Deutsche Bank stirred up a lot of dust with its latest projections of the Chinese solar industry in 2014. Some of the analysts consider them too optimistic, or even exaggerating, but analysts in Deutsche Bank are convinced that they are right when they say that the world is about to see the second golden rush, and that one of the three driving markets would be China.

And indeed, when we take a look at profit margins by China-based companies, DB's forecasts do not look that much off. That is, Yingli Green Energy Holding (NYSE: YGE) will post its first profit since 2011 as early as next quarter, as Chief Financial Officer Wang Yiyu recently reported. Trina Solar (NYSE: TSL) and JinkoSolar Holding (NYSE: JKS) have returned to profit, while Canadian Solar Inc. (NASDAQ: CSIQ), which has most of its manufacturing in China, posted its first quarterly net income in more than two years in November.

DB analysts say that, unlike the last golden rush, which came from subsidies, this one will be based on three elements: ongoing low system prices, more robust financing and the looming absence of subsidies.
Ongoing low system prices are nothing new to China, but robust financing and absence of subsidies? Well, maybe these are the reasons why the Chinese, this time around, are pretty uncertain about last year's positive results.

One of the biggest problems the Chinese solar industry is trying to solve these days is specifically the financing model. There are, of course, discussions on mainly American models of financing, such as Solarcity or Yieldco, but these talks are still limited to academic discussions, while the Beijing government is trying to find a way for financing either through government subsidies or banks. As one of the solar producers told Southern Weekend recently, the return investment period is too long for the Chinese banks, when it comes to crediting solar companies in China. Furthermore, besides China Development Bank, there are virtually no banks that are willing to get into this game – first and foremost, because of the experience they went through during the years of the market crisis; and second, stimulating policies that the Chinese government recently issued mostly focus on distributed system and retailers, and they have trouble predicting their profit, due to the huge administrative labyrinth that awaits them on the road of installation. Although most of these problems have yet to be solved, China-based companies like Trina Solar (NYSE:TSL) or JA Solar Holdings (NASDAQ: JASO) are optimistic, as they see more bank activity toward the new energy sector.

Banks are more active because the government is backing the development of renewable energy to cut emissions and ease smog problems, said Xie Jian, president of Ja Solar Holding, in a recent interview for Bloomberg. Xie was probably referring to investments like RMB 980 M in Shunfeng and its projects in the Xinjiang area. These investments are part of the attempts to ease the financing of the solar and new energy sector, which is actually the financing model that Beijing policy makers used to cope with the last crisis and trade wars with the USA and the EU. Beijing plans to invest a total of RMB 7.87 B. Still, despite Beijing's active policies, some high officials predict that it will take another two to three years before concrete solutions are drafted, which made some producers, like Yingli and Trina Solar, avoid loan financing models through developing a project and selling it to the investors, while retaining a small share in the project.

Chinese manufacturers are also cautious this time. Of course, they started to prepare for the second wave of expansion. As Chinese media recently reported, in Zhejiang and Jiangsu provinces, the main component producers in China and the main focus of Chinese government subsidies (Jiangsu will receive 1.3 GW of quotas, and Zhejiang 1.1 GW), which were hit most by the recent crisis, factories are still quiet, and no one is in them. It seems like the crisis is still living there. But this is only an illusion. The fact is producers are waiting for the New Year's celebration to be over, so they can start expanding. Information that proves that the market is getting prepared for another boom involves the prices of second-hand machinery. For example, as Southern Weekend magazine quotes, cutting press prices rose from 10.000 RMB to 60 or even 70.000 RMB this year. Some of the manufacturers were even going to South Korea and Europe in search of second-hand machinery, because second-hand machines are getting scarce again. Although it seems that everything is back in business, and that we will witness yet another wave of solar speculations, some of the Jiangsu and Zhejiang manufacturers warn that this time around it is different insomuch that people who survived the crisis are more cautious these days.
Purchase orders are not as clear as before. There is less clarity in orders and projections. Everything is vaguer than before, because people are not certain how things will go this time, said one of the Jiangsu manufacturers.

So, this brings some optimism among investors, as well as manufacturers, that the market will not be blown out of proportion again – especially since manufacturers from the abovementioned Jiangsu and Zhejiang were praised for their model of small but stable companies, which helped them to keep their business even during the crisis, and brings us to the third element: the looming absence of subsidies. The Chinese government recently issued a document on terms for PV manufacturers, which stipulates that only companies with more than 150 MW of capacity will get government support. The government defends its decision by quoting international standards, which are much higher than the Chinese ones. The problem is that, just in Zhejiang, 80% of these companies do not comply with these criteria, which means that the banks will be more reluctant to finance their projects. The same problem might occur in Guangdong province, too. The Ministry of Industry and Information claims that filling the market with small and middle-size players might be bad for the good players, and more importantly, that small and middle-size companies do not have the means to invest into R&D.

But, while the central government has shown that it has started to learn from lessons from the last crisis, what many fear are the local governments who, pressed by old tax legislation and new legislation controlling land and real estate sales and purchase, are always on the lookout for new ways of investing money, and who are most to blame for the last crisis. In other words, did they learn their lesson? The Ministry of Industry says that they have learned their lesson on not interfering with the market, but that they are also aware that they cannot leave everything up to the market. As one official from the Ministry said, they now know what not to do, but are still exploring what to do.

Deputy CEO of Zhejiang PV company Astroenergy, Lu Chuan, said that this recovery is a strategic one, and not a structural one. The State Energy Bureau and Bureau of New Energies are also skeptical, and warn that it is still too early to analyze recovery.