China urges solar industry to reduce overcapacity

The Chinese industry ministry announced on Tuesday that it had held its second meeting in two months with representatives of the solar industry. It urged the industry to tighten regulations, reduce overcapacity, and reduce the extreme competition between firms.

The ministry issued a statement in which it told the representatives at the meeting to "jointly encourage the sustainable and healthy development of the industry".

The statement said that parties should "curb low price disorderly competition", in reference to the overcapacity of the sector.

The meeting was held after a July meeting where the Ministry of Industry said authorities should "promote an orderly withdrawal of outdated production capacities", raising expectations that the government would tighten up the reigns on this over-bloated sector.

The Chinese government's long-awaited anti-deflation campaign was further boosted by a late July meeting of its Politburo. This group usually determines the economic direction China will take for the coming year.

Company filings show that China's largest solar companies will lose nearly one-third their workforces by 2024. The manufacturing value chain lost $40 billion in losses last year.

Analysts say that a plan to shut down and buy back around one third of the capacity of the solar panel industry, led by the biggest producers of polysilicon (a building block for solar panels), will have difficulty gaining the support of smaller producers and local government.

The price reforms have contributed to the uneven demand in this year. Power producers were rushing to construct most of their solar plants before the new policies took effect in June.

This has caused the domestic demand to fall sharply in second half. However, if you average it out over 2025, the installations are still expected to reach a new record.

Analysts say that China is able to produce twice as many solar panels as the world will purchase this year. This means the industry needs to increase its manufacturing by 20-30% to be profitable again.

(source: Reuters)