Under the push of policies, the energy storage industry in China has rapidly expanded, leading to overcapacity and increasing risks of “internal circulation.” Recently, the Chinese Communist Party officials have started a comprehensive inspection of energy storage projects, with some projects that have not yet started being temporarily halted. At the same time, the growth rate of energy storage installations has slowed down, posing challenges to the profitability of enterprises and their capacity to absorb the overseas market.
Some analysts believe that the Chinese energy storage industry may repeat the old path of industries such as photovoltaics and electric vehicles, with a cycle of “overproduction – price wars – going abroad – trade frictions.”
According to a report by Caijing News on September 6, after several years of rapid expansion in the energy storage sector in China, severe internal circulation issues and the risk of overcapacity have become increasingly prominent. The Chinese authorities are conducting a full inspection of existing and planned capacity projects, temporarily halting projects that are still in the planning stage or have not officially started, while projects that are already under construction and recorded remain unaffected.
According to the analysis by the China Energy Storage Industry Technology Alliance (CNESA) DataLink global energy storage database, as of the first half of 2026, China’s cumulative installed electricity storage capacity has reached 237.7GW, a year-on-year increase of 41.7%. Among them, the cumulative installed capacity of new energy storage has reached 168.3GW/448.7GWh, with year-on-year increases of 59% and 71% respectively, showing a 15% increase compared to the end of 2025.
Meanwhile, it is worth noting that as of the first half of this year, the newly added commissioned capacity of new energy storage was 21.81GW with an energy storage capacity of 58.60GWh, showing a decrease of 18% and 16%, respectively, in power and energy storage capacity compared to the same period last year.
CNESA released what it called a “major” news on its official website: “In the first half of 2026, energy storage capacity decreased by 18%, sending a completely new signal to the industry.”
Professor Xie Tian from the University of South Carolina told The Epoch Times that China’s “energy storage industry is overcapacity, expanding too quickly, going too far. So now the request is to stop launching.” The so-called “new quality productivity” by the Chinese Communist Party has led to overcapacity and surplus manufacturing. “In the situation of the overall economic decline and limited government investment, this is a protective measure.”
Xie Tian pointed out, “The electric vehicle industry rushed in like a swarm of bees, with over 200 car manufacturers across the country, many of which later folded, merged, or closed down.” Most industries that are rushed into by government-led investments in China end up with this outcome.
Former mainland capital figure Xu Zhen analyzed that the overcapacity in China’s energy storage is mainly caused by compulsory policies and industry conditions imposed by the authorities. For example, in 2023, the planned additional capacity of power batteries was once 10 times the car sales that year, but the surplus capacity did not disappear. Part of it was digested through overseas exports, and part was directly converted into energy storage cores.
Xu Zhen pointed out, “In any case, fundamentally speaking, it is like the ‘new three things.’ It is all policy-driven overcapacity, caused by a combination of factors such as local investment attraction, industrial policy subsidies, and bank credit encouragement.”
Xu Zhen further explained that when there is overcapacity, internal circulation intensifies, leading to breaks in enterprise cash flow, which then transmit risks to banks, local government investment platforms, and listed company stock prices. This kind of risk is the last thing the Chinese Communist Party wants to see, which is why policies to counter internal circulation, administrative production restrictions, and order rectification are put in place.
Apart from facing the risks of overcapacity and internal circulation, the energy storage industry also faces the long-term operational risks of energy storage stations and the quality and testing verification issues that may arise during the process of scaling up energy storage stations.
According to a report by Caijing News, Tian Qingjun stated that with the continuous changes in the power market, related revenues may also change accordingly. Factors such as frequency modulation ancillary services and electricity price differentials could directly affect the economic viability of energy storage stations in the future.
He warned that the economic analysis of the vast majority of energy storage stations is based on assumptions, and since the asset life of these stations lasts 15 to 20 years, “I predict that many energy storage stations will become non-performing assets in the coming years.”
He also mentioned that during the process of large-scale development of wind turbines, quality problems have occurred due to insufficient testing and verification, and the energy storage industry also faces similar issues.
According to reports by Oriental Fortune Network, Tian Qingjun, the Senior Vice President of Farasis Technology Group, stated recently at the 2026 World Battery Conference that the planned new energy storage battery core capacity in China has exceeded 800GWh this year, and it is expected that by the end of the year, the completed capacity will reach around 1.2 to 1.5TWh, with an overall planned capacity of over 2TWh, far exceeding the actual demand in the global market.
Tian Qingjun analyzed that battery cell manufacturing, similar to photovoltaic modules, has high start-up and shutdown costs and rigid continuous production. Once there is overcapacity, enterprises, in order to maintain cash flow and market share, are highly likely to follow in the footsteps of the solar industry and get caught up in a “price war.”
Insiders from energy storage enterprises told First Financial that the capacity of outdated energy storage cells below 314Ah will gradually phase out and transition. A batch of less competitive tail-end battery companies will gradually lose their survival space, and in the coming years, the industry will usher in a cycle of capacity clearance.
Due to the overcapacity in energy storage, the possibility of repeating the mistakes of the solar industry has raised concerns.
According to the latest data from the Chinese National Energy Administration, by the end of July 2026, China’s photovoltaic power generation installed capacity has reached 1,286GW, surpassing coal-fired power for the first time to become the largest power source.
However, due to the intermittent and unstable nature of solar and wind power, the mismatch between peak power generation and peak power consumption often leads to severe “abandoning of solar and wind” phenomena. This is considered a core issue in China’s current energy transformation.
According to the Power Industry Planning Research and Monitoring Early Warning Center’s publication on the nationwide new energy grid connection consumption situation in February 2026, the wind power utilization rate in China dropped to 91.5% in January to February 2026, and the solar power utilization rate dropped to 90.8%.
Sina Finance quoted Global Zero Carbon Analysis as saying that this means that China’s solar curtailment rate rose to 9.2% in January to February, significantly higher than the 6.1% during the same period in 2025; wind curtailment also rose to 8.5%, higher than the 6.2% during the same period in 2025.
In 2023, the solar power utilization rate was as high as 98%, but by 2025, it had decreased to 94.8%, further dropping to 90.8% in January to February 2026.
In November 2025, the Chinese National Energy Administration issued a document stating that the photovoltaic and other new energy industries should not engage in “internal circulation” competition. Due to intense price competition and internal circulation in the photovoltaic industry, industry revenues increased without profits.
The Energy Administration believes that the cause of “internal circulation” competition is a combination of factors including expanding production, local investment attraction, capital pursuit, low-price competition, external suppression, ultimately leading to the industry “circulating both domestically and internationally, working hard but not making money.”
CNESA stated that overseas orders for energy storage in the first half of 2026 increased by 83%. Concerns have been raised about whether this will lead to the industry “circulating both domestically and internationally, working hard but not making money.”
Xu Zhen said that the larger and faster China’s energy storage industry expands overseas, the more likely it is to trigger defensive trade measures from Europe and America. This is the same model that was followed by the solar and electric vehicle industries, relying on exports to alleviate overcapacity. It can be foreseen that due to involving grid security and critical minerals (lithium, cobalt), energy storage may even be escalated to the “national security” level and handled faster than photovoltaics.
The future of China’s energy storage may evolve from domestic “anti-internal circulation” to a larger international trade dispute, similar to photovoltaics and electric vehicles.
Dai Zhiyan, Deputy Researcher at the China Institute of Economics Research, believes that the structural problems and competitive logic of the Chinese Communist Party lead to unfair competition in international economic and trade activities. While becoming a so-called energy storage powerhouse, losing the trust of the world, some advanced countries are beginning to “de-risk” when engaging in economic and trade dealings with China.
Xie Tian said, “All new quality productivity will follow the path of the old solar product.” Internal circulation leads to international trade disputes. This is the common problem of the Chinese Communist Party system, and the party itself “cannot avoid this fate.”
Xie Tian further pointed out that when China joined the World Trade Organization in 2001 and opened up to the international market, it prospered for 20 years. However, now, with the shift in CCP policies and international community responses, China’s good times are coming to an end; perhaps, “China’s economy is going back to 20 years ago.”