China's OPEC-for-solar push risks overreaching

Forging a legitimate oligopoly in a market can be hugely profitable. Leading solar firms in China may now have a chance to do exactly that.

Companies including GCL Technology 3800 are in talks to set up a 50 billion yuan ($7 billion) fund to buy and then shut down more than one million tons of production capacity for key raw material polysilicon, Reuters reported. The proposal comes with the sector being one of several under pressure to respond to President Xi Jinping’s push to end both price wars and overcapacity.

The country had 3.23 million tons of polysilicon capacity at the end of last year, or about twice this year’s projected demand, according to the China Photovoltaic Industry Association. The industry body has also flagged that more than 40 solar firms have delisted or gone under since 2024.

The supply glut has hit big players too, with Tongwei 600438 and others shedding some 87,000 staff, or a third of their workforce, per Reuters.

China's solar industry has been through similar pain before. In 2012 a supply glut and anti-dumping duties imposed by Washington led to a raft of bankruptcies.

If the restructuring fund currently under consideration becomes a well-crafted market-oriented approach to knock out industrial overcapacity, it could help soothe trade tensions with the U.S. and Europe. It also could serve as a model for other industries equally plagued by a supply glut, such as autos.

There are some big hurdles to jump. Local governments may balk at the idea of winding down their investment in a sector that was deemed strategically important a few years ago. And the fund would need to collaborate with banks or state-backed firms, which may not be keen to work with an industry whose players have suffered massive losses in recent years.

But the main problem is that the large players behind the fund would have a major say in which rivals either stay at the table or end up getting eaten. They also want part of its function to mirror that of oil cartel OPEC in setting and allocating production quotas.

Granted, that would help reduce oversupply, conforming with Beijing's near-term objective of ending what it calls a destructive "rat race" between companies. But in the long run it would also stifle rather than strengthen competition.

CONTEXT NEWS

Chinese producers of polysilicon, a building block for solar panels, are in talks to create a 50 billion yuan ($7 billion) fund to acquire and shut down roughly a third of production capacity and restructure part of the money-losing sector, Reuters reported on August 1, citing GCL Technology’s spokespeople.

China’s biggest solar firms have shed nearly 87,000 staff, or one-third of their workforce, last year, Reuters reported, citing company filings.