When LDK Solar (NASDAQOTH:LDKYQ) announced an equity investment by an investment firm that was partly controlled by the government, it became clear that the consolidation phase in the solar industry may take longer than it should. Chinese banks have given billions in loans to Yingli Green Energy (NYSE:YGE), Suntech Power (NYSE: STP), and LDK to name a few, and the funding has propped these companies up. In fact, it's unlikely any of these companies would survive in a normal capital market, given their debt loads and low margins.
The impact has already been felt by companies going bankrupt in the past year. What should concern investors is the impact on companies such as First Solar (NASDAQ:FSLR) and SunPower (NASDAQ:SPWR), which have a fighting chance to survive the shakeout in solar. If China continues to fund unsustainable companies, these U.S. companies may not stand a chance.
Fool contributor Travis Hoium owns shares of SunPower. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend First Solar and Suntech Power Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.