The solar energy industry in China is facing a deep crisis. According to reports submitted by several companies in the sector, almost one third of the workforce was fired or left during the past year. Based on an examination by a major news agency, the five largest solar companies in China dismissed around 87,000 employees, which accounts for 31 percent of their total workforce.
The dramatic cuts are a direct result of a severe price war that caused massive overproduction. The world manufactures twice as many solar panels each year as are actually used, and most of them are produced in China. This overproduction, combined with import tariffs imposed by the United States, led to losses of 60 billion dollars for the industry last year and to bankruptcy or merger of more than 40 solar companies since early 2024.
The industry has been declining since late 2023. In 2024 the situation worsened, and it appears that it will continue to worsen in 2025. The cuts are highly sensitive in China, where employment stability is considered a key government priority. Except for a small five percent reduction admitted by one major corporation, the large solar companies did not officially announce mass layoffs.
In response to the crisis, the Chinese government appears ready to intervene. In early July the president called to end what he described as disordered price competition. Days later, the Ministry of Industry and Technology committed to calming the price war and shutting down outdated production lines to restore profitability. Prices of polysilicon, the main raw material used in solar panels, rose by around seventy percent in July, indicating serious intentions.
It was also reported that leading polysilicon manufacturers plan to create an organization similar to OPEC to control prices and production volumes. This new body is expected to invest about 50 billion yuan, roughly 6.9 billion dollars, in purchasing and shutting down nearly one third of existing production capacity. Analysts warn that local authorities may resist these measures because they rely on the factories for output and employment.
The current crisis is part of a broader pattern of overproduction and financial losses in several Chinese industries, including electric vehicles. To restore profitability in the solar sector, an estimated 20 to 30 percent of existing production capacity must be shut down. The losses in the industry today are similar to those recorded in the real estate sector, even though the solar industry is ten times smaller.
The global impact of this crisis on solar energy remains unclear. On the one hand, excess production and a flooded market will keep prices low for distributors and end users in the short term. On the other hand, tighter government control and the creation of a coordinated pricing body are likely to reduce production capacity and raise prices later on. Given that solar energy is considered the main alternative to fossil fuels in the renewable energy market, the situation may cause significant damage to the global effort to expand its use.