Suntech's decision to declare bankruptcy was wise move

The decision by solar company Suntech Power Holdings Co to declare bankruptcy was likely a wise move, and it's now time for the local government to clean up the mess, experts said.

"It's a reasonable option for all the parties involved, including Suntech, the local government and its creditors," said an industry insider. "People don't know how much more money would have to be injected into the company to keep it afloat."

The company's debt is thought to amount to 7.1 billion yuan ($1.14 billion), owed mostly to nine Chinese commercial banks.

There are indications that the local government of Wuxi - a city in Jiangsu province where Suntech is based - will take over the debt from the company, a possibility confirmed by insiders.

"The local government might play the savior role, but it will definitely raise public doubts whether it's worthwhile to do so," said Ren Dongming, director of the Center for Renewable Energy Development of the National Development and Reform Commission's Energy Research Institute.

Shi Zhengrong, who was China's richest man in 2006, founded Suntech in 2000 and then served as its president. He resigned from the post in August.

Ren said that Shi may come back for the company's "bankruptcy reorganization" process.

"However, neither the local government nor any person can save the company if there's no market for its products," Ren said.

Zhou Weiping, the former president of Guolian Futures Group, was appointed president of Suntech on Wednesday, when the bankruptcy announcement was made.

"Zhou can help the company work out a good reorganization plan," said Li Lingxuan, an analyst of the new-energy industry at Zhuochuang Info Co Ltd. "More importantly, he can raise money in a short period through his connections."

Ren said that Suntech's bankruptcy should ring alarm bells for the whole industry, despite the series of policies recently carried out by the Chinese government to expand the domestic market by promoting distributed solar power generation projects.

"The government's target to create a 10-gigawatt domestic market this year will help the industry to some extent," said Gao Hongling, deputy secretary-general of the China Photovoltaic Industry Alliance.

But she added that the bankruptcy should also put emerging strategic industries on alert, because those companies face similar problems of haphazard investments and excessive production capacity.

China's solar panel manufacturing industry is heavily dependent on overseas markets.

Yet the country's major solar panel producers - including Yingli Green Energy Holding Co, Trina Solar Ltd and LDK Solar Co - decided to expand their production capacities to increase their market shares, which led to severe overcapacity.

Suntech's production capacity increased from 400 mW in 2007 to 1,800 mW in 2010, and the figure soared to 2,400 mW last year.

And following the trade probes launched by the United States and the European Union, China's solar industry was hit by high punitive tariffs.

"Most small-scale solar panel manufacturers have already stopped production due to the weaker demand," said Wang Sicheng, a senior researcher at the Energy Research Institute.