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The Week in Solar: 'Too Big To Fail' Moment Arrives for China

The Wall Street reports have been surfacing since January predicting that China will exceed expectations this year, and some of this Chinese solar demand bullishness had been responsible for a more encouraging view of the solar market coming off 2011 lows. These reports received one more boost with the German hard line on solar.

Will China overnight become the largest solar market in the world?

The answer is, it better. China has no choice. After years of shrewdly living off the solar incentive schemes in Europe, led by Germany, as a way to fund very profitable solar manufacturing enterprises without needing to stimulate its domestic solar growth, the Chinese solar monster has nowhere to turn but China for immediate growth.

Yes, the U.S. is growing, and so is India, and in North Africa and the Middle East and across the globe there are markets where in the years ahead solar will be economic without any subsidy support. But as far as 2012 is concerned, Chinese solar companies are on a fast boat back to their home country.

"China is not doing anyone else a favor, it's doing itself a favor by rescuing an industry because of the stake it has in it. China has taken solar as one of 7 industries to subsidize hell or high water," says Auriga Securities analyst Hari Chandra.

For investors, though, the question is not whether China finally gets serious about absorbing its own solar manufacturing output, it's whether that makes any difference to Chinese solar profits and as a basis for investment in the sector.

"The China rescue will be a social rescue, not a profit rescue. The government has to make sure these companies can function so jobs are not lost," said Chandra.

Throughout 2011, as the situation worsened for LDK Solar and its peers -- and as U.S. solar companies began slouching into bankruptcy, led by Solyndra -- the point was made by even the most bearish solar analysts that there is no such thing as true bankruptcy risk in a Chinese solar stock that has enough scale, like LDK. The rhetorical question that distinguished Chinese solar from Solyndra was this: "Have you been to LDK's facility. It's a small city!"

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