Leading solar panel maker Wuxi Suntech, a major subsidiary of the New York-listed Suntech Power based in the east China city of Wuxi, declared bankruptcy on Wednesday.

In accordance with China's Bankruptcy Law, the Wuxi City Intermediate People's Court on Wednesday approved Wuxi Suntech's filing for bankruptcy following a joint application issued by the company's nine creditor banks on Monday.

The company made no objection to the ruling.

Founded in 2001, Wuxi Suntech supplies more than 95 percent of Suntech Power's products. Wuxi Suntech's total production capacity reached 2.4 gigawatts (GW) last year.

As of February, Wuxi Suntech's credit balance of local and foreign currencies among its creditor banks totaled 7.1 billion yuan (1.14 billion U.S. dollars), a senior company manager said.

The banks said based on market rules and the law, since the outstanding loans have been overdue and the company did not render a feasible repayment plan, declaring bankruptcy will protect their legal interests and maintain social stability.

In order to revive the company, the banks also expect it to seek a third party for strategic reorganization, according to the manager.

One of China's largest solar module makers, Wuxi Suntech was founded in 2001 by Shi Zhengrong, a prominent solar power scientist. In 2005, Suntech Power Holdings Co., Ltd., or Suntech Power, was founded and listed in New York.

The liabilities of Wuxi Suntech reached 2.3 billion U.S. dollars, and the market value of Suntech Power dropped from 4.9 billion U.S. dollars in 2005 to 150 million U.S. dollars at present.

"The key reason lies in global overcapacity," said a member of the bankruptcy liquidation team, adding that the company was defeated in the fierce price war.

Qu Xiaohua, chairman of Canadian Solar, one of the world's largest solar companies listed on Nasdaq, said the bankruptcy of Wuxi Suntech was a dangerous signal of operational losses for photovoltaic (PV) companies.

"The company was a respected competitor. Their products are among the world's highest in both quality and performance," said Qu, adding that a series of bad decisions led the company to bankruptcy.

According to the bankruptcy liquidation team, the company signed long-term contracts with foreign polysilicon suppliers at high prices, leading to high materials costs. The company also invested tens of millions of U.S. dollars into developing thin film cells, which later proved to be another strategic failure contributing to the company's bankruptcy.

An official with the National Development and Reform Commission said the government may intervene in the reorganization, as the company currently has nearly 10,000 employees, but such assistance would be limited.

"The whole PV industry is downsizing. It is regrettable that the company went bankrupt, but it is a common market phenomenon," said the official.

The case has become a landmark for the Chinese PV industry amid the global economic downturn, industrial overcapacity and punitive duties levied by the United States and Europe, said Wang Bohua, secretary-general of the China Photovoltaic Industry Alliance (CPIA).

"Downsizing production capacity is painful, but I believe more competitive companies will arise in the coming years, thanks to booming domestic demand," said Wang.

To help companies stay afloat, the Chinese government rolled out measures last year to boost the domestic solar power market in order to wean the country's PV industry off its dependence on overseas markets.

The newly-installed capacity of energy generated by solar panels in China last year surged to 4.5 GW from 0.45 GW in 2010, and it is expected to exceed 6 GW this year. Endi