Keith Bradsher of the New York Times reports that China’s Suntech Power Holdings, one of the world’s largest makers of solar panels, was declared bankrupt on Wednesday:

Suntech was the Icarus of the solar panel industry, with production that soared year after year on heavy investment, as Western investors bought up its New York-traded shares and its international debt issues. Part of a massive Chinese government effort to dominate renewable energy industries, Suntech grew to 10,000 employees in its hometown of Wuxi and even set up a small factory in Arizona to do further assembly of panels there.

But a 10-fold expansion of overall Chinese solar panel manufacturing capacity from 2008 to 2012 produced a three-quarters drop in solar panel prices, undermining the economics of the business. Rapid expansion of natural gas production in the United States and a curtailment of subsidies in the European Union also hurt solar panel prices, as did an American imposition last year of import tariffs totaling about 40 percent after an anti-dumping and anti-subsidy investigation.

…

The Chinese banks quietly asked a court on Monday in Wuxi to declare the operating subsidiary, Wuxi Suntech, to be insolvent and begin restructuring it. The operating subsidiary notified the court on Wednesday that it did not object to the insolvency petition.

Suntech Power, the parent, said that it was not filing for bankruptcy and would continue to honor warranties on the company’s solar panels.

The Economist claims that while Suntech did fall victim to the circumstances of the solar industry’s rapid rise and painful fall, other factors played a role in its demise:

However, Suntech and Mr Shi also have plenty to answer for in this sorry tale. There are accusations of mismanagement, as well as worrying suggestions of financial impropriety. China Daily, an official government publication, suggested that the company got in trouble in part because “a business partner faked $680m in collateral for a loan Suntech had guaranteed.” Mr Shi and Suntech have denied any wrongdoing.

What is undeniable is the fact that Suntech over-expanded, including into expensive manufacturing facilities in America, at precisely the moment it should have reined in its ambition. Some hope that it will use its bankruptcy filing to reorganise and emerge in slimmer shape. However, the board’s recent ouster of Mr Shi from the top job, and the ongoing bitter wrangling among all involved, hardly inspires confidence that the company will see better days any time soon.

What next? If past experience is a guide, China’s leaders may not allow the world’s largest solar bankruptcy to tarnish their ambitions of becoming a clean-tech powerhouse. Nor will they likely let its financial troubles lead to unrest resulting from massive sackings of workers. Unconfirmed rumours are swirling that the local government in Wuxi is already organising some sort of bail-out. One thing is for sure: even if a rescue package is organised, foreign investors are going to lose a packet.