Can a Fast-Expanding Market Sustain with Supply-Side Government Aid? An Investigation into the Chinese Solar Photovoltaics Industry

The Solar photovoltaics (PV) industry is a policy-driven business, where political decisions considerably influence potential market take-off or decline. This is particularly true for China. From 2006 to 2010, the annual growth rate of the solar panel output approaches or exceeds 100%, with financial aid from the government to the suppliers. Despite the prevalence of supply-side aid, its actual impact on this fast expanding market development is debatable. We focus on 75 Solar PV companies from year 2005 to 2012 to obtain 249 observations, and investigate how government aid received in the form of bank loans and direct subsidies influences their performance. Our empirical results suggest that supply-side government aid does help improve scale efficiency to a limited extent, but can barely help with the technology efficiency. In the long run, we find supply-side aid leads to diseconomies of scale and hence, low efficiency and profitability.