Anbound
Electric passenger cars, solar cells, and lithium batteries constitute China’s three new important products in foreign trade. Against the backdrop of an overall decline in the country’s exports this year, these three products have maintained rare export growth. That being said, China’s photovoltaic industry development is facing potential risks of industry-wide overcapacity, and even self-destructive competition.
According to reports from the Chinese business news site Caixin, JionkoSolar, the world’s largest photovoltaic component shipper, has declared its focus on investments in its Shanxi mega-base. The company plans to invest in a 56GW strategic capacity project in four phases over two years. This mega-integrated solar super factory, the world’s largest, covers the entire chain of production, including silicon wafers, cells, and modules. It is also the industry’s largest production base for next-generation N-type batteries, with a total investment of approximately RMB 56 billion.
JinkoSolar’s massive investment plan symbolizes the current state of development in China’s photovoltaic industry. While the industry appears to be experiencing a booming phase of investment and massive capacity expansion, it has, in reality, started to witness looming dark clouds over it. Since 2023, the combined forces of capital, enterprises, and the government, hot money has poured in. Then, there is the announced capacity for various segments of the photovoltaic industry chain that by the end of 2023, it would rapidly progress toward the terawatt level, reaching 1000GW. This is double China’s total global demand, signifying an oversupply of investments across the entire photovoltaic industry chain in the country.
Caixin’s statistics show that in the photovoltaic component segment aimed at the end market, the production capacity plans of just the top five photovoltaic component companies, including JinkoSolar, LONGi Green Energy, JA Solar, Trina Solar, Canadian Solar, by the end of this year have reached 465GW, a 54% increase compared to the end of 2022. Their combined shipment targets are in the range of 310-325GW. In reality, this level of shipment can already meet the demand of most of the world. It’s worth noting that beyond these top five, silicon material leader Tongwei Corporation and GCL Technology, as well as silicon wafer leader TCL Zhinghuan, are all substantially expanding their production capacities as they move toward integration.
The term integration here refers to achieving self-sufficiency in at least three key segments of silicon wafers, cells, and modules, with a minor portion sourced externally. It may even extend to the upstream silicon material segment. For example, in 2023, Tongwei Corporation plans to increase its module production capacity by 4.7 times to 80GW, and its integration rate with cells will increase from 20% to 80%. Meanwhile, LONGi Green Energy aims to increase its cell capacity by 1.2 times to 110GW, with its integration rate with silicon wafers rising from 37.6% to 58%. If companies across different segments of the industry chain pursue such a path, it implies that previously distinct companies operating in different parts of the industry chain with clear-cut roles are now becoming more homogeneous.
The large-scale expansion of Chinese companies has led to a peak photovoltaic supply capacity in China of nearly 1000GW within this year, while the combined global demand is less than half of this figure. According to estimates by various organizations and experts, the global new installed capacity in 2023 is expected to be between 350 and 400 GW. Considering the capacity in the distribution segment, the most optimistic estimate for the maximum terminal component consumption is also around 400-500 GW. This means that China’s photovoltaic production capacity is absolutely excessive on a global scale.
Even if the Chinese photovoltaic industry is aware of the risks associated with rapid expansion, in this abnormally competitive environment, no one dares to withdraw from the expansion competition.
The survey by Caixin revealed that the Chinese photovoltaic industry is full of conflicting attitudes – should production capacity be expanded further? Should integration be pursued? Not expanding may result in losing industry status, while not integrating may make it difficult to withstand the impending price war across the entire industry chain
Why does the industry, despite recognizing the risks, continue to invest? Local governments play a pivotal role in driving this surge in production expansion. An insider close to JinkoSolar revealed that the Shanxi mega-base, being a major project, received robust backing from the local government. Beyond the RMB 9.7 billion raised through additional shares, the remaining RMB 20-30 billion required for the project primarily originates from local urban investment funds or urban investment platforms, which provide bond financing guarantees for companies. Essentially, it involves funding from financial institutions operating behind the scenes. Industry experts note that this has become the prevailing model nationwide, with photovoltaic projects enjoying unwavering support from authorities, and government investment returns consistently exceeding 30%. When a company invests one hundred million yuan, the government utilizes mechanisms such as land allocation, tax incentives, interest subsidies, and financial aid to ensure a minimum return of RMB 30 million.
China’s surplus production in the photovoltaic industry has now permeated the global market. Currently, 8 out of every 10 solar panels worldwide are produced in China. Data reveals that the country’s capacity and output in each segment of the photovoltaic supply chain, including silicon materials, silicon wafers, cells, and modules, hover around 80%, with silicon wafers astonishingly reaching 97%. More than half of China’s photovoltaic modules are exported. Apart from the European and American markets, Chinese photovoltaic exports are rapidly increasing in the Middle East, including Saudi Arabia, the UAE, and Oman, South America, including Brazil, Chile, and Peru, as well as Africa, including South Africa. However, regardless of the market, numerous Chinese companies are swiftly saturating it.
In the face of intensifying competition, companies in the industry are well aware of the situation but are reluctant to withdraw. Within the same technological category, these companies essentially have no viable exit strategy. In its financial report released on August 30, LONGi Green Energy stated that it is inevitable that the industry will face temporary and structural surpluses as industrial end-demand struggles to absorb rapidly increased new capacity, and the entire industry is about to enter a survival of the fittest.
From the above situation, one of China’s prized new exports, the photovoltaic battery sector, is actually facing significant risks due to industry-wide oversupply. For both the industry and Chinese government departments, it would be crucial to recognize the severity of the oversupply risk across the entire industry chain. Due to multiple investments leading to chain expansion, some segments in the upstream photovoltaic industry still seem to have market and profit potential. However, once downstream oversupply is transmitted to the upstream along the industry chain, it is only a matter of time before there is absolute oversupply across the entire chain. When that happens, it is possible that the Chinese photovoltaic industry will undergo another major reshuffle, and even face the risk of a large number of major enterprises going bankrupt, similar to the risk currently faced by the real estate industry.
This risk situation has developed partly due to businesses not adjusting their operating strategies rationally based on risk assessment. Instead, they collectively decided to gamble over it. Additionally, local governments have overlooked easily identifiable industry and market risks and still invested their limited resources in this increasingly fierce market. Researchers at ANBOUND believe that these issues merit profound consideration and analysis.
Amid global geopolitical games putting added pressure on China’s industrial development, it is crucial for China to wisely choose its areas of focus and allocate resources strategically to achieve breakthroughs or enhance business profitability. However, in the absence of systemic and coordinated efforts, both businesses and local governments often prioritize their individual interests, resulting in low-level competition within mature industries. This approach can lead to a scenario where everyone loses. Even though Chinese companies dominate global photovoltaic capacity, factors such as market space on the consumption side, environmental standards, and legal changes continue to significantly impact the low-profitability supply side.
Final analysis conclusion:
The seemingly flourishing Chinese photovoltaic industry is facing systemic risks that both the industry, as well as the country’s central and local governments need to take seriously. If the industry continues to fall into self-destructive competition, it could deal a significant blow to the country’s already leading photovoltaic sector.
No comments:
Post a Comment