China is tightening the investment criteria for solar products manufacturing in a bid to rein in the overcapacity that has plagued the sector in recent months.

The Chinese industry ministry on Wednesday issued final – but not binding – investment guidelines for solar PV manufacturing projects.

The local industry has been calling for government intervention to curb the booming solar manufacturing.

The government now wants a minimum capital ratio of 30% for solar PV projects, up from 20% previously. This ratio typically refers to the share of total investment shareholders invest with their own assets.

Solar stocks surged in morning trading. Sunnova Energy rose 21%; Daqo New rose 11%; JinkoSolar and SolarEdge rose 8%; Maxeon Solar rose 5%; Canadian Solar and Sunrun rose 4%; Enphase Energy rose 2%.

The booming solar panel manufacturing in China has led to losses for the major producers who have been forced to sell their products at below-market prices.

The manufacturing boom and the competition for market share have prompted some Chinese manufacturers to sacrifice quality for the sake of higher profits, an industry executive said earlier this year. Companies are looking to survive in the race to the bottom in China’s solar component market and some are skimping on quality and testing.  

The Chinese solar panel market remains oversupplied and this glut could last up to two more years, Longi Green Energy Technology said in July.

The company, which is one of the world’s top solar panel manufacturers, warned it would book a loss for the first half of 2024, amid a fierce price war and overcapacity in the sector. Longi Green expects at least $660 million in losses for the first half, following that a “mismatch” of supply and demand that has crushed prices for its leading products.

The situation among smaller solar equipment manufacturers is even more alarming.

Earlier this year, the China Photovoltaic Industry Association said that China urgently needs consolidation in the solar manufacturing industry as overcapacity and price wars are leading local companies to a race to the bottom.