It used to take decades for whole industries to shift overseas. Not anymore. Solar panel manufacturing is moving to Asia, and Chinese and Taiwanese companies especially are the beneficiaries--thanks to their low cost of production. Now come reports that the Chinese government is extending billions of dollars in loans to domestic firms, making life even tougher for U.S. competitors.

Suntech will reportedly get a loan of $7.3 billion from the state-run China Development Bank while Trina Solar, not so long ago a marginal player, will get a hefty $4.4 billion in funding. "It marks a dramatic bump in funding for the China solar PV [photovoltaic] industry," writes Deutsche Bank analyst Steve O'Rourke. "China considers solar PV and broader renewable energy as strategic."

The loans will likely help the companies move from pure manufacturing operations into what many perceive to be a more lucrative long-term strategy: planning, financing and building large-scale projects for utilities and commercial customers. China has an extra incentive to fund such activities since the industry expansion will create jobs and help the nation move toward its renewable energy goals.

While the loans, if confirmed, would be good news for China's industry and (possibly) its environment, it's bad news for U.S. firms like Evergreen Solar, SunPower and Energy Conversion Devices. Plummeting prices recently erased the remaining efficiency advantages of many Western producers, which are themselves moving manufacturing to Asia.

Subsidies in the West can lure some manufacturing back. Canadian Solar--which makes silicon wafers as well as solar panels and had $664 million in revenue last year--currently does all its manufacturing in China and sells to customers in Europe and North America. But in order to be eligible for feed-in tariffs in the province of Ontario, Canada, 60% of the manufacturing has to be done in the province. So Canadian Solar announced in December it would build a solar panel manufacturing plant somewhere in Ontario. The specific location hasn't been disclosed, but the company said the plant would generate 500 new manufacturing jobs.

These sorts of moves don't lessen the competitive pricing edge that Chinese solar firms currently have. But Mike Miskovsky, general manager for Canadian Solar's U.S. division, says low price alone doesn't guarantee market share. "More important is the best value per dollar spent on a watt," he says. If cheap panels don't generate as much electricity as slightly higher-priced panels, they are not as attractive. Miskovsky points to PTC ratings, which are derived from testing solar panels' performance in real world conditions, as a better guide than simply price per panel.

Nevertheless, an ongoing glut of raw materials--namely silicon--seems to ensure that the race to the bottom will continue for some time. The average price for solar panels dropped from $4 a watt to $2 a watt last year as silicon prices fell. In addition, generous U.S. government subsidies are slated to wind down at the end of this year.