Beijing -- After heated expansion, China's once red-hot solar industry is feeling the chill. The possible establishment of new business partnerships amid a recent wave of supportive government initiatives, however, may raise the industry's chances for recovery.

LDK Solar, based in Central China's Jiangxi province, is one of the world's largest producers of solar wafers. With its net losses almost doubling in the second quarter and a debt ratio of 93 percent in the first half, the company has chosen to sell 19.9 percent of its shares to a State-backed company.

The deal will generate an immediate $23 million and help deal with tight cash flow, said Sam Tong, LDK's president and chief operation officer.

The Chinese market has been filled with speculation regarding possible moves to be made by other solar companies, including Dongying, Shandong-based CNPV and Suntech Power, the world's largest maker of solar cells.

Overcapacity

After a wave of investment, many Chinese photovoltaic manufacturers idled production in the second half of 2011 because of severe overcapacity, according to the China Photovoltaic Industry Alliance, a trade group.

In an extreme case often cited by industry observers, Langsha and Bosideng, companies that made their names in China manufacturing apparel, announced plans to enter the solar power industry several years ago.

"When demand for solar panels skyrocketed prior to 2008, production of polysilicon, a key component, snowballed in China with nearly 300 billion yuan ($48 billion) pouring into 43 newly-established enterprises," said Zhu Gongshan, chairman of the trade group.

"But 2009 came and the price of polysilicon took a deep dive. Over 30 enterprises were forced to stop production within just one year of being established," Zhu said.

Adding to the industry's woes, the European Union in September brought its biggest ever trade case against China, alleging that the country has dumped solar panels in Europe.

This month, The US Commerce Department also decided to impose heavy tariffs on Chinese solar panels.

"Until now, China had no home market. The Chinese module industry had to export all its production," explained Wolfgang Palz, chairman of the World Council for Renewable Energy and a former adviser to the European Union Commission on renewable energy.

"Thanks to the dynamism of the Chinese PV module industry, prices have come down so much that PV is progressively getting economically competitive on the markets," Palz said.

Inadiquate support

In stark contrast with allegations by Western competitors that Chinese companies have been granted so many privileges by the state that they are able to "dump" products in developed countries, many industry insiders have complained of inadequate support and policy hurdles within China.

The ten largest solar companies in China have accumulated a total of $17.5 billion in debt, according to numbers compiled in August by the Maxim Group, a US-based investment bank.

"Seeking approval is complicated and takes considerable time. This hurts investor enthusiasm," said Shi Zhengrong, founder and executive chairman of Suntech.

After signing a contract in 2009 to invest in a solar power plant in Aula county in Northwest China's Qinghai province, it took Suntech two years to secure the necessary government approval and proceed with the project.