In Depth: China’s Solar Industry Enters Painful Reset

1. On February 4, shares of China’s top solar energy companies surged following reports that Elon Musk was exploring Chinese resources for his energy projects, but this optimism quickly faded, and the stocks fell sharply the next day, highlighting the volatility and underlying issues in China’s solar industry. [para. 1][para. 2]

2. Since 2023, China’s solar sector has been gripped by a fierce price war triggered by oversupply. The financial impact has been significant, with losses among listed solar companies expected to exceed 50 billion yuan ($7.3 billion) in 2025. Major players like Tongwei Co. Ltd., the global leader in polysilicon and solar cells, forecast up to a 10 billion yuan loss after losing 7 billion in the previous year. Other big names like TCL Zhonghuan Renewable Energy Technology and Trina Solar also anticipate multi-billion-yuan losses. [para. 3]

3. Efforts to stabilize the industry began in late 2024 with production cuts and plans to create a company to absorb surplus polysilicon capacity. However, in January, China’s antitrust regulator halted these acquisition plans due to monopoly concerns, leaving the sector struggling to rebalance and fearing further turmoil. [para. 4]

4. The rapid expansion of China’s solar industry began in 2020 with President Xi Jinping’s “dual-carbon” goals. By 2023, capacity growth far outstripped global demand, sparking a brutal price war. [para. 5]

5. In 2025, the supply-demand imbalance worsened. Production capacity kept expanding while utilization rates dropped to just 40-50%. According to the China Photovoltaic Industry Association (CPIA), polysilicon output fell by 26.4% and wafer output by 12.3%. The industry faces record-high capacity and inventory levels, compounded by a downturn in installations. [para. 6][para. 7]

6. Since late 2024, leading companies have tried to curb “involution,” or destructive competition. In December, 33 manufacturers agreed on a self-discipline pact to coordinate capacity cuts, and there were early signs of less aggressive pricing, but the supply-demand gap persists. Polysilicon prices stabilized at 50,000-60,000 yuan/ton by July 2025, and module prices rebounded to about 0.9 yuan/watt from a low of 0.6 yuan, though still under the 1 yuan/watt cost. However, the price increases are mostly due to higher input costs, not increased demand. [para. 9][para. 10][para. 11][para. 12][para. 13][para. 14]

7. The proposed solution centered on upstream polysilicon overcapacity, with plans for a joint venture—Beijing Guanghe Qiancheng Technology—formed by nine manufacturers and CPIA. Its goal was to buy excess capacity from smaller, struggling producers, but its ability was doubted because its capital (3 billion yuan) was small compared to the expected costs (tens of billions). Less than 10% of capacity has been cut, far short of what is needed for true market stabilization. [para. 16][para. 17][para. 18][para. 19][para. 20][para. 21]

8. China’s antitrust authority intervened in January, warning that the new venture might cross the monopoly line. Firms were instructed to stop colluding on production, utilization, output, or pricing. Although the law allows certain exemptions during downturns, regulators considered the industry’s coordination to be anti-competitive, blocking the joint venture and collective production cuts. [para. 22][para. 23][para. 24][para. 25][para. 26]

9. The industry remains under pressure, with the recent rise in module prices seen as temporary—attributed to a spike in silver prices and a rush to export before tax rebates expire—rather than a true demand recovery. Downstream manufacturers suffer as customers resist higher prices, and upstream producers struggle as low prices offer little incentive to sell. Even project developers and power industry giants are reducing solar investments, further weakening demand. [para. 27][para. 28][para. 29][para. 30][para. 31]

10. Industry consolidation is underway, with stronger firms acquiring weaker ones. TCL Zhonghuan invested in Das Solar to strengthen its business, and Tongwei plans to acquire Qinghai Lihao Clean Energy, potentially raising its polysilicon market share to 30%. Meanwhile, authorities are reclaiming subsidies from unsuccessful ventures. Rapid investment and overcapacity have created this crisis, but leaders believe long-term demand will grow—China targets about 3.6 billion kilowatts of wind and solar capacity by 2035, nearly double the 1.84 billion in 2025. The industry must now prioritize value creation over mere scale to survive future challenges. [para. 32][para. 33][para. 34][para. 35][para. 36][para. 37][para. 38][para. 39]

AI generated, for reference only