Is China’s $7 billion plan to reduce polysilicon overcapacity feasible?

OPIS, Wood Mackenzie, and Bernreuter Research have spoken with pv magazine about China’s alleged $7 billion plan to reduce polysilicon oversupply and restore a sustainable pricing environment for the PV supply chain, but opinions remain divided on its feasibility and effectiveness.

China’s six largest polysilicon manufacturers plan to raise about CNY 50 billion ($7 billion) to buy and idle roughly one-third of the country’s polysilicon production capacity, Reuters reported, citing a statement from GCL Technology Holdings.

If carried out, this move would shut down about 1 million metric tons (MT) of lower-quality polysilicon capacity. Industry sources say this would be sufficient to restore a sustainable pricing environment across the photovoltaic supply chain.

“This initiative currently stands out as the most notable government regulation and intervention in China’s polysilicon market,” Jun Won Lee, solar analyst at OPIS, told pv magazine. ” While our sources are closely monitoring its progress, opinions remain divided regarding its feasibility and overall effectiveness.”

Citing unnamed industry insiders, Lee said that at least 30% of the proposed CNY 50 billion funding must come from China’s leading polysilicon producers, who have faced losses for more than 18 months. The source of the remaining 70% remains unclear.

“The purchase price per kilogram must balance the interests of both buyers and sellers,” he went on to say. “Industry sources note that most polysilicon projects are declared at a capital expenditure of CNY 70/kg to CNY 80/kg, though the actual average capex incurred during construction and operation is likely below CNY 60/kg. The acquisition price implied by Reuters would be around CNY 50/kg. Whether sellers would accept this level remains uncertain.”

The treatment of the acquired facilities is another unresolved issue, according to Lee. “Industry participants question whether these assets will be shut down outright or repurposed,” he said. “They note that without permanent decommissioning, excess capacity would remain largely intact. This concern partly explains why the Ministry of Industry and Information Technology is reviewing the energy-saving situation of polysilicon plants, aiming to redefine ‘effective production capacity' and materially reduce the market’s reported total capacity.”

Johannes Bernreuter, the head of Germany-based Bernreuter Research, remains skeptical about the plan in general.

“I cannot imagine that the vehicle will be completely financed by debt and suspect that some equity will come from state entities,” he said. “The bigger problem in my eyes is the huge existing inventory volume. Most of the capacities in question for shutdown are currently not in production anyway. Therefore, the immediate impact will likely be limited.”

Bernreuter said the six manufacturers involved in the operation – Tongwei, GCL, Daqo, Xinte, East Hope, and Asia Silicon – have a combined capacity of nearly 2.5 million MT, while the remaining producers account for only 700,000 MT.

“On top of this 700,000 MT, additional capacities for acquisition may come from projects currently under construction,” he stated. “I still doubt that industry giants like Hoshine, Qiya, Baofeng or Hongshi will voluntarily sell their polysilicon assets.”

Yana Hryshko, managing consultant APAC and head of global solar supply chain research at Wood Mackenzie, said she is more optimistic about the plan.

“The plan is not as complex as it may seem,  especially in a highly consolidated manufacturing environment like China’s PV sector,” she told pv magazine. “The close alignment between the manufacturing industry and the government in China makes the coordination of such large-scale actions much more feasible. The technical capability is there, and the political and industry will appear to be aligned.”

Hryshko claimed that raising the money is not the real issue. “Once the decision is made at the top level to implement the plan, the funding will follow,” she said. “In China’s context, when a strategic priority is set, especially with the level of government-industry integration we see in the PV space, they find a way to make it happen. We hear that the money will not be directly raised by the suppliers, but by the government. It is possible that a further decrease in VAT rebate for PV modules and cells will occur.”

Hryshko noted that resistance from minor polysilicon manufacturers may not materialize. “Risen, for example, exited its polysilicon business entirely,” she added. “And this approach isn’t limited to polysilicon. We’re seeing similar trends in wafers, cells, and modules. According to our data, manufacturers have already begun curtailing production, and inventory levels in China have dropped significantly. There’s a growing industry consensus that it’s more economically rational to shut down excess capacity than to continue producing at a loss.”