Qinghai province based polysilicon
company whose major shareholder is recognized as Dr. Shi.
In China’s wide reaching and expanding state sector, the cen-
tral government makes intensive use of quantitative benchmarks
to match regional officials’ policy-making with national goals,
short-term solutions improve these benchmarks outweigh long-
term approaches. The government has still to learn how to bet-
ter integrate market-based approaches in their planning frame-
work. Until a change in these practices, the risk of unsustain-
able growth experiments will continue to exist.
In many cases, the existing model worked well and single
company success stories could kick-start an industry. Yet, as
was the case with t he PV sector, the problem is to define reaso-
nable funding levels and clear policies. Public funds were mis-
allocated, directly damaging the industry they were supposed to
support. This is mainly because of the strong direct influence
that local Chinese officials have on their region’s economic and
social development. The government should push market-eco-
nomy based instruments within a clear and transparent frame-
work to enable a balancing of supply and demand.
Steven, N. S. C. (2009). The economic system of China.
Yi, D. (2005). Suntech: The triple-jump capital legend. China Business.
Liu, X. (2012). Anbang: The dilemma of Suntech and LDK S ol a r .
21 Century Business Herald (2012). PV self-defense war of Jiangsu:
300 PV companies facing reshuffle.
Robert, S. K., & Anette, M. (2012). Managing risks: A new framework.
Harvard Business Review.