By Charlie Zhu,

HONG KONG (Reuters) - Three quarters of China's solar-grade polysilicon producers face closure as Beijing looks to overhaul a bloated and inefficient industry, resulting in fewer but better companies to compete against Germany's Wacker Chemie AG and South Korea's OCI Co Ltd.

The polysilicon sector, which has around 40 companies employing 30,000 people and has received investment of 100 billion yuan ($16 billion), suffers from low quality and chronic over-capacity as local governments poured in money to feed a fast-growing solar panel industry, for which polysilicon is a key feedstock.

Demand for solar panels has eased since the global financial crisis, forcing governments worldwide to slash solar power subsidies, and leaving China sitting on idle capacity and mounting losses. To help prop up the solar industry, Beijing plans to more than quadruple solar power generating capacity to 35 gigawatts (GW) by 2015 to use up some of the huge domestic panel glut. It has also said it will accelerate technological upgrades in polysilicon to weed out inefficient producers and "nurture a batch of internationally competitive producers."

People in the polysilicon industry say the moves will halve China's production capacity to 100,000 metric tons (110231 tons) a year, leaving around 10 relatively strong firms with better technology and cost efficiency.

"Most producers will be eliminated rather than acquired. This may sound cruel, but is the reality as they are technologically uncompetitive," Lu Jinbiao, a senior official at China's top polysilicon producer GCL-Poly Energy, told Reuters.

The challenges mirror those faced by much of China's manufacturing sector, from cement and steel to shipbuilding - local governments chasing jobs and economic growth over-invested in often high-cost, low-tech capacity in the mid-2000s when demand for solar panels was booming. That boom is now over.

"Large amounts of ineffective, high-cost production capacity will exit the market," said Ma Haitian, deputy secretary general of the Silicon Industry of China Nonferrous Metals Industry Association, a Beijing-based industry lobby.

PRICE SLUMP

As smaller polysilicon producers, with average annual capacity of a few thousand metric tons, are pushed out, the likely winners will be larger producers such as GCL Poly, TBEA Co Ltd, China Silicon Corp and Daqo New Energy Corp. The shake-out is already underway as polysilicon prices have plunged to below $20 per kg from a 2008 peak of almost $400, forcing some producers in the northwestern province of Ningxia and eastern China's Zhejiang province to file for bankruptcy.

Their plight is made worse by cheaper, and better quality, imports from producers such as MEMC Pasadena Inc and Michigan-based Hemlock Semiconductor Group - a venture of Dow Corning, Shin-Etsu Handotai and Mitsubishi Materials Corp - and Norway's Renewable Energy.

Of the 69,000 metric tons of solar-grade polysilicon China consumed in January-June, 41,000 metric tons were imported, according to industry >Update:

@ Dog Lover, Thanks to the answer which only shows CCP is ignorant in a lot of things, business, investment, return on investment, market study, research, just to name a few. CCP does not need to know anything because they're holding the supreme power to do and waste whatever taxpayers money they desire.

Going into any venture or project hastily without thorough knowledge nor research that ended up dumping tons of taxpayers money into the drain like China's solar industry does is no responsible government could afford. But we all know CCP is one of the most irresponsible governments on earth, rather wasting tons of money on uncompetitive SOE trash than spending a few thousand Yuan to dig wells for the mountainous poor people.

in many "Ameri-west" countries do and preventing corruptions as happening in India and the Philippines, a lot of good independent agencies and watch-groups needed set up in all levels of a policy execution to supervise that no person is acting agaisnt the rule and law.

For instance, a suspect in democratic countries cannot be detained for more than 36 - 48 hours, the suspect's rights of calling home, lawyer and food/water/sleep are allowed, police is not allowed to use force nor threats to get information from the suspect, so forth. If any of the above is violated independent agencies' investigations will be stepped in.

CCP's rants that one-party dictatorship is most suitable for China and that Chinese people are corrrupted for centuries are LIES and WRONG. These are merely excuses to justify CCP's horrible corruptions and inhuman rule. From Hong Kong, Singapore and now Taiwan's, the world sees that democracy and anti-corruption can work just fine amon

to split up and balance the 3 legs of power along with the independent watch-dogs, no police nor courts in China dare go after Xi Jinping's corruption.

As long as the very top leader remains corrupted, all the staff below him will just follow suit.

Kicking out corrupted leaders or the CCP is not enough. Most important task for China is to set up a good democratic system with divisions of balanced power and good supervisory systems with one watching closely the shoulders of the other, and whereby no one person nor small group is holding all the power like the current CCP does, otherwise whoever sits in the elite clan will just be repeating what Mao, Deng, Jiang, Hu and Xi been doing. The current one-party dictatorship lacks supervisory enabling the CCP elite clan hold onto the supreme power to grab and do whatever the clan desires.

CCP has been sending staff to learn HK's ICAC, anti corruption agency, for over a decade and still no desire to implement the system, the answ

the answer is too obvious. CCP corrupted dictators deliberately neglect a good supervisory system in its 64 years of rule.

Government should and must not involve in private enterprises and businesses which should be left to the experienced and capable entrepreneurs. Government's role should only be providing good laws, rules, regulations and a suitable environment for the industries to flourish, the rest leave to private businessmen. Government only should get a share of the businesses' profits through taxations and with the taxes collected help the poor and needies.

CCP's current role is a total shamble, the inefficient SOEs not only wasting huge taxpayers money and resources but where corruption lies.