In Depth: Despite Market Rally, Doubts Cloud China’s Plan to End Solar Glut

China’s solar industry, previously the global leader in green energy ambitions, has recently faced a significant crisis of overcapacity and plunging prices. While recent high-level signals from Beijing have sparked a rally in polysilicon futures and solar stocks, many analysts and industry insiders remain cautious about any immediate turnaround given deep-rooted structural challenges. [para. 1][para. 2][para. 3][para. 4][para. 5]

Since late June 2025, Chinese authorities have indicated plans to intervene in the solar sector’s overcapacity crisis. These signals, including attempts to form an entity among the largest solar players to acquire smaller firms and centrally manage output, led to an 80% surge in polysilicon futures within a month, with benchmark prices hitting 53,800 yuan ($7,520) per ton on July 24. Major solar firms such as Tongwei Co. Ltd. and GCL Technology Holdings Ltd. saw their stock prices jump by more than 50% in the same period. Investors interpreted these moves as steps towards restoring industry profitability and higher prices. However, skepticism remains about the speed and effectiveness of a real recovery. [para. 2][para. 3][para. 4][para. 5]

The current crisis is rooted in a rapid expansion of production capacity since 2020, fueled by government subsidies, easy financing, and surging exports. Factories were built at breakneck speed, often requiring companies to put down less than 5% of their own capital due to generous loans and credit guarantees. This led to a surge in China’s annual polysilicon capacity from 420,000 tons in 2020 to over 3.2 million tons by the end of 2024—an almost eightfold increase. The capacity now far exceeds global demand, with China’s solar manufacturing capacity roughly double the world’s annual needs. [para. 17][para. 18][para. 19]

By mid-2024, prices for polysilicon, wafers, cells, and modules had all dropped below production costs, erasing profits across the supply chain. Polysilicon prices fell to 37,000 yuan per ton—down nearly 90% from their 2022 highs and below the estimated breakeven point. Inventory ballooned to 400,000–500,000 tons, enough supply for over three months of global demand. Leading companies posted massive losses: Tongwei, the largest producer, lost 7.04 billion yuan in 2024 with projected further losses; TCL Zhonghuan lost 9.8 billion yuan, and Longi Green Energy lost 8.6 billion yuan and laid off nearly 37,000 workers. Only two-fifths of polysilicon capacity was being used in early 2025. [para. 20][para. 21][para. 22][para. 23][para. 24][para. 25][para. 26][para. 27][para. 28]

The Chinese government, recognizing the sector’s distress, initiated interventions in late June 2025. The National Development and Reform Commission (NDRC) and other key agencies investigated costs and issued directives against low-price competition. The proposed industry rescue involves creating a joint entity, primarily led by Tongwei and GCL Technology, to acquire and manage excess capacity, leveraging around 30% of capital from banks. This entity would not be permanent and aims to stabilize prices before dissolving. However, rising prices have dampened firms’ willingness to sell off assets, stalling progress. [para. 29][para. 30][para. 31][para. 32][para. 33][para. 34][para. 35][para. 36][para. 37]

Optimism is further tempered by structural factors. Much of the added capacity is modern, modular, and easily mothballed, making production cuts hard to enforce. Additionally, export prospects are challenged by new trade barriers and shrinking subsidies in key markets like Europe and the U.S. Domestic policy changes, such as new competitive pricing and loss of guaranteed grid access, have also front-loaded demand and increased market volatility, with polysilicon prices swinging by thousands of yuan per ton in a single day. [para. 39][para. 40][para. 41][para. 42][para. 43][para. 44][para. 45][para. 46]

Experts argue that weak demand and structural overcapacity are unlikely to be solved quickly. The government’s current “anti-hypercompetition” campaign appears more focused on preventing further redundant investment rather than delivering an aggressive cleanup, suggesting a lengthy path to industry recovery. [para. 47][para. 48][para. 49]