Chinese Government to Restrict the Chinese Solar Industry

The Chinese government is set to issue a blanket stop on all PV capacity increase due to the massive overcapacity plaguing the whole industry. Easy loans, land and government support had led to a huge over-investment in the solar panel industry. Hundreds of small solar panel companies mushroomed in China to take advantage of European solar subsidies. Most of these companies have shut down as even the top Tier 1 companies are showing losses. The over-investment had led to a catastrophic drop in solar product prices making the ASP go below cost. The Chinese central government in now bringing in measures to get the industry to an even keel. The government has already fought Europe and USA on anti dumping duties on solar panel imports from China. While USA has already imposed CVD and AD duties on imports of solar panels, Europe has imposed a volume and price quota on Chinese solar panels.

The Chinese solar panel industry has captured an imposing 70% of the global solar panel industry, but many of its top companies have imploded due to the prolonged losses. Suntech and LDK Solar have collapsed with their management teams and previous owners fired. Others have managed to recover due to a Japanese surge in demand and better economics of solar electricity. These measures to restrict capital expenditure and impose minimum R&D is good for the industry in my view. It will prevent the capacity from increasing from its already too high a level of 60 GW. Note most of the capacity can come online again which would pressure the ASPs.

This would also help consolidate the industry around bigger companies such as Yingli, Trina and others. The industry cannot afford more than 10 Chinese companies anyway.

New solar manufacturing that “purely” expands capacity will be strictly banned, the Ministry of Industry and Information Technology said in a statement on its website today. Annual spending by companies for research and development and upgrading equipment combined must be no less than 3 percent of revenue and no less than 10 million yuan ($1.6 million), according to the statement. The government’s previous backing for the solar industry has left at least one factory producing photovoltaic products in half of China’s 600 cities, according to the China Renewable Energy Society in Beijing. China’s solar industry now accounts for seven out of every 10 solar panels produced worldwide, according to data compiled by Bloomberg.

Source – Financial Post