A looming bond default by Shanghai Chaori Solar Energy Science & Technology Co may raise concerns about conditions in China's onshore bond market, although it also implies government confidence about letting companies fail, analysts said.

The panel producer said in a statement to the Shenzhen Stock Exchange on Tuesday night that it can't make the full 89.8 million yuan ($14.7 million) in interest payments due on Friday on its "11 Chaori Bond". It can only pay 4 million yuan, it said.

Chaori's failure to pay interest will mark the first default of an onshore bond.

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"A default by Chaori will accelerate the polarization of the bond market. High-yield corporate bonds will be crushed across the board, while lower-risk and riskless debt will become popular," said Jiang Chao, a bond analyst with Haitong Securities Co.

"It's a good thing, as a normal economy needs defaults to better price bonds and other debt products," Bank of America-Merrill Lynch said in a report on Wednesday.

The report said 2014 will be the year for China to really clean up mounting local government and corporate debts, which have been piling up since late 2008.

"We believe the chance of some bond and trust loan defaults will rise significantly in 2014, especially as the more confident government sees the need for some defaults to develop a more disciplined financial market," it added.

Most market observers said there won't be panic at this stage, as scattered defaults aren't on par with the collapse of a major financial institution.

China's corporate bond market totaled 8.7 trillion yuan as of Jan 31, compared with 800 billion yuan at the end of 2007, according to Bank of America estimates.

Liu Tielong, director and vice-president of Chaori, told China Daily in a phone interview that the company is "making a full effort to obtain capital" to cover the interest payment as soon as possible.

Collecting accounts receivable and selling fixed assets will be the major sources of cash, he said, but due to uncertainty over the liquidation value of these assets, it's not certain that Chaori can fully repay the principal and interest.

Liu said Chaori is in talks with several strategic investors about a restructuring. Investors have been expecting that the local government or State-backed companies may step in to bail out Chaori so as to prevent a default.

With China's solar industry weighed down by excess capacity and facing trade barriers in the United States and European markets, Chaori's business has been in trouble.

Structural consolidation is in progress in the industry. Liang Zhipeng, deputy director of the National Energy Administration's New Energy and Renewable Energy Division said in late 2013 that five or six companies is the right number for the solar industry in the future.