China has introduced stricter investment criteria for solar product manufacturing in an effort to tackle the persistent overcapacity in the sector.
On Wednesday, the Ministry of Industry and Information Technology (MIIT) released final investment guidelines for solar photovoltaic (PV) manufacturing projects. While the guidelines are not legally binding, they signal the government’s intent to regulate the booming industry.
The local solar industry has been urging authorities to step in and manage the sector’s rapid growth. Under the new guidelines, the minimum capital ratio for solar PV projects has been raised to 30%, up from the previous 20%. This ratio represents the portion of total investment that shareholders must fund using their own assets.
China’s solar panel manufacturing has expanded significantly in recent months. However, this growth has come at a cost. Major producers have faced mounting losses as they sell their products at below-market prices to stay competitive.
The intense competition has also raised concerns about quality. Earlier this year, an industry executive revealed that some manufacturers are compromising on product quality and testing standards to cut costs and increase profits. These practices are part of a broader “race to the bottom” in China’s solar component market.
The oversupply issue is expected to persist. Longi Green Energy Technology, one of the world’s leading solar panel producers, predicted in July that the glut could last up to two more years.
The company has warned of significant financial losses for the first half of 2024 due to plummeting prices and oversupply. Longi Green expects to report losses of at least $660 million, citing a supply-demand imbalance that has sharply reduced prices for its top products.
Smaller manufacturers face an even bleaker outlook. Earlier this year, the China Photovoltaic Industry Association highlighted the urgent need for industry consolidation. The association warned that overcapacity and aggressive price wars are driving local companies into unsustainable practices, threatening the sector’s long-term health.
China’s latest measures aim to stabilize the industry, but significant challenges remain as manufacturers struggle to navigate an increasingly competitive and saturated market.
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