Reuters reports that while imports of Chinese modules fell sharply in May, the major Chinese factories are finding Taiwanese and other sources for their cells to evade tariff-driven price increases, and accelerating their acquisition of manufacturing plants closer to their end markets. As a result, the steady multi-year price drop continues, albeit at a slower pace. Pressure on Western-owned factories has not abated.

Meanwhile, China has opened its own inquiry into whether polysilicon ingots made in the United States and Korea have been exported to China at prices that damage Chinese polysilicon factories.

A group of European module manufacturers, led by SolarWorld in Germany, on Tuesday filed a new anti-dumping complaint against Chinese factories through the European Union.

The Coalition for Affordable Solar Energy fired back, with a statement beginning “Today Germany-based SolarWorld has once again demonstrated that it is willing to undermine the world’s solar industry in a desperate effort to avoid competition in the marketplace.”

Nonetheless, SolarWorld stock, which had lost 60 percent of its value over the past year, appeared for now to have reversed the slide.

Meanwhile, China reaffirmed its determination to build 21 gigawatts of PV generation by 2015, and announced a new goal of 50 gigawatts by 2020. And in India, sources predicted that the country might install up to 40 gW by 2020. While that rapid expansion may help to work through the global oversupply of PV modules, it raises the likelihood of very rapid investment in inverter and BOS manufacturing in China. Because aluminum extrusions are a commodity worldwide, racking manufacturers can probably feel safe about their local markets. But Western inverter manufacturers may soon face the same fate as module factories, with a flood of low-priced Chinese inverters entering global markets.

And Ben Santarris, head of corporate communications at SolarWorld’s U.S. subsidiary, held a conference during InterSolar to explain the mechanics of the new tariffs on Chinese modules and cells. “The 31-percent rate is just an initial rate, based on the difference between the selling price and the calculated cost to manufacture,” he said. “As prices and manufacturing costs change, the tariff rate will change, too.”

It’s not that they don’t make competitive products. It’s that they can’t get competitive financing. Western investors and banks are simply unwilling, and probably unable, to compete with the Chinese government’s vigorous investment in solar manufacturing. It means that Chinese factories ramp up faster, achieve economies of scale more quickly, and flood the market with cheap quality goods. A Sept. 1 article in The New York Times, “China Benefits as U.S. Solar Industry Withers,” laid out the raw numbers.

That article suggested that established factories with market-leading technologies of their own can survive — witness FirstSolar and SunPower. But startups like Solyndra and mid-market players like Evergreen, SpectraWatt and BP Solar can’t keep pace with what’s happening in China.

We’ve seen this before in other industries. In the 1960s and 1970s, Japan invested heavily in consumer electronics and flooded world markets with cheap products that worked well. American factories making televisions, radios and related equipment, including Zenith, RCA and Motorola, eventually closed their U.S. plants and either distributed Asian goods under their own labels, or sold their brands to Asian companies. Japanese manufacturers, of course, were later undercut in turn by Taiwanese, Korean and now mainland-Chinese factories.

It also happened in auto manufacturing. Only the best-established American automakers were able to survive in the face of high-value competition, first from post-war Germany and later from Japan and Korea. GM needed rescue by the federal government. Chrysler needed two federal bailouts, and new ownership by two successive European auto companies.

The recent bankruptcies do not mean that the solar business isn’t viable and healthy, any more than the disappearance of Zenith and RCA means that television is a dying swan. It does mean that the Western financial system is seriously challenged by Chinese state capitalism.

State capitalism is not a new invention. It was the engine that ran both the British and Dutch empires from the 17th century until World War II. The private corporations called the British and Dutch East India Companies were government creations, subsidized by military power, to create profitable export/import, plantation and manufacturing businesses with monopolies in the colonies. The United States had a state capitalism era in the 19th century, when the government supported new businesses of all kinds, from family farms to railroad empires to extractive industries, by giving them land or cheap access to resources attached to the land. The lesson of empire is that governments are happy to give to supporters valuable properties confiscated from the natives.

Which is what China does today. It keeps half of what everyone in the country makes, and funnels that savings back into building new manufacturing businesses.

State capitalist systems are, in the long run, self limiting. They die when they run out of cheap resources. The British and Dutch systems lasted until the colonies won independence after World War II. The Chinese system will last until the working population decides it wants Western-style wages, pinching off the government’s pool of investment capital. By that time, Western manufacturing may be gutted, unless Western governments, workers and businesses make common cause to support domestic industries. Free-market tactical thinking won’t meet the strategic challenge of monolithic Chinese government power.

The success of China’s front-end investment, designed to achieve critical mass and break-even quickly, should make us rethink our national emphasis on end-use incentives. We didn’t build the railroads by rebating transport costs to farmers: we built them with front-end financing. Tennessee and Michigan appear to have figured this out, and have laid out incentives to get factories built, as a priority over forcing utilities and ratepayers to subsidize PV installation. If Solyndra had gotten the investment it needed to ramp up quickly three years ago, it might not be looking for a way to resume operations now.

Solar is obviously a viable business globally. Western governments and businesses need to decide if they’re willing to be sellers as well as buyers of the technology. Do Americans want those manufacturing jobs, or just commissions on the sale of goods made elsewhere? What kind of economy do we want?