Sun has set on China’s bid to build solar economy

Only five solar power vendors remain in a space built for 170 at a sprawling complex of offices stacked three storeys high outside Xinyu city, Jiangxi province.

Locked doors and empty offices are what's left of the government's audacious plan to dominate the global solar industry. What happened in Xinyu is being replicated across the mainland, which used subsidies and US$47.5 billion of credit to wrest supremacy from Germany, Japan and the United States, saddling the industry with losses for at least two years.

"There is definitely a slew of smaller zombie companies out there that are going to continue to fall one by one," said Angelo Zino, an analyst at S&P Capital IQ. "You'll see 10 to 12 names here when it all shakes out. The remaining names will either go bankrupt or be consolidated."

Government support created manufacturing giants such as LDK Solar and Suntech Power Holdings and made them dependent on financial aid from local authorities. As the price of photovoltaic products recovers, those companies remain crippled with debt and overcapacity, leaving a return to profits over the horizon.

Beijing's backing for the solar industry has left at least one factory producing photovoltaic products in half of the country's 600 cities, according to the China Renewable Energy Society. Panel prices, even after gains in the past six months, are 60 per cent lower than in November 2010 and have forced into bankruptcy dozens of those companies, including the largest unit of Suntech, once the industry's biggest producer.

The market, known as Silicon Xinyu, was the first permanent trade fair of its kind in the country when it opened last year. Today, it's a ghost town, highlighting the unfulfilled promise following the country's investment in building its solar industry.