China’s 21st-century solar panel rise to the top presents one of the most fascinating paradoxes in modern economic policy. Between 2006 and 2022, the Chinese government’s intervention transformed the country from a negligible contender to 70% of global solar manufacturing. Yet the same policies which created this dominance also led to a $20 billion of corporate debt. This created massive market distortions that continue to ripple throughout the global economy today.
Industrial Policy, in which the government actively supports specific industries through subsidies, has become a major topic in D.C. as policymakers debate things such as the CHIPS act (a subsidy for microchip production). However when these government interventions go for rapid, unsustainable growth, they often create or worsen the problems they set out to solve.
China’s solar strategy began with the 2006 “Renewable Energy Law of the People’s Republic of China,” which set goals to make renewable energy the national priority for energy development and establish the PRC as a major area for high-tech advancements. According to the CCP, they went about this by implementing guaranteed electricity purchases at government prices, bidding for projects competitively, mandated grid connections, a national development fund, favorable loans and tax breaks, and binding renewable energy targets with national planning.
However the real transformation came through unprecedented government backing starting in 2010. Chinese manufacturers received subsidized land, below-market level loans from state banks, and direct cash subsidies. China invested a whopping $50 billion in solar manufacturing capacity since 2011 according to the IEA.
The results were extremely impressive, according to Yale, solar panel prices plummeted 85% between 2010-2020, mostly due to China. This made solar energy costs competitive with fossil fuels for the first time in history. CCP backed companies like JinkoSolar, Trina Solar, and LONGi became global leaders, not just in manufacturing but also in innovation. Chinese solar exports reached an insane 18.9 billion USD in 2022, and the Atlantic Council claims, Chinese policies accelerated global solar position by years, potentially saving the world trillions in climate damages.
But this is where the success story becomes tricky. The same policies that created this solar leadership came back to bite them. By 2018, Chinese solar manufacturers had accumulated over $20 billion in debt, with debt increasing 50% from 2020 to 2023, according to the Coalition for a Prosperous America. The National Development and Reform Commission (NDRC), which oversaw solar policy often ignored actual economic efficiency and prioritized closeness to the CCP, which ended up creating what economists call “zombie companies”, firms that survived only through government life support.
As a quick and severe response, the United States put on tariffs as high as 3500% on Chinese solar panels, saying that the massive subsidies gave way for unfair competition. The European Union did that as well, setting up its own trade barriers, albeit much lower. The University of Michigan found that although these tariffs protected jobs, they increased solar costs by ~30%.
What makes China’s solar experience so important to learn from is that it shows both the great and destructive results of government subsidies. Unlike major failures like the Brazilian computer market disaster in the 80s, the Chinese approach built major innovation in the solar field and built actual global competition.
The Chinese solar story gives us a two major lessons for future American industrial policy. First, performance based investing can successfully build competitive industries, but they only truly succeed when used with clear, long-term success graphs. Second, massive subsides without clear accountability measures will harm everyone and never succeed.
The solar industry shows that the most important policy question isn’t whether to intervene in markets, but how to intervene sensibly. Success and failure can come from the same policies, only separated by the quality of their design & implementation.
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