China has produced so many solar panels that it has flooded its own market and driven prices down. In 2024 it produced 588 GW of photovoltaic cells against a global demand of 451 GW, a mismatch that has caused losses exceeding $60 billion. Beijing is now preparing an emergency fund to close factories and stem the bleed.
China has achieved something no other country has managed in the modern energy industry: it controls 90% of the world’s solar cell manufacturing. And that very dominance is driving it toward ruin.
Manufacturing to Maintain Social Peace
The pattern is well known. Beijing applied it before to steel, shipyards, lithium batteries, and also to electric cars. Between 2020 and 2023 it redirected capital from real estate toward what it called the three new growth industries: solar, electric vehicles, and batteries. The result was an unprecedented expansion of industrial capacity (there are more than 100 electric car brands, for example), financed with cheap credit and backed by the provincial governments, with direct subsidies, tax breaks, land, etc.
The problem emerged when the supply of solar panels outpaced demand. According to figures compiled by the Financial Times, China produced 588 GW of solar cells last year. Global demand stood at 451 GW. More than a quarter of all production was left unsold.
That misalignment pushed polysilicon prices down to around 50 yuan per kilogram, a level that does not cover costs for almost any manufacturer. The five largest Chinese PV players trimmed their payrolls by 31%, about 87,000 jobs, and the sector has accumulated losses above $60 billion.
The very design of the system implemented by China is what triggered the crisis. The regime rests, among other pillars, on social peace, so Beijing rewards provincial governments for employment and production, not profitability. Under these conditions, no local official has an incentive to shut down a loss-making factory while it provides jobs. The result is fierce competition among regions that no one wants to curb and that ends up eroding the margins of the entire production chain.
The sector had already tried to fix things on its own. In 2024, Longi, Tongwei, and JA Solar signed a production self-restraint pact modeled on how OPEC operates. It did nothing. Without a binding mechanism, each manufacturer bet that others would cut first, and production kept rising.
Now the State steps in with a rescue. Bloomberg puts the fund at no less than 50,000 million yuan, about 7,000 million dollars, intended to purchase and dismantle more than a million tons of polysilicon capacity. The Ministry of Industry has summoned executives from fourteen companies to demand closures of underutilized plants.
The problem is the scale of the adjustment required. Analysts estimate that between 20% and 30% of installed capacity must be eliminated to restore profitability to the sector. That percentage implies shutting entire factories in provinces that for a decade built their local economy on solar employment. That is the real bottleneck of the plan, more political than industrial.
There you have the underlying paradox. The same state apparatus that subsidized overcapacity to the point of collapse is now the one that must dismantle it by force, because the market, left to its own devices, only knew how to produce cheaper until it ruined itself.
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