China’s recent third plenum highlights the Communist Party’s commitment to guiding the country’s economy through ongoing global tensions and domestic challenges by focusing on sustainable, high-quality growth fueled by advanced technologies. Despite a robust economic performance and a leading role in global green energy, China’s solar industry faces significant turbulence from overexpansion, fierce competition, and external tariffs. As the sector confronts these difficulties, Chinese solar companies are strategically expanding into Gulf markets, leveraging the region’s immense solar potential while navigating the risks associated with intense competition and harsh environmental conditions.

China’s Economic Trajectory and the Solar Industry’s Global Expansion

On July 15, China’s Communist Party officials convened in Beijing for the third plenum – a significant, closed-door meeting held approximately every five years to chart the country’s long-term social and economic policies. This gathering outlines the strategic path for China’s economy amid ongoing challenges and escalating tensions with the West. The plenum communiqué and decision documents suggest that despite such pressures, the Communist Party will stay the course, intensifying efforts to guide the economy toward sustainable, long-term growth. The emphasis will be on advancing “high-quality development” through a focus on advanced technologies, now termed “new productive forces.”

Officially, China’s economy appears robust, with a 5.3% gross domestic product growth in the first quarter of the year, beating expectations and reinforcing Beijing’s strategy of shifting resources from property and infrastructure to advanced industries. This transition is exemplified by China’s growing leadership in green-energy sectors such as electric vehicles. A July report by the Global Energy Monitor found that China is building two-thirds of the world’s large wind and solar projects, with twice the capacity currently under construction compared to the rest of the world combined – figures that do not even include the expansion under way outside of the country.

Yet, despite these advancements, China’s solar industry is navigating turbulent waters. The sector has faced chaotic overexpansion and fierce price competition, exacerbated by high tariffs from the United States and Europe. Leading Chinese solar companies, including LONGi Green Energy Technology and JA Solar, have reported significant losses. Similarly, solar silicon wafer manufacturers Tongwei and TCL Zhonghuan Renewable Energy Technology also moved from profitability to losses. Smaller solar manufacturers, such as Lingda, have been affected even more severely. A period of consolidation appears imminent for China’s solar industry.

Indeed, China’s overall economic performance is under pressure from the lasting impact of stringent measures to deal with the coronavirus pandemic, leading to increased social discontent over falling property values and job losses. China’s growth unexpectedly decelerated through the spring to its slowest rate in five quarters, as weakening consumer spending and the troubled housing sector dampened an export surge, placing pressure on policymakers. China had a record $99 billion monthly trade surplus in June, reflecting its reliance on exports to mitigate the economic slump. Burdened by overcapacity in a struggling economy, China’s manufacturers seem to be seeking relief through increased exports.

Amid the decoupling of China and the United States and the broader trend of deglobalization, relying solely on the manufacturing-export model presents significant risks for the Chinese solar photovoltaic industry. As a result, leading solar companies are increasingly focused on establishing a presence in overseas markets and exporting supply chains and production capacity. Chinese solar manufacturers have not given up on Western markets. But they have ramped up efforts to build factories in emerging economies, particularly in the Middle East, that offer local demand, maintain favorable ties with Beijing, and serve as gateways to U.S., European, and other markets.

Chinese Companies Turbocharging Gulf Solar Growth

The Middle East, particularly the Gulf, has emerged as a pivotal market for Chinese solar companies, driven by the region’s immense potential for solar energy growth. According to the Middle East Solar Industry Association’s “Solar Outlook Report 2024,” solar power currently accounts for a mere 2% of the region’s overall energy mix, with fossil fuels still dominating at 87%. However, the report highlights the significant potential for solar energy to accelerate in the region. Statistics from Infolink Consulting forecast steady growth in the Middle East’s solar photovoltaic market, with Saudi Arabia, the United Arab Emirates, and Turkey the major sources of demand.

The Middle East solar market’s growth is being driven primarily by utility-scale power plants in the UAE and Saudi Arabia. These two countries are expected to achieve a combined capacity of 13.5 gigawatts in 2024, representing about 53% of the region’s total installed capacity.

Chinese companies have been playing important roles in this expansion. Trina Solar entered the Middle Eastern market by establishing Trina Solar Middle East Co. in 2009, and over the following years, other major Chinese players, such as Jinko Solar, Shanghai Electric, JA Solar, and Solargiga Energy, have also made their mark.

In 2022, Middle Eastern countries, led by the UAE and Saudi Arabia, imported approximately 11.4 GW of solar photovoltaic components from China – a 78% increase over the previous year. This surge in imports of solar components reflects the rising demand for and growing integration of Chinese solar technology into the region’s energy infrastructure.

Building on this momentum, leading Chinese solar firms, including GCL New Energy Holdings, TCL Zhonghuan, and Trina Solar, have announced substantial investments in the Middle East over the past two years. Their focus is on developing key areas such as crystalline silicon, solar cell modules, and auxiliary materials.

In a significant development ahead of the COP28 climate summit in Dubai in late 2023, the UAE inaugurated the world’s largest single-site solar plant – the Al Dhafra Solar Photovoltaic Project. This Chinese-built facility covers nearly 8 square miles with 4 million solar panels. It has a 2 GW capacity and is capable of powering 200,000 households. The plant is a testament to the UAE’s commitment to renewable energy and exemplifies the growing influence of Chinese solar technology in global energy transitions.

This initiative aligns with the broader China-UAE Industrial Capacity Cooperation Zone, which is set to expand with Trina Solar’s plans. In October 2023, Trina Solar signed a memorandum of understanding with the UAE’s AD Ports and China-based investment firm Jiangsu Provincial Overseas Cooperation and Investment to build a large-scale photovoltaic manufacturing base. The project is scheduled to unfold in three phases and will be located in the China-UAE Capacity Cooperation Demonstration Park in the Khalifa Industrial Zone in Abu Dhabi. In June, GCL Technology Holdings Limited unveiled plans to build the largest polysilicon production facility outside China in the Middle East, in collaboration with Mubadala Investment Company, as part of efforts to establish a localized integrated silicon ecosystem in the UAE.

Saudi Arabia, too, is embracing Chinese solar technology as part of its efforts to localize renewable energy production, diversify its energy sources, and reduce its dependency on oil. In January 2023, Jinko Power Technology Co. began construction of its 300 MW Saad Solar PV Park in the kingdom. The project is scheduled for commissioning in the fourth quarter of 2024. Bloomberg reported in July that Jinko Solar and TCL Zhonghuan will invest $3 billion in new solar farms in Saudi Arabia.

In July, TCL Zhonghuan joined forces with Saudi Arabia’s Renewable Energy Localization Company, a subsidiary of the Public Investment Fund, and Vision Industries in a $2.08 billion silicon crystal and wafer manufacturing project. In another venture, Jinko Solar is leading a consortium including TCL Zhonghuan, Envision Energy, and others to develop a $985 million solar cell and module manufacturing facility by 2026.

Also in July, solar equipment giant Sungrow Power Supply Co. signed a deal with Saudi investment company Algihaz Holding for an energy storage project. According to a filing with the Shanghai Stock Exchange reported by Reuters in early August, China Energy Engineering signed a $972 million deal with joint venture partners the PIF, ACWA Power, and Saudi Aramco Power Company to build a solar power plant in the kingdom. According to Nicholas Lua, a solar supply chain analyst at Rystad Energy, quoted in China Daily, “These gigawatt-scale announcements stand to turbocharge domestic solar manufacturing in Saudi Arabia.”

Beyond these projects, Chinese companies are collaborating on other innovative initiatives. In May 2023, LONGi launched a solar academy in Dubai, targeting Middle East distribution and commercial and industrial solar. The curriculum offers sales engineers, installers, and engineering, procurement, and construction personnel necessary knowledge and skills for the solar energy field. The academy provides joint certification in partnership with local authorities, offering participants recognized credentials that enhance their expertise in solar energy.

The increasing presence of Chinese solar companies in the Gulf and broader Midde East highlights China’s focus on green energy technologies amid the pressures of domestic overcapacity and the complexities of global market dynamics. By establishing an industrial chain in key markets, Chinese solar firms can better meet demand and swiftly respond to customer needs, enhancing product competitiveness and expanding market share. For Saudi Arabia and the UAE, these collaborations expand solar capacity and deepen renewable energy localization efforts.

Balancing Rewards and Risks

Despite the potential gains, Chinese solar companies plunging into the Middle Eastern solar markets are confronted with considerable challenges and risks. The region’s fierce competition demands high standards for products, particularly given the harsh environmental conditions. In many areas, modules must endure extreme sunlight, sandstorms, and varying levels of humidity and salinity, which necessitates rigorous sand and wind resistance and extended service life.

On the commercial side, the low cost of electricity generation has led to intense bidding wars, driving prices down to nearly unsustainable levels. This environment poses operational challenges, especially for Chinese firms that primarily engage through engineering, procurement, and construction contracts. The financial risks are considerable, as highlighted by Shanghai Electric’s substantial losses in 2021 due to supply chain disruptions during the Dubai Solar Thermal Power Station project.

While high costs, low prices, and harsh environmental demands are creating a risky landscape for Chinese solar companies, they appear to be focusing on the great potential profitability of expanding into the Middle Eastern solar market.