The most impressive solar eclipse in China this week wasn't the one Beijing residents waited so long to see. . .

It was the solar stock market rally, where Chinese shares tripled the Dow's record pace.

Capital city dwellers came out to behold the longest total solar eclipse the Middle Kingdom has seen since 1814. Alas, the sky was too cloudy.

As I and anyone else who's visited Beijing during this time of year can tell you, you don't get a lot of blue-sky days.

But even though the eye could only strain so much through the haze to see the once-in-a-lifetime celestial wonder, a slew of Chinese and international investors got the treat they wanted from the Chinese sun.

And interestingly enough, skywatchers in Shanghai — home of the country's main stock exchange — had a clear view of the natural solar phenomenon.

Chinese Solar Stocks Shine Brighter

Let's take just one mainland Chinese solar stock as an example. Here, we see American Depositary Receipt (ADR) shares of Suntech Power Holdings Co., Ltd. (NYSE:STP) in blue vs. the Dow in red:

After lagging behind the industrial benchmark for months, STP has absolutely crushed the blue chip index recently.

To find out why, let's start with the bigger market picture. The Dow is above 9000 for the first time since January. That's great for bulls, but it doesn't make a lot of sense.

A positive earnings surprise in the midst of a major economic lull is something like the day the school bully stays home sick.

It's a nice break from the normal shakedowns, and your step may lighten, but you know in the back of your mind that you'll have to cough up more lunch money as soon as the bully returns to the playground.

Wall Street estimates have been scraping bottom on firms from the most speculative over-the-counter shares, all the way up to blue chips. So, "better than horrible" earnings were all the market needed to get a rise out of buyers.

Look at the gap up in STP shares on Tuesday! Some other force must have been at work. . .

And indeed it was: The Chinese government announced a plan to chase the darkness away.

 

The Golden Sun Project

China unveiled a multi-ministry solar subsidy package on Tuesday that will inject billions into China's solar power industry while pushing towards new national renewable energy targets.

With a three-pronged approach, China's central government will spur the creation of up to 2.6 gigawatts of new solar power capacity through 2011. By that time. . .

• The Golden Sun solar subsidy, from the ministries of Finance and Science & Technology, will subsidize 640 MW of solar photovoltaic (PV) installations across the country. . .
• The Ministry of Housing and Urban/Rural Construction will administer a 500 MW-subsidy package for BIPV (building-integrated PV). . .
• And the National Development and Reform Commission (NDRC) will manage a feed-in tariff to support up to 1.5 GW in new PV installations that will sell energy back to grid utilities.

Local market observers are also expecting a new renewable generation target from the NDRC and National Energy Administration.

The NDRC's Energy Research Institute forecasts an increase in China's 2020 solar capacity goal from 1,800 MW to 10,000 MW, or even more!

State-run newspaper China Daily reports that NDRC officials want to match the European Union and its "20x20" moonshot, by which 20% of electricity capacity will come from renewable resources by 2020.

Right now, China officially has its sights set on 15% by 2020.

"Personally, I think we could reach the target of having renewable sources make up 20 percent of total energy consumption," the NDRC's international ambassador Zhang Xiaoqiang said recently.

And even though China Daily tends to make China look good, this new optimism is far from fluff.

Next to the premium that investors are delivering to stocks like Suntech, perhaps the biggest bet on China's solar power progress is coming from Washington.

U.S. Cleantech Moves Closer to China

On July 15, the U.S. and China told the world about new plans to create a high-tech energy research center that would incubate jointly developed technology while lowering trade barriers.

The first estimate of how much it will take to establish a top-notch lab complex with dual headquarters in both countries is $15 million.

But that's chump change compared to the billions it will take to establish grid-connected solar power in China and expand additional off-grid generation into the hinterlands.

Beijing will subsidize up to 70% of independent solar power projects in unconnected remote areas, official CCTV reports.

Leapfrogging thermal (coal-fired) energy in undeveloped regions will help ensure that more of China's skies stay blue and, more importantly for investors, that new solar customers will chip away at China's excess domestic capacity.

More than 95% of the solar cells produced in China are currently sold abroad.

With Golden Sun and other new initiatives, China's solar power producers will have a more robust local market to add to their revenue sources abroad.

We'll keep you up to date with the latest in Chinese policy and market moves.

Regards,

 

Sam Hopkins

International Editor

P.S. Green Chip International readers have already closed out gains of 42% and 32% in separate Chinese solar power stocks, and we're sitting on one more that's up 34% in just two weeks! Don't miss the next one. . . Join GCI today and get our market-beating research advantage.