China’s solar panel industry seeks to curb ‘vicious competition’ with M&As and easy exits to control capacity as EU, US turn up heat

by Ralph Jennings

Leaders of China’s multibillion-dollar solar cell industry have called for more mergers, acquisitions and curbs on domestic competition to control capacity, as Western countries resist Chinese exports in the name of industrial overcapacity.

The semi-official China Photovoltaic Industry Association said on its WeChat channel that those proposals, among others, emerged on Friday at a meeting that it held because of falling prices and “operational pressures” along the Chinese solar supply chain.

Meeting participants, including local government officials, suggested “putting an end to vicious competition” while encouraging mergers between solar firms, finding a way to let companies make smooth market exits, and taking steps to protect intellectual property, according to the association’s statement on Tuesday.

The 504-member association will also push for creating price-index models and exploring “more reasonable price-formation mechanisms at home and abroad” using methods such as futures contracts, according to the statement.

Solar panels, electric vehicles and lithium-ion batteries are known as China’s “new three” sectors because they represent a departure from three older export sectors: clothing, furniture and home appliances.

The EU has already launched anti-subsidy probes on Chinese electric vehicles, and last week the US also proposed high tariffs on made-in-China products. On Wednesday, the Office of the US Trade Representative proposed that increases slated to take effect this year would do so on August 1, and that increases slated for 2025 and 2026 be effective from January 1 of those years.

China’s industry ministry already solicited views on how to better regulate the country’s lithium-ion battery capacity.

The country has said it added nearly 217 gigawatts of photovoltaic (PV) capacity in 2023, almost two-and-a-half times the level of 2022 and more than half of the world’s new PV capacity.

“Mergers and acquisitions in the photovoltaic industry may play a role in mitigating excess capacity issues, providing new opportunities for industry consolidation and development,” said Alberto Vettoretti, a managing partner at the business management consultancy firm Dezan Shira & Associates.

“Providing economy of scale would allow for more reasonable price curbs without triggering a dogfight to the cheapest offerings,” he said. “Low-price competition can limit investment in research and innovation for companies, affecting long-term industry competitiveness.”

Solar battery cells, wafers, components and modules made by Chinese companies account for 75 to 95 per cent of total global production, depending on the specific product type, the ratings firm Fitch Bohua estimates.

“Although China’s photovoltaic sector enjoys advantages such as an integrated supply chain, leading production costs and significant economies of scale, all of which are hard for other countries to replicate in the short run, the competition within the sector is exceptionally fierce, especially under the situation of a price downturn caused by overcapacity,” Fitch Bohua associate director of corporates Darius Tang said.

“A great number of China’s PV producers still announce large-scale expansion plans to squeeze other competitors – small and medium-sized players, in particular – out of the market,” Tang said. “This would make the overcapacity even more serious and difficult to manage.”

China’s top leaders in December flagged overcapacity challenges in some industries, but in recent weeks officials have accused the West of “hyping up” the capacity issue. Western leaders say overcapacity threatens to flood their markets with low-priced Chinese exports.

European Union authorities have investigated two Chinese companies over the alleged receipt of foreign subsidies for solar projects in Romania, and both firms have pulled out.

The US government announced this month that it would increase tariffs on Chinese solar cells from 25 per cent to 50 per cent this year.

The solar association’s proposals following a Ministry of Industry and Information Technology draft guideline this month to regulate lithium-ion battery capacity indicate new concern in Beijing. The draft battery guideline would reduce battery projects aimed only at growing production capacity.

China was exporting 80 per cent of all photovoltaic equipment as of 2022 amid heated global demand for renewable energy, and the International Energy Agency expects China to account for 90 per cent after a doubling of global solar photovoltaic manufacturing capacity in 2023 and 2024.