China to limit construction of new solar panel factories

China, the world's biggest maker of solar panels, will limit construction of new photovoltaic manufacturing plants to curb excess capacity in a move that may encourage consolidation within the industry.

New solar plants that "purely" expand capacity will be strictly banned, the Ministry of Industry and Information Technology said in a statement on its website yesterday.

Annual spending by companies for research and development and upgrading equipment must total at least 3 per cent of revenue and must exceed 10 million yuan (HK$12.6 million).

Chinese authorities have pledged to cut overcapacity in industries from steel to paper as policy makers seek to reduce the economy's reliance on investments and exports.

A global oversupply of solar panels led to a 20 per cent plunge in prices last year, according to data.

The policy will slow efforts to expand production capacity in favour of mergers and acquisitions as a growth strategy for the biggest companies, said Angelo Zino, an analyst with S&P Capital IQ in New York.

"They may be able to add capacity without actually building it," Zino said.

"The Chinese government would be more than OK with companies if they joined forces or capacity gravitated towards the tier-one manufacturers."

In Taiwan, Neo Solar Power Corp, a manufacturer of solar cells, surged 6.96 per cent to NT$27.65 (HK$7.24) yesterday, heading for its biggest gain since June 26. Green Energy Technology also rose, gaining as much as 5.9 per cent.

Chinese solar companies have the capacity to supply the entire industry, with plenty left over.

Were they to run at full speed, China's factories could produce 49 gigawatts of solar panels a year, 10 times more than in 2008 and 61 per cent more than installed globally last year, according to data. A gigawatt is about as much as what a new nuclear reactor can supply.