Why China’s solar boom is a bust for its leading players

Longi and a few other Chinese companies dominate the solar business globally. Their home nation is in the midst of an unprecedented installation boom, with more than 100 gigawatts of capacity added in the first half of this year alone.

Yet in the upside-down world of the Chinese solar industry—and many other industries in the country—the boom is a bust for the companies involved.

Longi’s chairman, Zhong Baoshen, is fighting to reverse losses amid the bloodbath he predicted last year, when he saw that a glut of capacity would soon overwhelm the industry.

In the U.S., the one global market where prices remain high, Zhong is confronting suspicion about China’s national aims. His earlier initiatives to tap U.S. demand hit geopolitical obstacles.

“We paid billions in tuition fees" to learn how to navigate U.S. politics, he said.

The 56-year-old businessman’s life has been a lesson in China’s industrial triumphs as well as its perils. With two college friends from the physics department, he built a company that was valued at $80 billion at its peak. Longi didn’t just copy Western or Japanese technology—it took risks on innovation that changed the industry.

Whipsawing government policy, while helping to create a market for solar panels, has brought Zhong’s company to its knees twice, the first time more than a decade ago and again this year.

The pattern is the same: Beijing throws its support behind renewable energy, prompting local governments to pile on subsidies for new entrants in the hopes of creating a hometown champion. Capacity balloons, competition becomes cutthroat and the industry becomes unprofitable.

In the first half of 2024, the price of polysilicon, the building block for solar panels, dropped more than 40%. The price of wafers and cells halved.

In the half-year, Longi lost $740 million, and its stock price at one point this year was down 80% from its peak before recovering somewhat. Zhong believes it can survive the inevitable shakeout. Many others won’t.

Starting with silicon

One day in the summer of 2003, a college friend, Li Zhenguo, called Zhong with a discovery: There was a new industry called solar, and it was booming.

Li was in the silicon-ingot business for semiconductors and had a $2 million overseas order that was returned by the customer to China—where a domestic solar company bought it for $6 million.

Soon the two men, who had started separate entrepreneurial careers, were in business together with a third classmate, selling ingots and other materials to solar-panel makers.

Two technology bets in the last decade helped propel Longi to the top of the Chinese solar industry.

Solar panels are made by extracting silicon from quartz and forming it into cylindrical ingots, which are then sliced into wafers and chemically treated to create cells. Longi gambled on monocrystalline cells made from a single crystal of silicon when most in the industry were using polycrystalline cells.

The single-crystal material was better at converting energy but cost more to produce at the time. Longi figured out a way to produce it more efficiently.

Another innovation was a diamond-coated metal wire saw to cut wafers. Longi and its partners figured out that growing synthetic diamond-powder particles made the saws harder and longer lasting.

Through such improvements, it cut manufacturing costs by two-thirds from 2012 to 2016.

In 2020, Longi shipped around 25 gigawatts of solar modules, more than the entire U.S. installed that year. The same year, Chinese leader Xi Jinping pledged to meet ambitious climate targets that would require more green energy.

Longi’s annual reports say direct government subsidies never exceeded 1% of its annual revenue, while it spent around 6% on its own research and development.

Jonas Nahm, a Johns Hopkins University professor who has studied China’s industrial policy, said that for stronger companies such as Longi, the most important form of government support was the policy of motivating renewable-energy projects. That ensures a market for solar panels.

Zhong knows many Americans think companies such as his succeeded because of government backing. His view: “Chinese companies succeeded because of hard work, skill and a complete supply chain."

By last year, tens of billions of dollars were pouring into clean energy in China. Even a dairy company built a solar-cell plant.

Two-thirds of China’s new power-generation capacity is coming from solar power, according to official statistics. In a single year, it is adding about as much as the U.S. has built in history. Yet with prices plunging, Longi saw revenue fall 40% in the first half of this year.

Turning to the U.S.

At the moment, the U.S. is “the only place where anyone is making any money," said Yana Hryshko, global head of solar for the energy consulting firm Wood Mackenzie.

Shielded by tariffs and fostered by subsidies under the Inflation Reduction Act, a solar panel commands triple the price in the U.S. compared with China and Europe, according to Wood Mackenzie.

The U.S. accounts for less than 10% of Longi’s solar module sales, and expanding in America has become trickier.

A tough U.S. law against forced labor effectively halted solar imports using high-grade silicon made in the Xinjiang region in western China. Longi said it spent nearly a year proving to the U.S. that its supply chains were free of such activities. It said it abides by U.S. laws and regulations.

Longi had thought it could circumvent U.S. tariffs by building factories in Malaysia and Vietnam. It spent more than $1.4 billion doing so, only to see the White House close the loophole in May after a two-year reprieve.

Zhong said after those costly lessons, Longi came to realize that to do business in the U.S., it needed to build in the U.S. Last year, it became the 49%-owner of a joint venture called Illuminate USA, with Chicago-based renewable developer Invenergy taking a 51% stake. In February, they opened a plant in Pataskala, Ohio, to assemble solar modules, and Invenergy says it created 1,500 local jobs.

Some people in Pataskala said they feared Longi’s ties to the Chinese Communist Party. The joint venture amounted to inviting a “mortal enemy" into the community, said one speaker at a city council meeting in January.

Rep. Carol Miller (R., W.Va.) said encouraging companies such as Longi to operate in the U.S. “only increases dependency on the CCP in our supply chain." She has proposed a law that would effectively bar Chinese companies from getting clean-energy subsidies.

Timothy Brightbill, a lawyer at Wiley Rein who represents an industry group of American solar manufacturers, said the U.S. shouldn’t provide taxpayer dollars to companies that have participated in wiping out most of the American solar industry through what he called unfair trade practices.

Longi says it is a private company and Illuminate USA is an American company. Invenergy received $4 million in incentives from an Ohio economic development agency and the plant was given a 15-year tax abatement on property improvements.

“The reality is that the U.S. ceded leadership on solar manufacturing to China decades ago," said Jim Murphy, Invenergy’s president. He said the plant was using Longi’s manufacturing expertise to help the U.S. bring back parts of the solar supply chain.

Zhong said Longi was looking into building a solar cell plant in the U.S.

“The U.S. needs to be clear what it wants," he said. “You want to develop your renewable energy sector. All the technology and know-how is in China. If you don’t want China to help, it’ll be difficult to develop."