pv magazine: Mr. Brown, the Chinese government has successfully reduced excess capacity in the past, particularly in coal and steel from around 2015, as well as in sectors such as cement, glass, aluminum and shipbuilding. What lessons from those restructuring efforts can be applied to today’s PV manufacturing industry?
Alexander Brown: One lesson is that when the Chinese government sees a need to stimulate growth in a certain sector, it is very capable of doing so. We saw that with sectors related to construction in the 2010s, and we have seen it more recently with green technologies as China has focused increasingly on its decarbonization agenda.
But in many cases, this leads to overshooting and overinvestment. There is a recurring challenge for Chinese policymakers in finding the right balance when they seek to boost particular industries.
What is different in solar PV is the range of options available to the government when it subsequently tries to rein in excess capacity. The clearest difference between PV and sectors such as cement, glass, aluminum and shipbuilding is company ownership. Solar PV is dominated by private firms, whereas state-owned enterprises were and still are dominant in many of those other industries. That makes coordination somewhat easier when companies are state-owned.
There has been considerable difficulty coordinating companies in the PV industry. There is broad agreement that there is a problem. Companies acknowledge the need to prevent prices from falling further and to stop overinvestment, but individually they still have incentives to expand. Their actions therefore often do not follow their words.
Is technological innovation another reason why consolidation is more difficult in PV than in mature industries such as steel, cement or glass?
Yes. The rapid pace of technological development definitely plays a role. Equipment and technology can be updated every two to three years. That is very different from industries such as cement and glass, where the technologies are much more established.
Demand has also been increasing strongly. China’s production capacity currently far exceeds global demand, but global demand has grown substantially in recent years, as have China’s exports. Between 2019 and 2023, China’s top five producers of solar modules consistently generated healthy profit margins in the range of 8 to 12 percent on average. So even from the perspective of a normal market economy, there was some logic behind these very large increases in manufacturing capacity. Ultimately, however, they have resulted in a severe mismatch between supply and demand.
How important is geopolitics in sustaining or exacerbating China’s PV overcapacity? How are trade barriers and industrial policies in the United States, Europe, India and elsewhere affecting Chinese manufacturers’ investment decisions?
Geopolitics is an important factor in China’s solar sector. The crisis the industry faced in the early 2010s following changes to trade barriers in Europe and elsewhere demonstrated how dependent the sector was on exports. It is less dependent on exports today, but they remain important for China’s leading solar companies.
It is also clear that Chinese manufacturers are sensitive to regulatory changes overseas. We have seen a number of production facilities built in Southeast Asia in an attempt to secure access to foreign markets, particularly as the United States has introduced measures aimed at reducing its reliance on solar products coming directly from China.
However, I wouldn’t say these measures have been extremely damaging to the industry so far. China has continued to increase solar module exports in recent years, and there are questions about how effective US tariff barriers have been.
If more countries impose higher trade barriers, however, that could put considerable pressure on the sector. Growth in solar demand appears to be slowing in China and elsewhere. If exports become less available as an outlet for excess production, that will aggravate the situation.
So, geopolitics matters, but it is not the fundamental cause of the current problem?
That’s right. Geopolitics plays a role in how solar companies decide where to invest and how much capacity to build, but fundamentally the domestic market is more important for these firms.
Compared with the solar downturn of the early 2010s, I would say geopolitics is less important today. Back then, the Chinese government responded by significantly increasing domestic demand to support its domestic solar industry. I don’t think we’re going to see that sort of response this time.
The present oversupply cycle became increasingly visible in 2023 and acute by early 2024. More than two years later, excess capacity remains substantial and permanent capacity exits appear limited. Is the adjustment taking unusually long? How long can manufacturers sustain heavy financial losses?
It is not unusual for these adjustments to take quite a long time. If we look at consolidation in the steel sector, measures were taken to consolidate companies, but a lot of capacity remained in the system and was only slowly removed.
In solar, however, the process is definitely taking longer than hoped. That’s partly because of the difficulty of coordinating the main actors and because the market is so fragmented.
That is also related to the technology itself. Solar is somewhat more commoditized than products such as wind turbines or electric vehicles, making it easier for companies to enter the sector. Older technology can also remain in use, with slightly outdated products sold cheaply around the world. Those mechanisms allow capacity to remain in the system.
The profitability of China’s leading companies has declined dramatically in 2024 and 2025. We looked at the top five Chinese firms and found that their aggregate profit margin last year was minus 11%, which is extremely poor. Pressure on the industry to find a solution will therefore continue to grow. If it doesn’t happen this year, then probably by next year some kind of arrangement will have to be reached.
We’ve seen other sectors handle this more successfully. In wind, for example, leading players have come together to revise tendering practices so that tenders are not focused solely on obtaining the lowest price. Similar attempts to reach agreements in solar have failed so far, but the pressure to make such efforts succeed will increase.
During the previous PV consolidation phase, from roughly 2011 to 2014, numerous companies became insolvent. We have not seen comparable failures among today’s largest manufacturers. Why are the major players able to remain afloat despite prolonged losses?
I think it’s very unlikely that we’ll see the major players fail. To some extent, they have diversified businesses. Many are active in different parts of the solar supply chain, and they generate revenue not only from manufacturing products but also from activities such as project development.
Local governments also have a very strong interest in keeping these companies afloat. They can provide different forms of support, including tax incentives, loans and equity investments. These companies provide local tax revenue and jobs, and they remain extremely competitive in international markets. For those reasons, I think it is very unlikely that the major players will simply be allowed to go under.
Beijing has introduced a series of measures since 2024, including efficiency and energy-consumption requirements, tighter investment rules and measures related to pricing. Are these measures sufficient to accelerate consolidation?
It is interesting that since mid-2024 we have seen measure after measure introduced in an attempt to solve the problem, and clearly they haven’t worked so far.
But I think the cumulative effect of these measures will eventually have an impact. New rules around energy pricing, in particular, look likely to affect solar demand in China. It will take time, but if domestic demand slows significantly, companies will have to respond.
They have already started responding by cutting costs and laying off workers over the past couple of years. If the market is no longer growing, it will become very difficult for companies to continue investing in new capacity. At the same time, progressively higher standards will gradually remove some capacity from the market.
So, I expect it to be a relatively slow process, but I think these policies will be successful to a degree. It is largely a matter of time.
What additional measures could the Chinese government take if the current policies prove insufficient?
One possibility would be to revise tendering standards so that tenders take into account factors such as quality and longer-term considerations rather than simply the immediate lowest price. We’ve seen something similar in the wind sector. That would require agreement between manufacturers as well as energy project developers.
Beyond that, it may require more direct intervention by the central government. Local governments will not willingly let their companies fail. But the National Development and Reform Commission could essentially decide that the industry only needs a certain number of major players and that outdated manufacturers should be cleared from the market. It could then instruct local governments not to continue providing lifelines to those companies.
I think that would work. But it would require very clear instructions and direct central-government intervention, and that goes against the way China’s industrial policy has generally operated. China has been very successful in using competition between local governments to build up industries, which makes policymakers reluctant to move away from that tried-and-tested model.
Could significant overcapacity ultimately become a permanent structural feature of the solar manufacturing industry rather than something that disappears at the end of each cycle?
I think the fact that the technology is advancing so rapidly makes it difficult to avoid a certain amount of overcapacity. Companies are incentivized to upgrade their technology frequently. Unless older production capacity is forced out through progressively higher standards, that capacity can remain in the system.
And even if older technology is no longer used in China, products from those lines can potentially be exported. So I think bringing excess capacity down significantly will remain challenging. In rapidly developing technology industries like this, some degree of overcapacity is difficult to avoid.
Should we expect regular boom-and-bust cycles in PV manufacturing? Could the current downturn last seven or eight years, or is the timing fundamentally unpredictable?
The boom-and-bust cycle will be determined to a large degree by the emphasis governments place on the energy transition. Solar is a market that is projected to grow significantly over the coming decades. The question is when that growth accelerates and when it slows.
At the moment, we’re in a phase of slowing growth and a bust cycle. My expectation is that this will lead to some reduction in overcapacity over the next couple of years.
After that, we’ll have to see when the industry identifies renewed opportunities and begins making very significant investments again. That would create another boom cycle. Much will depend on policy decisions in the major markets and on whether governments choose to accelerate or slow demand for solar technology.
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