The roller coaster ride that Chinese wind power and photovoltaic (PV) operators have experienced—from the peak to the bottom of the valley—has taken just four years. Unlike the overcapacity seen in developed countries like those in Europe and America, which is often driven by technological and economic cycles, China’s situation is shaped by its own unique set of dynamics.
In China, the central government and ministries issue industrial support policies, while local governments play a decisive role in shaping the next steps. These local authorities lobby enterprises to establish themselves, offering preferential measures, guaranteed sales channels, and access to bank credit. To capture the local market, companies tend to build factories extensively, following the mindset that "the bigger you are, the more you can attract the government and banks." This has led to an explosive expansion of production capacity.
When market demand remains unclear, China's overcapacity often emerges from the supply side. Simply expanding demand is not only costly but also ineffective in saving struggling industries. In the case of the wind power and PV sectors, resolving the current overcapacity must begin with the supply side.
China’s overcapacity is not a result of a single economic cycle. In 2013, no major PV manufacturing company was profitable. Research conducted by the Ministry of Science and Technology in Qinghai revealed disappointing results: some new entrants were forced to halt production due to delays. Even strong players could only sell at a loss, without factoring in equipment depreciation, just to maintain cash flow.
The situation for wind power equipment manufacturers is similar. After over a year of large-scale shutdowns, Huarui Wind Power, once a major player, had to close eight overseas subsidiaries within six months. Some of Goldwind Technology’s production lines were shut down, and others operated only a few days a week. Foreign firms also began withdrawing from China.
Today, Chinese new energy companies are facing severe overcapacity. According to the China Wind Power Development Report 2012, the country's major wind power equipment manufacturers had a capacity of over 30 GW in 2012, but the installed capacity of new wind turbines was only 18 GW that year. With limited access to foreign markets, nearly 40% of domestic equipment capacity remained idle. By mid-2013, the overall idle rate exceeded 60%.
Similarly, in the PV sector, China’s module production capacity reached 45 GW in 2012, surpassing the global total of 38.4 GW. Even if all components were sold, China still produced nearly 7 GW more than the world needed. According to Chen Letian, chief macro researcher at Nisshin Securities, China’s general capacity utilization rate is 57.8%, significantly lower than the 72–74% range considered normal. This indicates a serious overcapacity problem.
Shen Jianguang, a columnist for the Financial Times’ Chinese website, emphasized that China’s overcapacity is not simply a cyclical phenomenon. Unlike Western countries, where overcapacity arises from technological and economic cycles, China follows its own logic. Guided by central government policies, local governments create favorable conditions, leading companies to expand production either voluntarily or under pressure.
The temptation of “resource-based industry†has played a key role. For example, Zhenbei Cashmere, already established in the region, shifted to PV modules after local government lobbying. In 2009, the company launched Zhejiang Besun Photovoltaic, moving into a completely different sector. Many other companies, previously uninvolved in renewable energy, entered the industry seeking quick profits.
According to a source at the Beijing Certification Center, “leasing a factory and buying a production line allows you to start producing quickly. If the market is good, you can recoup your investment in a year.†However, this approach leads to excessive low-end production capacity. Local governments, influenced by GDP, fiscal revenue, and employment targets, often favor local companies, making it difficult for outsiders to compete.
In Jiangsu Province, for instance, wind turbine manufacturers like Huarui Wind Power and Goldwind Technology were pressured to invest in Yancheng or Dafeng. The local government even issued documents encouraging developers to prioritize purchasing Huarui units. This local protectionism disrupted Sinovel’s strategic plans.
As of June 2011, Huarui had invested 6 billion yuan in Yancheng. Its first phase was expected to produce 1,000 units of 1.5 MW wind turbines annually, along with small batches of 3 MW and 5 MW models. However, due to market changes, the second phase never materialized, and production remained underutilized.
This pattern was repeated across many regions. Since 2008, over 100 city and county governments announced the construction of new energy industrial parks. As one senior wind power expert noted, “Local protectionism uses the ‘resource for industry’ lure, forcing companies to build factories everywhere to gain access to local resources and then use them to secure orders.â€
This irrational expansion has created unfair competition and distorted the market. Simply “expanding demand†is a dangerous strategy. With the rapid increase in installed capacity, renewable energy subsidies have been stretched thin. Banks, influenced by national policies and local governments, often provide easy credit to companies.
A wind power manufacturer said, “If a company isn’t skilled at getting loans, the bank will hand the skills over to someone who is.†Most companies rely heavily on borrowed funds. Not only the new energy sector, but also industries like shipbuilding, flat glass, steel, and cement, have expanded due to credit-driven growth.
One executive from a wind power giant stated, “The more money you borrow, the less likely banks and governments will let you go bankrupt.†Companies with billions in debt often receive loan extensions with minimal conditions—just paying interest.
“A bank official once told me, ‘At least not in my office, we won’t let the company go bankrupt,’†a finance officer recalled. This unique combination of local governments, banks, and companies has led to a Chinese-style overcapacity crisis.
To address this issue, the most common solution is to “expand demand,†but this approach has proven ineffective. In the wind power sector, companies have lost the ability to expand both installed capacity and production. As Yang Xiaosheng, former chief engineer at Longyuan Power, noted, “Even if a wind farm is approved in the Sanbei area, I wouldn’t install the turbines—it would be too much of a loss.â€
While wind curtailment in the north has eased slightly, southern regions face high land costs and limited scale, keeping construction costs high. Only a few companies, like Longyuan Power, can achieve modest profits. Most cannot guarantee profitability.
For wind power equipment manufacturers, unit prices have dropped from 6,000 yuan/kW in 2007 to around 3,000 yuan/kW today. Many smaller companies, such as Guodian United Power, are now operating at a loss.
More seriously, the rapid increase in installed capacity has strained renewable energy subsidies. Liu Lei, deputy general manager of Huadian Fuxin Energy, stated that the state owes his company over 900 million yuan in subsidies. Guodian Key’s chief engineer reported receivables of nearly 10 billion yuan. Wang Yongqian estimates that cumulative arrears exceed 23 billion yuan, with the gap likely to grow.
Even without subsidy issues, simply expanding demand may not solve the problem. Both PV and wind power sectors in China already produce more than the current global demand.
Chen Letian suggests that resolving overcapacity should start with the supply side. This includes transferring excess capacity to developing countries, setting stricter resource, energy, and environmental standards to eliminate outdated production, and promoting mergers and acquisitions to improve overall production quality.
Hanghong Lighting (Linyi) Co., Ltd. , https://www.sdhhzm.com