China drafts new export controls to shore up solar dominance

China is considering new export restrictions on solar manufacturing technologies to boost its global dominance in the solar industry.

The proposed rules will put advanced technologies used to make ingots and wafers, key parts that make up solar panels, on a list of export controls, according to a public consultation process jointly published in December by China’s Ministry of Commerce and Ministry of Science and Technology. The move is still being drafted and no decisions have been made yet.

To make a solar panel, polysilicon is used in ingot-casting molds to construct wafers. These wafers are then pieced together to create the photovoltaic (PV) cells in solar panels — which are critical to clean energy transitions that governments all over the world are rushing to roll out.

The ban will not restrict the supply of complete wafers for solar panels, but it will restrict the technology exports needed to produce them outside of China. If the three proposed solar technologies are added to the restrictions list, manufacturers will need to obtain provincial licenses in order to export such products.

“To me, the No.1 question is whether [the rules] will be oriented more towards Chinese firms operating abroad, or towards Western firms that are trying to create non-Chinese supply chains in places like the U.S. and India,” Ilaria Mazzocco, senior fellow at the Center for Strategic and International Studies (CSIS), told The China Project.

“This is very unclear at the moment but if you think about it, the main producers of solar panels outside of China are still Chinese firms. However, it’s also possible that this is a response to what Beijing perceives as an increasingly geoeconomic world and wants to ensure it maintains its strategic edge in a technology it currently dominates, especially since other countries are explicitly saying they want to rely less on China,” she added.

China’s astounding solar dominance

China controls about 95% of the world’s polysilicon and wafers, and “the world will almost completely rely on China for the supply of key building blocks for solar panel production through 2025,” according to a July report from the International Energy Agency (IEA). The country has poured over $50 billion in wafer-to-solar panel production lines, 10 times more than Europe, creating a booming PV industry and one of its major exports.

In addition, China is home to the 10 top suppliers of solar PV manufacturing gear in the world, and Xinjiang accounts for 40% of global polysilicon manufacturing — in part why the U.S. has banned solar imports from China over forced labor concerns.

But solar components like ingots and wafers are costly to produce, and China boasts the cheapest and most well-developed industry in the world, making it difficult to diversify PV supply chains. Production costs in China are 10% lower than in India, 20% lower than in the U.S., and 35% lower than in Europe — and it’s only getting cheaper in China.

“Massive deployment of solar power is going to be a central component of any successful climate policy, and China is absolutely dominant in solar manufacturing,” Alex Wang, UCLA professor of law and faculty co-director for the Emmett Institute on climate change and the environment, told The China Project. “Given rising global tensions with China and COVID disruptions, other countries are rightly seeing the supply chain risks of Chinese control and hoping to capture some of the economic and job benefits of the clean technology transition. China is attempting to maintain its lead by proposing export restrictions on advanced solar wafers.”

Geopolitical risks and clean energy transitions

China’s dominance in the global supply chain has pushed other countries to shore up their own abilities to make solar panels. Last August, the U.S. signed into law the Inflation Reduction Act (IRA), which aims to counter China by offering billions of dollars in subsidies to domestic clean-tech manufacturing. And today, the European Union unveiled its Green Deal Industrial Plan, a similar roadmap to the IRA, which is chock-full of investment aid and tax benefits for green technologies.

“Moves like the IRA are explicitly aimed at reducing China’s importance in clean tech supply chains and promoting reshoring. The Chinese government has never really focused on solar as a strategic technology, unlike batteries and electric vehicles, but perhaps this has changed,” Mazzocco told The China Project. “Ultimately, I don’t know if this would really give China a geopolitical edge, but it would certainly help maintain Chinese solar companies’ virtual monopoly over wafer production — for now.”

The move comes just a few days after Japan and the Netherlands agreed to join U.S. chip curbs to China, in a related but different effort to stymie China’s development of cutting-edge technologies that are crucial to global clean energy transitions.

“It’s hard to look at these kinds of restrictions and not think of the semiconductor export ban and the similarities there. But, I’d say there’s some pretty big differences since there’s no straight-up ban on the export of products,” Mazzocco told The China Project. “Frankly, if Beijing were to cut off the world from solar panels, I’m not sure exactly what it would achieve except for strangling its own industry.…I think ultimately the strategic leverage that solar panels offer is quite limited compared to that of semiconductors.”

Michael Davidson, assistant professor in engineering and policy at the University of California, San Diego, told The China Project that a more likely prompt for the proposed export bans could be “the preliminary finding by the U.S. Commerce Department about a month ago that a handful of Chinese firms were engaging in trade diversion practices in Southeast Asia” to get around U.S. anti-dumping rules solar cells and modules from China.

“We need to be mindful to ensure that these tit-for-tat moves by the U.S., China and other countries do not slow the global move to clean energy. And any country trying to hold back other countries through export controls, tariffs, and the like should be well aware of the possibility of unexpected consequences. Just as U.S. solar tariffs led to Chinese countermeasures that neutered the U.S. polysilicon industry, Chinese export controls on wafers could provide the impetus for a stronger push by the U.S. and others to develop alternatives to Chinese technologies,” Wang told The China Project.

The proposed export curbs could also have negative repercussions on the entire planet’s hopes for going green. Davidson warned that “if solar module prices become more expensive, it’s extremely likely that other countries, particularly developing countries, which are facing very difficult price point decisions between expanding coal…and expanding clean energy” might have their decisions tipped in favor of fossil fuel.