The Chinese solar industry faces a challenging paradox: it overwhelmingly dominates global manufacturing of photovoltaic components, yet many of its producers have been trapped for years in a price war that has wiped out margins. Polysilicon, the essential raw material for producing silicon wafers used in most solar panels, is at the center of the problem.
Manufacturers are attempting to establish an effective price floor linked to production costs, while simultaneously reducing utilization and production to curb excess supply. It’s not just about making solar panels more expensive—the goal is to prevent a massive industrial capacity from continually selling below cost.
Data available through 2026 shows how much the market has deteriorated. In April, OPIS pegged its China Mono Premium reference at just 34,071 yuan per kilogram, about $4.99, while industry sources estimated that around 31-32 yuan/kg barely covered raw materials and electricity for some large manufacturers.
Key Points in 30 Seconds
- According to the OECD, China controls at least 80% of global production in key stages of the solar supply chain.
- Overcapacity has triggered a prolonged price war.
- During 2026, polysilicon prices neared the cash cost for some manufacturers.
- In July, n-type recharge polysilicon traded on average at 32,700 yuan per ton.
- Manufacturers have cut production and carried out maintenance shutdowns.
- Beijing has been attempting to combat the so-called “involution”: destructive competition based on overcapacity and ever-lower prices.
- The problem affects the entire supply chain: polysilicon, wafers, cells, and modules.
- The likely outcome is industry consolidation and the retreat of less efficient capacity.
- While China tries to stabilize its domestic market, the U.S. has set its own minimum prices and tariffs to protect domestic production.
What is Polysilicon and Why Is It So Important?
The vast majority of current photovoltaic panels use cells made from crystalline silicon.
The process begins with high-purity silicon. Polysilicon is then transformed into ingots, which are sliced into ultra-thin wafers. These wafers then undergo various processes to become solar cells and, ultimately, photovoltaic modules.
Simplified, the industrial chain is:
polysilicon → ingots → wafers → cells → solar modules
China has gained an extraordinarily dominant position in virtually all these links.
An OECD report published in January 2026 estimates that Chinese manufacturers held a combined global share of at least 80% in polysilicon, wafers, cells, and modules.
The same advantage that significantly reduced the cost of solar energy has now become one of the industry’s biggest problems: too much capacity trying to sell in the same market.
China’s Problem Is Not Underproduction but Excess Production
For years, Chinese companies made huge investments to expand capacity.
Global demand grew rapidly, governments supported the energy transition, and scaling up allowed for continuous cost reductions.
But this expansion far outpaced market growth.
When many factories need to keep their lines running to cover massive fixed costs, lowering prices may seem rational on an individual basis.
If all manufacturers do the same, an unending spiral ensues.
Prices fall.
Margins disappear.
Companies keep producing to generate cash flow.
Excess supply grows.
And prices tend to drop again.
In China, this pattern has become a prime example of what Beijing calls “involution”: destructive internal competition based on overcapacity and declining prices, which harms nearly all participants.
OECD notes that the scale of support received by China’s solar sector contributed to investments in capacity regardless of market conditions, leading to the concentration of global manufacturing in China and subsequent severe economic difficulties for producers.
Polysilicon Approaching Economic Limits
In early 2026, prices started deteriorating again.
On March 17, OPIS reported China’s Mono Premium at 44,583 yuan/kg, a 16.4% decline from the start of January. Elevated inventories, weak downstream demand, and uncertainty over government measures to stabilize the market drove this decline.
A month later, the situation worsened.
By April 14, the same index had fallen to 34,071 yuan/kg, roughly $4.99.
Market sources cited by OPIS indicated that some large producers could only cover raw materials and electricity when prices were around 31-32 yuan/kg.
It’s important to understand what this means.
Covering cash costs does not necessarily mean profitability.
A factory also needs to recover investments in facilities and equipment, pay financing, staff, and operational expenses.
Therefore, selling near raw material and electricity costs can keep a plant running temporarily but is unlikely to be a sustainable long-term model.
Prices Stayed Around 32 Yuan/kg in July
The market also failed to show significant recovery during summer.
According to July 8 data from the Silicon Industry Branch of China Nonferrous Metals Industry Association, n-type recharge polysilicon traded between 31,000 and 34,000 yuan per ton, with an average of 32,700 yuan.
Granular n-type silicon was approximately 32,000 yuan per ton.
The nine manufacturers included in these statistics accounted for 83.1% of China’s domestic polysilicon production during Q2 2026, providing a solid market reference.
While the decline had slowed, it was primarily because the market was approaching levels where further price reductions became increasingly difficult.
Manufacturers Begin to Defend Production Costs
This situation explains growing interest in establishing an economic floor.
Spring signals already appeared of producers resisting selling below cash cost.
At the same time, companies began performing maintenance and reducing utilization rates.
In April, the Silicon Industry Branch expected Chinese polysilicon output to decrease by about 8% monthly.
Some plants had operated only a single line with utilization rates between 50-70%, leaving less room for further reductions without halting capacity.
The economic goal is simple: if demand cannot absorb all output, supply must be reduced.
A Globally Dominant Industry But with Profitability Challenges
The crisis shows that market share and profitability are very different concepts.
China has probably built the world’s most powerful solar manufacturing chain.
Its immense industrial scale, integrated suppliers, technological innovation, and continuous cost reductions have been key in making photovoltaic energy one of the most competitive forms of new electricity generation.
However, producing cheaper than virtually any international competitor does not guarantee profits when Chinese manufacturers compete among themselves by selling below costs.
OECD highlights that in 2024, steep price drops caused some companies to sell modules below break-even, damaging income, profitability, and employment.
Overcapacity issues persisted into 2026. The South China Morning Post reported in May that Beijing’s campaign against overproduction had been ongoing for nearly two years without fully solving the problem, with companies at various points of the supply chain still operating at losses.
Beijing’s Goal: Ending “Involution”
The problem has grown to a level that it now constitutes an industrial policy issue.
China does not necessarily need to produce more solar panels; it needs its massive industry to do so sustainably.
This involves limiting irrational expansions, retiring outdated or inefficient plants, promoting consolidation, and avoiding competition solely based on price cuts.
A cost-based floor aligns with that strategy.
The challenge is making it work.
Different companies have different cost structures. A modern, highly automated factory located in a region with inexpensive electricity can produce polysilicon much cheaper than older facilities.
Setting a minimum price too high would protect inefficient manufacturers.
Too low, and it wouldn’t resolve the core issue.
Extremely Low Prices Also Impact Innovation
There is another less obvious consequence.
Price pressure has allowed a significant reduction in solar panel costs, benefiting developers and consumers.
But a perpetually loss-making industry may cut back on investments.
Next-generation cells, more efficient wafers, metallurgical processes, TOPCon, HJT, and back-contact technologies require substantial R&D and manufacturing investments.
If most capital is used just to survive the price war, maintaining technological advancement becomes harder.
Therefore, Beijing needs to balance fostering fierce competition with preventing that same competition from destroying its industrial champions financially.
The U.S. Doing the Opposite for Different Reasons
The situation appears even more striking when compared to the United States.
While China seeks to prevent its domestic producers from undercutting each other, Washington aims to prevent prices from destroying its own industrial capacity.
In August, the U.S. announced new measures on imports related to polysilicon, including a 15% tariff and minimum prices for certain products. Reuters reported these are part of a strategy to protect domestic semiconductor and solar supply chains from Chinese dominance.
Among the published levels is a minimum price of $21 per kg for imported polysilicon, well above the roughly $5 per kg observed months earlier in the Chinese domestic market. For ingots and wafers, a reference of $100 per kg was set, along with specific minimums for cells and modules.
This disparity illustrates how fragmented the global solar market is becoming.
From Price Wars to Industry Consolidation
The logical consequence of excess capacity is restructuring.
Higher-cost producers are increasingly struggling to compete.
Stronger financial entities can withstand longer.
Some facilities will shut down, others reduce output, and mergers or acquisitions may occur.
The ultimate result could be a Chinese industry with reduced marginal capacity and more disciplined pricing.
However, this process may take years due to the sector’s strategic importance, regional economic dependencies, and local government interests in preventing closures and job losses.
Cheap Solar Panels Have a Less Visible Side
For the international consumer, China’s industrial war has been notably beneficial: extremely cheap solar panels.
But those prices don’t always reflect a financially healthy supply chain.
When polysilicon is sold near raw material and electricity costs, and manufacturers in different segments are operating at losses, some of that savings is indirectly financed by the companies’ own balance sheets.
China is now trying to correct this imbalance without losing the dominant position it has built over the last two decades.
That shift could have global repercussions.
If production cuts and price discipline succeed, polysilicon could move away from its lows and pass some of that increase up the supply chain to wafers, cells, and modules.
After years in which the biggest challenge of the solar industry was building enough capacity for the energy transition, China now faces the opposite problem: it has learned to produce so much and so cheaply that it needs to find a way to prevent its own manufacturers from destroying each other.
