Downturn

In the US, where 40 percent of solar installations use Chinese panels, supply would be hit with significant disruptions, adds Shayle Kann, managing director of GTM Research, a market research company in Boston.

Indeed, a victory for the US complainants may fall short of its goals. Just as trade sanctions against Japanese semiconductor makers failed to save the industry in the United States several years ago, onerous tariffs will likely lead Chinese solar companies to change strategies, without any benefits trickling to US rivals, says Jesse Pichel, senior research analyst at US investment bank Jeffries & Co in New York City.

For one thing, Chinese companies can follow the lead of their country's biggest players - Suntech, Yingli, Trina Solar and LDK Solar - and set up their own sites in North America, as well as low-cost countries around the globe.

What's more, points out Noam Lior, mechanical engineering professor at Penn, "The US isn't China's only customer. They can sell to Indonesia, South America and others."

As concerning as the trade dispute may be, there's perhaps an even greater threat to China's solar industry - plunging global prices and demand.

"The industry now is facing a cyclical downturn," says Pichel. "Demand is stalled, because prices keep coming down so much that people want to wait before buying."

With costs falling by more than half over the last two years, global demand for PV cells jumped 165 percent from 2009 to 2010, but it is expected to rise only 9 percent this year, and 4 percent next year, according to Pichel.

Today, supply outstrips demand by two to three times, which is typical of new industries, he says. There's also the financial crisis fallout - notably, subsidies to the sector have dried up in austerity-riddled Europe, which accounts for 70 percent of the market.

Chinese companies are scrambling to prevail in this market. "The year 2012 will be a very difficult one for survival," says Stephane Dufrenne, chief technology officer of Upsolar Group in Shanghai.

Adapted from China Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. To read the original version, please visit: http://bit.ly/sWl4rr