Since the start of this year, numerous reports have flooded the internet, claiming that Chinese solar companies are struggling and entering a "cold winter." Suntech’s founder, Shi Zhengrong, has stepped back from the front line, while Saiwei’s Peng Xiaofeng faces bankruptcy. Many once-successful PV firms have gone from huge profits to massive losses, leading to widespread layoffs. For a time, the photovoltaic market was in chaos, with panic spreading across the sector.
Just a few years ago, the solar industry was seen as a promising sunrise sector, full of potential. But what caused such a dramatic downturn? Was it the European debt crisis? The U.S. and EU's anti-dumping measures? Or were there deeper issues within the industry and government policies?
**Solar Companies: No Biggest, Only Bigger**
With global energy shortages and environmental concerns growing, solar power emerged as a clean, safe, and efficient energy source. Governments around the world began to prioritize it, launching large-scale projects and expanding production capacity. China quickly became the world’s largest producer of solar panels, driven by aggressive investment and expansion.
However, this growth came at a cost. Companies pushed for rapid expansion despite the U.S. anti-dumping tariffs, ignoring warnings and even engaging in desperate sales tactics. This overexpansion led to severe overcapacity, with global production reaching about 100 gigawatts (GW), while demand only stood at 30–50 GW. The industry became unmanageable, with prices for polysilicon plummeting from over $400/kg to below $20/kg.
Moreover, the lack of standardized technical and quality systems exacerbated the crisis, creating a bubble and pushing the industry into a low-end trap. The real cause of the "solar crisis" was not just the U.S. and EU trade barriers but the unchecked expansion fueled by easy credit. Experts estimate that half of the world’s solar capacity may need to be shut down before the industry can recover.
**Local Governments: Winners and Losers**
After the rise of the "Shangde myth," many local governments saw solar as a key driver for economic growth. Over 600 cities in China designated photovoltaics as a strategic emerging industry, investing heavily in both money and human resources. Local officials, eager for political achievements, pushed for rapid development, which aligned with the interests of PV companies seeking tax revenue and employment.
Under government pressure and loose credit policies, companies became addicted to growth, expanding rapidly and dominating the global market. However, this overreach led to a painful downfall. As the market collapsed, local governments faced criticism for their role in fueling the crisis. As Li Junfeng, deputy director of the National Development and Reform Commission, pointed out, local governments often act more like enterprises than true policymakers, leaving companies vulnerable when challenges arose.
The current reshuffle in the solar industry is a natural result of market forces. While some support is necessary, excessive intervention could worsen overcapacity and delay much-needed adjustments.
**Industry Chain: At the Mercy of External Forces**
The solar industry spans from polysilicon to solar cells and installation systems. In the early stages, Chinese companies relied heavily on imported materials and focused on foreign markets, making them highly dependent on external factors. This lack of control over critical parts of the supply chain contributed significantly to the crisis.
Raw material prices soared due to rapid expansion, and many companies suffered heavy losses. Meanwhile, the European debt crisis and U.S. tariffs weakened key markets. Domestic demand also lagged due to delays in grid connection and policy implementation. These combined pressures led to a sharp drop in panel prices and the collapse of many smaller firms.
Despite these challenges, the Chinese government has been working to absorb excess capacity through increased domestic installations. Analysts predict that China will soon become the second-largest solar market after Germany, with new capacity reaching 4–5 GW this year—double last year’s levels.
**Reflection: Taming the "Free Hands"**
China’s socialist market economy should allow the market to play a central role, with the government focusing on creating a fair environment rather than micromanaging. The solar crisis offers important lessons:
First, local governments must avoid excessive interference in business operations and focus on their core responsibilities. Second, officials should pursue sustainable development based on economic laws rather than short-term gains. Third, when planning strategic industries, the government must set clear thresholds and ensure rational layouts to prevent blind expansions.
This kind of lesson has been repeated in other sectors, such as wind power, where overinvestment led to similar problems. The solar crisis serves as a reminder that without proper regulation and long-term vision, even the most promising industries can fall into turmoil.
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