– Wei Gu is a Reuters columnist. The opinions expressed are her own –

Abundant liquidity, government support and a strong yuan fueled Chinese companies’ overseas buying spree.

But since they went out at the peak of the market and did not have a clear strategy for acquisitions, it should come as no surprise that most of those deals have turned sour. Once bitten, twice shy.

Crisis-ridden companies around the world are hoping that cash-rich Chinese buyers will come to their rescue, but the Chinese are not eager after getting their fingers burnt.

Chinese regulators are now giving more scrutiny to foreign deals, forcing interested buyers to lay out the most pessimistic scenario when seeking their approval.

Bankers said Beijing is skeptical about buying everything except resources, which is seen as important to China’s strategic interest and involves few integration challenges.

BUYING THE BRAND

Chinese manufacturers thought they had found a winning strategy by making goods cheaply in China and slapping a prestigious Western brand on it.

But the strategy hit a wall as companies such as TCL struggled for years to turn around businesses it bought in North America and Europe.

Lenovo’s purchase of IBM’s PC unit was widely lauded as a rare success until it announced a broad restructuring and profit shortfall earlier this month.

The acquired unit has a high exposure to large enterprises in developed markets, a segment that was hit hardest by the economic downturn, said Xin Zhao, an analyst at Cazenove.

“Before China caught the globalization wave our teachers in the West ran into problems,” said Yang Mianmian, president of China’s electronic appliance giant Haier, which last year spurned an offer to buy GE’s electronics unit.

“The financial crisis has changed our thinking and now we are looking more at rural demand.”

One of the potential pitfalls has been overpaying. Chinese buyers lack experience in valuation methodology and are at risk of paying too much. Moreover, they often do not have a strong understanding of the target experience, and tend to underestimate culture differences and powerful unions.

Some deals have not only incurred hefty losses but turned into a public relations nightmare as the crisis bites harder.

Take the example of Ssangyong Motor Co, South Korea’s No. 5 automaker, which filed for bankruptcy on Jan. 9 after getting hit by the global slump in car sales.

Analysts reckon SAIC Motor Corp, which owns 51 percent of Ssangyong, would be prepared to let the sport utility vehicle maker fail.

Some South Korean media have accused SAIC of all along planning to strip Ssangyong’s technology and dump it afterwards.

“Chinese companies have now realized there are many pitfalls on the road abroad and are learning from their experience,” said David Yu, partner at Llinks Law Offices, who advised SAIC on the deal.

FINANCIALLY SOUND

Chinese companies are financially sound — three state-owned banks trail only Warren Buffett’s Berkshire Hathaway on the global cash-rich groups list. But they’d better not try to bottom fish now.
The temptations are great — many Western brands long seen as out of Beijing’s reach are now fighting for Chinese attention.

Ford, for example, is looking for buyers to take up Volvo and a bank representing it has pitched it to at least three Chinese automakers.

“Chinese automakers need to be extremely cautious about those seemingly once-in-100-years opportunities to avoid failures which will not be recovered in many decades,” said Yankun Hou, an analyst with Nomura Securities.

To avoid more big losses, Chinese companies should cut their teeth on smaller deals in growing industries and markets, mindful that acquiring technology is much easier to manage than buying brands because it doesn’t involve taking over the whole operation.

“It is not clear that all the bad news is yet out, so assessing a target bank’s exposure is still challenging for any investor,” said Holger Michaelis, a partner with The Boston Consulting Group in Beijing.

“The timing however appears good for screening potential targets, but with a focus on smaller deals in less risky segments, like wealth management and asset management.”

– At the time of publication Wei Gu did not own any direct investments in securities mentioned in this article. She may be an owner indirectly as an investor in a fund –

– Eric Auchard is a Reuters columnist. The opinions expressed are his own –

Cleantech, with its intoxicating mix of high-tech promise and save-the-world bloody-mindedness, has fallen harder and faster in the destruction that has visited growth stocks in 2008.

Underscoring the sector’s risks, German solar cell maker Q-Cells cut its 2009 outlook on Tuesday, saying slack demand could linger until the middle of next year amid a growing industry price war. The stock lost nearly a fifth of its value in trading and the news sent down shares of rival companies.

But while it’s too early to say when the selling might be over for solar and wind stocks, gems lie in the rubble of collapsed valuations, ready for investors to snap them up when markets recover their appetite for growth and its attendant volatility.

To understand what is possible, take measure of the decline: The WilderHill Clean Energy Index, composed of around 50 renewable energy and conservation stocks, has lost three quarters of its value year-to-date, twice the loss of the S&P 500.

The mea culpas are flowing. “Every stock we cover has performed worse than the S&P 500 year-to-date,” Raymond James analyst Pavel Molchanov confessed recently in a note to clients.

In recent weeks, solar stocks, the global sector’s biggest segment by far in terms of market capitalization, have cracked up — laid low by the sharp fall in the price of oil, the plunge in the euro, the credit crunch and a move to safer havens.

The solar sector is made up of players across the Americas, Europe and China and many stocks are trading at below or close to their book value on the assumption some companies will go out of business.

Deliveries of wind systems have slowed for all major turbine makers, ranging from big diversified companies such as General Electric and Siemens AG, to wind specialists such as Vestas from Denmark or Gamesa of Spain.

Bears say the solar sector faces a future of declining prices and uncontrolled capacity expansion, especially in China.

Spot prices for the polysilicon used in most solar cells have collapsed to below $200 per kilogram from upward of $500 earlier in this year.

PICKING THROUGH THE RUBBLE

But stock pickers say the impact of plunging solar product prices is not being shared equally.

Low-cost technology leaders with strong balance sheets are seeing minor price declines while lesser names, especially from China, are finding it hard to sell their products at any price.

For now, almost everyone’s favorite pick remains First Solar, which has everything going for it except perhaps valuation, they say. The company is often compared to Intel Corp, on which it has modeled its manufacturing strategy for making solar cells.

First Solar produces solar cells used to form photovoltaic panels at a cost approaching $1.00 per watt compared to the $2.50/watt industry average, analysts say. Gross margins remain intact around 50 percent while other players face compression.

“If you want to play one stock in the U.S., Europe or China, it has to be First Solar,” says Mark Bachman of Pacific Crest Securities in Portland, Oregon.

Valuation has long been First Solar’s thorn. But the stock, which traded above $300 earlier this year and at a valuation as high as 140 times forward forecasts, has seen its valuation sink to 17.5 times next year’s consensus profit forecast.

Put off by its valuation previously, Edward Guinness at Guinness-Atkinson Alternative Energy Fund, became a buyer in mid-October once the stock was cut in half.

His alternative energy fund, which has some 40 pure play cleantech investments, has lost two-thirds of its value from a peak of $150 million earlier in the year but Guinness still sees promise relative to other energy funds in his group.

Cowen & Co analyst Robert Stone says Energy Conversion Devices Corp has managed to build backlog while taking advantage of falling cell prices. He sees Energy Conversion shares gaining up to 60 percent.

The company’s secret to withstanding recessionary pressures is the 50 percent of its backlog is from large, well-capitalized customers like Marcegaglia of Italy, which build Energy Conversion’s panels into their own residential roofing products.

Guinness says he is looking to companies that have the scope to become integrated, global players. Pure cell or solar panel plays can only grow so big because roughly 60 percent of industry revenue is in the installation end of the business.

U.S.-listed SunPower has made strides to expand from components downstream into the residential installation market, Guinness says, and Germany’s Q-Cells is in the early stages of such a move and shows promise once its business stabilizes.

Cowen’s Stone sees prospects for SunPower to see a 70 percent gain relative to the market over the next 12 months if the funding crises eases and already approved U.S. utility deals move ahead.

But analysts say that pricing declines must play out before investors are willing to get aggressive about solar stocks again.

American Technology Research analyst John Hardy says solar is likely to be one of the early beneficiaries of a potential loosening up of credit markets in the new year. Once pricing stabilizes in the solar market, survivors could see rapid gains.

“Stocks are at levels where any positive catalyst will move solar much higher in a hurry,” Hardy says.

–  At the time of publication Eric Auchard did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. For previous columns by Eric Auchard, click here.

(Pictured above: Solar panels fill the roof of mausoleums at the cemetery in Santa Caloma de Gramenet, near Barcelona, December 2, 2008. REUTERS/Gustau Nacarino)