Boosted by policy incentives, cash injections, and an extended range of products, Shanghai Aerospace Automobile Electromechanical Co. Ltd (SAAE) is finding circumstances favorable for growing its new energy business.

The aerospace and military industries are once again market highlights, owing primarily to the need of many military industry firms to consolidate assets and resources.  At  the same time, many products formerly limited to military use have now become available to civilians, and many military groups have plans to strengthen such products.  SAAE holds a place as one of the most successful companies in this sector, owing to its ability to diversify its products while retaining their technological level, its entry into the new energy sector.

For the first time, in May 2006, SAAE's board injected 400 million Yuan (US$50 million) into its wholly-owned subsidiary, Shanghai Aerospace New Energy Development Ltd, which will serve as SAAE's platform for developing its new energy business.  By optimizing its new energy industrial chain and expanding its capital sufficiency, SAAE aims to transform its subsidiary into a leading player in its field.

SAAE also obtained 100 million Yuan (US$12.5 million) from its parent, China Aerospace Science and Technology Groups (CASC), to support the expansion of its solar cell production line.  The company's newly announced renewable energy policy states that research, development, and industrialization of renewable energy are top priorities.  In these circumstances, the company is expected to enjoy a favorable market environment and prospects.  Shanghai Solar Energy S&T Co Ltd (SSEC), in which SAAE holds 70% stakes, is China's largest solar energy product and production entity, and not only built the first 10-kilowatt solar power electricity generator on the mainland, but is also the largest production entity for solar power equipment with 10-megawatt output, accounting for more than 50% of China's total solar energy production capacity.  SSEC would use Shanghai Solar Energy's engineering center as its platform for optimizing its industrial chain, and invest in silicon, PV cells, modules and PV power station operations in hopes of achieving sustainability in its new energy business.

Before 2005, SSEC had basically adopted OEM in order to cooperate with Sharp, the world's largest produce of battery modules, to process and produce module parts.  Presently, its battery design has an output of 300MWp.  SSEC is now planning to invest 320 million Yuan over the next five years in setting up a first-class solar technology center, capable of producing modules and solar cells capable of 100 MW output.  The total annual turnover is projected to be 3 billion Yuan (US$375 million).

According to SAAE, the company is currently in talks with Sichuan Provincial Investment Group Co Ltd, major shareholder of Xinguang Silicon Technology Co, Ltd, to increase its overall investment in the silicon market.  Xinguang Silicon is expected to begin trial production in February, and complete trials on its entire production line in three months.  It is the first multi-silicon production project with more a production capacity exceeding 1000 tons, and is expected to start formal production in 2008, with an output of 4260 tons.  If SAAE can obtain more stakes in Xinguang, the company would be able to substantially improve its new energy business.  By then, it can enjoy the high gross profits of up-stream products, as well as low-stream products.

Currently, SAAE operates in four main areas: new energy, new raw materials, satellite applications, and automotive parts.  Several of these areas are also closely connected to the aerospace and military industries.  However, SAAE is also actively seeking opportunities in civil-oriented business.  It has jointly established a clean energy automotive system company with Shanghai Volkswagen United Development Limited and successfully entered the CNG clean automotive fuel system market.  This also allows SAAE to expand the application of its pressure vessel products to passenger vehicles.

SAAE is also trying its hand at investing in the financial sector.  It has acquired .74% stakes in Guotai Junan Securities at 34.74 million Yuan (US$4.34 million), and .94% stakes in Guotai Junan Investment management at 3.52 million Yuan (US$440,000).  Securities firms performed well in 2006, generating strong profits for SAAE.