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- China just issued draft regulations to rein in solar cell production.
- This shows Beijing knows and is concerned about industrial overcapacity.
- China and the West have been mired in a trade dispute over overcapacity, which Beijing has pushed back on.
China and the West are in disagreement over claims that the East Asian giant is producing too much stuff and depressing global prices.
China has pushed back against this notion, saying the West is trying to contain its economic growth.
But Beijing recently released a new set of draft rules that show China knows and is concerned about overcapacity too — specifically in solar cell production.
On Tuesday, China's industry ministry released new draft regulation to promote "high-quality development" in the industry. The draft rules are open for public consultation until Monday.
The ministry did not explicitly target excess capacity but said in its proposal that it aims to guide solar cell companies to reduce manufacturing projects that "simply expand production capacity" while improving innovation, production, quality, and reducing production costs.
China's industry ministry is looking to increase the ratio of capital that shareholders must invest in projects. This could limit the speed of industry expansion and curb overproduction.
The new rules come as the solar industry deals with a glut of panels following years of breakneck growth. The sector is one key pillar of the country's "new three" economic drivers, so Beijing would want it to be sustainable.
China is producing more solar panels than the world can absorb
As it stands, China is producing way more solar panels than its power grid can handle. There's such a huge glut of solar panels worldwide that some people are using them as garden fencing.
China's solar module manufacturing capacity nearly tripled in 2022 alone before gaining another 84% in 2023, commodities consultancy Wood Mackenzie wrote in a report in April.
Ed Crooks, the vice-chairman of energy at Wood Mackenzie, called the surge "most dramatic."
Last year, China — the world's largest solar energy producer — installed fewer panels than it produced, per Wood Mackenzie.
The oversupply caused a plunge in solar cell prices that even Chinese manufacturers are up in arms about.
In May, the China Photovoltaic Industry Association called for more mergers and acquisitions, as well as restrictions on domestic competition to control capacity.
On Monday, Longi, a major Chinese solar maker, said in a stock filing that 2024 will be a "difficult year" for the company and industry. The company laid off thousands of workers earlier this year.
"The entire industry does not have the ability to support further price declines in the short term," Longi said on Monday.