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SHANGHAI — In an enormous exhibition center almost as big as the Pentagon, more than 3,500 solar companies gathered here earlier this summer to showcase their latest innovations and discuss the future of the Chinese solar industry.

The size and scale of the Shanghai summit reflected the magnitude of China’s solar industry, which dominates the world’s solar supply chain. Buffeted by price wars that make it impossible to stay profitable at home, however, Chinese firms are mulling new ways to expand globally, especially to lucrative markets like the United States and Europe.

At the conference, “going overseas” — or in Mandarin, “chu hai” — was the phrase on everyone’s lips, despite the many hurdles.

Chinese solar panel manufacturers aim to surmount the unprecedented trade restrictions they face in the U.S. and Europe using three key strategies: building factories directly in the U.S., building factories in new third-party markets and continuing direct exports where it makes financial sense to do so.

“Pursuing fierce domestic competition will only make the situation worse,” Zhu Gongshan, a veteran Chinese solar entrepreneur and chairman of Hong Kong-based GCL Holdings Co. Ltd., said in a keynote speech. “Only by going overseas can we find opportunities.”

Strong headwinds

Although Chinese solar firms have “gone overseas” for over a decade, the headwinds are stronger this time. They are facing internal and external worries simultaneously, as several company chiefs stressed, referring to domestic oversupply and international restrictions.

The U.S. has accelerated shutting out Chinese imports to protect the American solar industry. Over the past few months, it has not only doubled the tariff rate on solar cells and modules from China, but also reinstated tariffs on some solar products made in Southeast Asia, Chinese firms’ current overseas production hub.

Chinese companies “will never give up the western market because it’s a high-premium market,” Yana Hryshko, head of global solar supply chain research at consultancy Wood Mackenzie, told Cipher News at the conference.

According to Wood Mackenzie, the average manufacturing cost of U.S.-made and EU-made solar modules are USD $0.46 per watt and $0.34 per watt, respectively, compared to around $0.15 per watt by Chinese companies. Some data suggest the cost for some types of panels slipped as low as $0.11 per watt in China in the first half of this year. This huge differential gives Chinese firms the flexibility to find the best export strategy.

Target market

Some Chinese firms have chosen to set up shop directly in the U.S. — a move that would allow them to bypass tariffs, while receiving subsidies from the 2022 Inflation Reduction Act, the country’s signature climate law.

Since January of last year, at least eight Chinese brands — including industry majors Trina Solar and JA Solar — have announced plans to build factories in the U.S., according to the 2024 Global Solar PV Brand Influence Report handed out at the conference. By 2026, Chinese investors are projected to beat their U.S. counterparts in planning solar panel production capacity on American soil, according to the Institute for Energy Economics and Financial Analysis, a global think tank.

Seraphim Solar, based in Changzhou, a city northwest of Shanghai, was one of the first Chinese solar companies to journey west. It opened a plant in Jackson, Mississippi in 2015, but shut it down a few years later.

“It was not the right time because the U.S. market was not there,” Insan Boy, vice president of global sales at Seraphim Solar, told Cipher News from his company’s booth at the conference, pointing to the lack of government targets back then to spur demand.

But his company is now taking its second stab, negotiating with a U.S. partner to open a new factory in Texas.

“The U.S. is such a big country and the number one economy in the world,” Boy said. Some Chinese companies “want to be the part of [its solar] industry. It’s their ambition.”

Leaning on intermediaries

Building factories in third-party markets is not a new strategy for China’s solar industry, although they may need to shift where they’re building.

After the U.S. imposed anti-dumping tariffs on made-in-China solar cells in 2012, followed by the same penalties from the European Union, Chinese firms set up factories in neighboring Southeast Asian countries, through which they would export products to western markets.

Ten years later, the U.S. slapped tariffs on some solar products produced by Chinese companies in Cambodia, Malaysia, Thailand and Vietnam. And earlier this year, the U.S. started investigating whether to impose even higher anti-dumping tariffs on those countries.

Hryshko and her colleagues at Wood Mackenzie predict Chinese firms will be able to continue profitably operating in Southeast Asia even with new restrictions. They are making “huge margins on the exports to the U.S. Even with the tariffs, they will still make money,” she said.

But some believe Chinese companies must switch strategies. The Southeast Asia path is “gone already,” Boy from Seraphim Solar told Cipher News.

Instead, some companies are building factories in emerging economies that have local demand, boast good ties with Beijing and can act as springboards to the U.S. The Middle East is leading the pack.

“Chinese solar PV [industry] has switched to the new hot land that is the Middle East,” Beijing News reported recently.

The region is a pivotal hub for the Belt and Road Initiative, China’s global infrastructure program, making it easier for Chinese firms to invest there. The region’s solar capacity is expected to leapfrog from roughly 40 gigawatts (GW) by the end of this year to 180 GW by 2030, according to the Middle East Solar Industry Association.

Indonesia is another option, according to some manufacturers represented at the conference. The Southeast Asian country is not yet targeted by U.S. import tariffs or the ongoing anti-dumping investigations and local demand for panels could increase quickly to meet government goals.

Other possible manufacturing targets are Africa and South America, especially Brazil, which has seen a solar power boom and welcomes Chinese investment.

Direct exports

While the EU is ramping up its efforts to investigate Chinese cleantech firms and build its own cleantech manufacturing base, many Chinese firms still see the bloc as ripe for direct exports.

“The core issue isn’t tariffs, but subsidies,” an employee of a solar panel manufacturer who requested anonymity due to her company’s rules told Cipher News. “The U.S. gives generous subsidies to support local industries, which means once a Chinese company builds a factory there, its Southeast Asian factory won’t have advantage anymore. But the EU is different. It doesn’t offer subsidies.”

The employee foresees Chinese firms shutting down their Southeast Asian plants and exporting to the EU from their home bases. “Europe needs cheap production capacity, and the cheapest one is in China,” they said.

But the move would not be without risk. In the early 2010s, Chinese panel makers wiped out rival German, American and Japanese producers in the aftermath of the global financial crisis. As the EU strives to stand up its own solar manufacturing base again after that decimation, it will remain wary of Chinese panel makers. On the other hand, the bloc may not be able to overcome its reliance on China, given the staggering overcapacity in Chinese production plants and unmatched low prices.

“Most developed countries have energy transition goals,” said Hryshko. “They must transition to renewable energy and solar is the best choice.”