Empirical Study On The Excess Capacity Of China’s Silicon-based Battery Industry

China has a long history dealing with excess capacity in many industries. The risk is hidden in the bubble, when the economy is prosperous. However, if the bubble crushed, the risk would bring severe result to the economy.In September2010, the state council issued "Decision of the State Council on Accelerating the Fostering and Development of Strategic Emerging Industries". which introduced the concept of7strategic emerging industries. Being renewable and directly converted, PV industry was thought to be the most promising industry in the field of new energy. As a result, there was a investment boom in PV industry. Now China has become the largest manufacturer of crystalline silicon cells in the world, its capacity can meet more than half of global demand. However, our crystalline silicon industry now has to face the problem of a surge in the number of enterprises and insufficient capacity utilization. The crystalline silicon industry has a sever problem of overcapacity.Some scholars pointed out that the excessive entry in the industry caused problem of overcapacity. However, I held a skeptical attitude toward this claim, and would like to have it examined in this paper. Excessive entry theorem can only work when its assumptions-business stealing effect and increasing returns to scale, are met. In this paper, I will take10listed companies specialized in crystalline silicon cells as samples, and examine the theorem under the DEA model. According to the results, there seems to be no obvious business stealing effect, as well as increasing returns to scale in the industry. The assumptions of excessive entry theorem can not be met, therefore, it is not valid to explain the problem of overcapacity in crystalline silicon cell industry in excessive entry theorem.It seemed that the fluctuations of economic cycle should be responsible for the overcapacity. Because during the downstream stage of the economic cycle, the demand for cells decreased, at the same time, upstream enterprises tended to expand downstream in order to ease the pressure on the stock. However, the fundamental reason is China’s institutional weaknesses. In order to achieve both political and economic goals, local governments use a variety of means, such as distorting the price’s of production factors, to induce companies to invest. Besides, incomplete information and structural overcapacity also played an important role in leading to overcapacity in the crystalline silicon industry.In this situation, the desired solution should be from the following five aspects:1st. The financial and tax system, and the evaluation system for government officials which placed the GDP growth in the core, should be reformed so as to reduce the motivation of local government to intervene in companies’investment decision.2nd. The concept of land property rights should be clarified, and land transfer system should be established and improved, so that the local government can not distort land prices.3rd. Establish information release mechanism to reduce the risk of asymmetric information.4th. Improve the exit mechanism, and eliminate the backward production capacity.5th. Expand domestic demand, and reduce the product’s dependence on foreign countries.This paper can be divided into5parts. The first part of this paper introduces the background and significance of this topic, and makes a review of domestic and foreign literature. In the second part, there is a brief introduction of China’s crystalline silicon cell industry. The third part of this paper mainly examines whether it is proper to attribute the problem of overcapacity to the excessive entry. In the forth part, I mainly investigate other possible reasons that cause the overcapacity in crystalline silicon cell industry. In the last part of this article, there is a summary of desired treatment measures.