China's Solar Industry Confronts Polysilicon Overcapacity with $7 Billion Fund

China's leading polysilicon manufacturers, including GCL Technology, are in discussions to establish a 50 billion yuan ($7 billion) restructuring fund aimed at addressing the nation's severe polysilicon overcapacity. This initiative seeks to purchase and decommission over one million tons of excess production capacity, aligning with President Xi Jinping's broader strategy to curb destructive competition and overinvestment in key sectors.

Polysilicon, a critical material for solar panels, has seen China's production capacity soar to approximately 3.23 million metric tons by the end of 2024, nearly double the projected demand for 2025. This oversupply has led to plummeting prices, with market rates in China dropping below $4.50 per kilogram by the end of 2024, undercutting the cash costs of most producers and pushing them into losses. Consequently, more than 40 solar firms have closed or delisted since 2024, and major players like Tongwei have laid off about one-third of their workforce.

The proposed restructuring fund aims to reduce operational capacity by approximately 38%, effectively purchasing and shutting down over one million tons of excess production. Industry leaders liken the initiative to an "OPEC for solar," aiming to set production quotas and stabilize pricing. However, challenges include potential resistance from local governments, coordination with financial institutions, and risks that market dominance by major players could stifle competition rather than reform the industry.

The polysilicon overcapacity has led to significant job losses, with China's leading solar panel manufacturers collectively reducing their workforces by about 31% in 2024, cutting roughly 87,000 jobs. Economically, the oversupply has resulted in plummeting prices and financial losses for manufacturers. For instance, GCL Technology reported a net loss of RMB 4.75 billion ($654.5 million) in 2024, a significant decline from a net profit of RMB 2.51 billion ($346 million) in the previous year.

In response to the crisis, the Chinese government has urged the solar industry to curb disorderly and low-price competition, improve product quality, and phase out outdated capacity. The Ministry of Industry and Information Technology (MIIT) held a meeting with leading solar companies, stressing the need to strictly curb low-price, disorderly competition and guide the orderly retirement of outdated facilities.

Major polysilicon producers have also announced production cuts. Tongwei Co., Ltd. and Daqo New Energy have both planned to scale down production at their polysilicon plants while carrying out necessary technological upgrades and maintenance.

The Chinese solar industry has faced similar challenges in the past. In 2012, a supply glut and anti-dumping duties imposed by the U.S. led to numerous bankruptcies. The current situation echoes these past difficulties, with the proposed restructuring fund aiming to prevent a repeat of such outcomes.

Looking ahead, analysts caution that while the current policy signals are encouraging, meaningful reform may be gradual due to structural challenges like private ownership dominance and employment concerns. Experts suggest it could take one to two years before these reforms significantly impact company profits, and visible capacity reductions might be limited in the near term.

The proposed restructuring fund represents a significant step toward addressing the polysilicon overcapacity crisis. However, its success will depend on effective implementation, industry cooperation, and balancing market stabilization with healthy competition.