The original allegations of overcapacity appeared in late August this year, when the country's solar and wind power energy projects were reported to have serious problems according to a report on the country's industrial sector jointly released by the Ministry of Industry and Information Technology (MIIT) and National Development and Reform Commission (NDRC).

In response to the report, the MST organized an investigation into the productive capacity in the solar, wind and nuclear power sectors and only recently released their assessment report.

People familiar with matter revealed that the report argued strongly against any claims of "overcapacity" affecting the industry and raised concerns that earlier publications would mislead public opinion and thus could impact on the development of the country's new energy industry.

Investigating Capacity in New Energy

The investigation team attempted to discover the true situation in relation to productive capacity in the country's solar power sector. However, to their disappointment, even the NDRC and MIIT couldn't supply them with detailed information.

The industry operation report was authored by a research institute under the Chinese Academy of Social Sciences with most of the data being sourced from public sources, the EO learned.

Taking crystalline silicon, a material used in the production of solar cells, as an example, according to some media reports, over 50 crystalline silicon projects had been given approval by the NDRC up until the end of June this year. Total investment in these projects is expected to exceed 130 billion yuan, and their total output is likely to exceed 230,000 tons. Some experts claimed that this was more than twice aggregate global demand.

The MST however doubted the authenticity of these statistics and therefore also questioned the conclusion of "overcapacity" that the reached by the economists.

However, a team member said "Just by virtue of our strength, it is difficult for us to make an overall survey. With that in mind, our survey only focused on several selected key enterprises."

"Our survey revealed that the statistics that the media and the government agencies relied on in their reports, refer to planned capacity, not the actual achieved production," the above source added.

The MST found that among the above-mentioned 50 crystalline silicon projects, only ten had gone into production and actual output had only reached 15,000 tons.

In addition, the MST discovered that those who were pushing the "overcapacity" argument were often large enterprises, who had entered the solar industry much earlier and were accustomed to reaping large profits. Therefore, The influx of of latecomers into the industry was bound to harm the interests of these large enterprises.

"As a result, it can't be ruled out that some large enterprises are deliberately spreading the rumor that overcapacity is impacting on the industry in an attempt to disuade new players from entering the emerging industry," the above source said.

The EO learned that the NDRC and MIIT have already dispatched several investigation teams to local regions to find out the actual production capacity of solar power industry.

Debate Over Overcapacity

In the meanwhile, the MST report admitted that new energy sector had witnessed strong growth over the past two years and that both business and local governments maintained their enthusiasm for investing in the sector.

In Sichuan, the output of crystalline silicon in 2007 stood at a mere 700 tons, but over 2008 the figure nearly tripled to 2,000 tons. This year, capacity of crystalline silicon projects under construction in the province's Leshan and Ya'an city has exceeded 5,000 tons. There are predictions that total production will exceed 30,000 tons by the end of 2010.

Before 2008, China had only 4 photovoltaic glass manufacturing lines, but from 2008 up to the present, another 40 manufacturing lines have been put into production.

Some experts have criticized such rash investment and duplication of construction in the emerging industry, and have recommended that the government take action in order to rectify the industry.

However, the MST didn't agree with their conclusions, arguing that redundant investment wasn't such a bad thing.

An official from the MST wondered "How can they reach the conclusion that overcapacity is effecting these emerging industries?" He went on to argue that redundant investment in emerging industries was both inevitable and necessary, "If there is no competition, no progress will be achieved.

Li Junfeng, deputy director of Energy Research Institute under the National Development and Reform Commission, said China's crystalline silicon industry was in its infancy and that output for last year was below 5,000 tons.

"However, our country consumed 40,000 tons last year, of which 35,000 tons were imported," he added.

The above official from the MST argued that the central problem was that planning for the country's photovoltaic industry was far behind the rapid development that was taking place in the industry.

The MST report pointed out that the out-dated facilities in power grids and the lag in implementation of subsidies awarded to new energy power generation, had hampered the development of the domestic new energy market.

Therefore, the MST has pushed for government to cultivate the domestic market rather than blindly blocking investment, as the best way to solve the so-called overcapacity in the emerging sector.