A new gold rush in China is actually a green rush — an urgent drive to develop green technologies. One group of Western companies, the Cleantech Initiative, suggests China's market for renewable energy could eventually be worth as much as $500 billion to $1 trillion a year.

Now, Obama administration officials are warning that the U.S. could risk losing the race in green technologies.

"The future of sustainable energy is here." The words are emblazoned on a wall at the world's largest nongovernmental solar research center. It was built by an American company, Applied Materials, in the central Chinese city of Xian.

The cost of solar panels has dropped dramatically — 30 percent in the past year alone. One major reason is the "China price," or the competitive advantages offered by Chinese manufacturing, with its cheap labor and economies of scale. China is now the world's biggest producer of photovoltaic solar panels, making about 40 percent of all panels, according to the China Daily, mostly for export.

At Applied Materials' $250 million research center in Xian, Elizabeth Mayo, a process engineer from Santa Clara, Calif., is working with local staff testing solar panels in the Sunfab panel reliability test lab. This simulates extreme weather conditions, and the company boasts that it is the world's only laboratory capable of testing 61-square-feet solar panels.

Mayo is impressed by the facilities in Xian. "We don't have facilities like this in the U.S. We don't have anything of this magnitude," Mayo says.

Catrina Ren, an enthusiastic English-speaking engineer, beams while showing a visitor another facility at the research center: vast empty hangars waiting for new pilot lines for crystalline silicon, and thin film solar technology to be installed. "I'm very proud I have chance to work here," she says. "This is most advantaged tech center in world. I graduated from university only two years ago. I'm very proud."

And Applied Materials is no doubt overjoyed to have Catrina and her former classmates on staff. Costs in China are much cheaper than in the U.S. An engineering graduate in Xian earns one-tenth of her American counterparts.

And the biggest draw is the eternal lure of China's fabled market. Gang Zhou, general manager of Applied Materials Xian facility, says the company has decided to put its money where its customer base is.

"China is No. 1 producer of solar panels. That's where our market is. The China new R&D center, that's where we validate a lot of R&D work that is being carried out in U.S. and in Europe," he says.

Enlarge Louisa Lim/NPR

Inside the Applied Materials solar power research center in Xian, China.

Louisa Lim/NPR

Inside the Applied Materials solar power research center in Xian, China.

While the Xian lab is testing, it is notable that the cutting-edge innovation is still taking place in the U.S. and Europe because of Chinese problems, according to Charlie McElwee, an energy and environment lawyer in Shanghai.

"There are still issues with respect to protecting your intellectual property in China. Those kinds of things where you discover the next big thing probably will still be done in the U.S. for a while, simply because it's easier to protect your IP there," says McElwee. "Companies are coming to do clean tech for the same reason they came 25 years ago to make shoes, T-shirts. It's simply cheaper to make things in China.

"The future of clean-tech manufacturing is in China," he emphasizes. "The jury is still out on whether the future of clean-tech innovation is in China."

Meanwhile, American green technology companies are flocking to China: First Solar is building the world's largest solar plant in Inner Mongolia, while Duke Energy is sharing solar, clean coal and smart-grid technology.

Officials in the Obama administration are beginning to sound worried.

"The longer we in the United States wait, the farther ahead China will be, and it will be harder for us to catch up," Commerce Secretary Gary Locke warned recently. "If we don't get our act together, we're going to be watching the capital, the businesses and the good-paying jobs end up someplace else. And 10 to 15 years from now, we're going to be saying, 'How did Shanghai become the Silicon Valley of clean energy?' "

One answer can be found in another cavernous warehouse outside Shanghai. Local green technology entrepreneur Shi Jun is developing a homegrown pollution-free method for creating polysilicon, which is used in solar cells.

Enlarge Imaginechina via AP Images

A Chinese worker installs solar panels on the rooftop of the China Pavilion at the World Expo 2010 site in Shanghai.

Imaginechina via AP Images

A Chinese worker installs solar panels on the rooftop of the China Pavilion at the World Expo 2010 site in Shanghai.

While it is still early days in China for the solar energy industry — there is no feed-in tariff or government subsidy for buying solar power — Beijing recently announced it would be spending $3 billion on its Golden Sun initiative.

The program will cover half the cost of installation and power transmission costs for 275 new solar power stations. The plan is designed to boost the bottom lines of Chinese solar power manufacturers, while also reaching the ambitious target of producing 2 gigawatts of installed solar capacity by 2011.

Shi Jun, for one, believes China will take the world's No. 1 spot for installed solar capacity in just three years.

American companies are ahead technologically, he admits, but they face other disadvantages.

"In the States, they have many good technologies," says Shi Jun. "President Obama has some policies, but until now I cannot see the real impact on companies. Also, I think the cost is a really big problem for the USA factories."

He is delighted by China's new target of increasing energy efficiency by at least 40 percent by the year 2020. He estimates that China will need 10 million tons of polysilicon to make enough solar cells to hit that target, 600 times its current output.

His goal is that his company, Propower, will produce half of China's polysilicon within 10 years.

Multiply that ambition by all of China's green technology entrepreneurs — and bear in mind that solar energy is just third on China's clean-tech list, after nuclear and wind power. That's the magnitude of the challenges ahead for China's competitors.

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