Solar photovoltaics (PV) and new-energy vehicle (NEV) batteries, China’s new economic drivers, are facing industry consolidation. For PVs, leading Chinese players have sought to bolster their market share by rapidly expanding production capacity. Annual supply capacity is estimated to reach 800 GW‑1,100 GW by the end of 2023, vastly outstripping the projected global demand of about 300 GW. In the battery sector, demand growth has slowed amid the growing popularity of hybrids, which utilise less battery power than pure electric vehicles (EVs).

Why does it matter?

There is a moderate risk that capital investment could slow, dragging economic growth. Electric machinery (including solar panels and battery manufacturing), automotives and chemicals (upstream suppliers) have been major investment drivers in the manufacturing sector in 2023. In 2024 the realisation of overcapacity could lead to a dramatic reversal in investment commitments. In particular, smaller and technologically disadvantaged PV and battery makers, among which capacity utilisation rates are already dropping, will be under pressure.

This downturn could affect local government finances. Many localities have helped to facilitate the investment boom, attracting solar panel and battery makers with generous financing support in exchange for potential tax revenue in the future. However, their ability to provide such support is being undermined by high debt levels, prompting attempts by the central government to curb unofficial lending and impose fiscal discipline. Although EIU’s baseline scenario remains that China will avoid a financial crisis induced by local-government financing vehicles, locales that have been supporting smaller and/or noncompetitive solar and battery firms could face higher fiscal and repayment pressure.

Expanded supply and lower prices of green equipment will accelerate their adoption (and the energy transition by extension), but it could also exacerbate trade tensions. In Europe, solar panel inventory levels have risen while prices have fallen. This could harm European homegrown solar panel module manufacturers and thus lead to a renewed call for protecting domestic industries. Localisation requirements for EV components in Western markets—and the threat of tariffs on Chinese EVs—will limit battery’s export opportunities.

What next?

Industrial policies in the US, EU, and other jurisdictions—aiming to expand their footprint in green sectors—will be harder to achieve, given the competitiveness of Chinese green technology suppliers. Chinese solar panel and EV battery manufacturers will attempt to take advantage of these incentives by expanding overseas, but scrutiny over inbound investment across different jurisdictions will limit the de facto investment footprint. Joint ventures between Chinese and Western companies (such as between Dongfeng, a Chinese automotive maker, and Renault–Nissan, a French-Japanese automotive alliance) selling China‑made green equipment and vehicles to Western markets could be a viable avenue for some companies to increase their footprint in China.

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.