Chinese Government Offers Money to Speed Up Solar Consolidation?

There are too many silicon wafer makers in China, and the government doesn't want to wait for natural market forces to trim the flock.

That’s the gist of a Friday post from the Taiwanese news site DigiTimes, which reported that the Chinese government plans to give 2 billion yuan ($291 million) to “each of the leading makers to facilitate such mergers.�

The brief post cited unnamed sources and didn’t explain what qualifies a company to be considered a “leading maker� of silicon wafers. The wafers are used to make solar cells, which are then assembled into panels that you see on rooftops today.

Apparently, the Chinese government isn’t satisfied with providing money only. It wants to offer business strategies as well. If the so-called medium or small silicon wafer makers want to remain independent, then they should still let those “leading makers arrange their production and shipments,� according to the DigiTimes. 

By the way, Chinese solar company Yingli Green Energy (NYSE: YGE), which makes silicon wafers and solar cells and panels, just bought a Chinese silicon maker for $77.6 million. This move would allow Yingli to control the raw material supply for making the wafers. Fellow Chinese silicon wafer maker LDK Solar is aiming to do the same by building its own silicon factories.

Analysts and companies have been predicting an oversupply of solar components worldwide in 2009.  Large solar panel makers such as Suntech Power in China and SunPower in the United States are expecting a 10 percent to 30 percent drop in their panels’ prices this year.

So naturally, people are expecting more mergers and acquisitions across all segments of the global solar industry.

The Chinese government might do more for its domestic solar companies. Jenny Chase, the lead solar analyst at New Energy Finance, said the government might launch solar installation initiatives to help absorb the high number of solar panels that are expected to come out of factories.  

Those who like to gripe about how government subsidies hamper the natural selection process in the marketplace will not be happy with this move by the Chinese government.

They will say the U.S. companies can’t compete fairly when China and other countries intervene to boost their entrepreneurs’ survival in a tough economy. They made the same point about the semiconductor industry two decades ago, and they are making it again about the car battery business now.

No worries. The U.S. government is here to help out, too. It’s been a generous giver lately having set aside $700 billion to bailout the financial industry and by providing $17.4 billion in loans to General Motors and Chrysler. Meanwhile, more business groups have lined up to ask for government help.

President-elect Barack Obama has vowed to double the country's renewable energy generation in three years and create three million jobs (not just the green ones).