From mercantile strategy to domestic demand stimulation: changes in China's solar PV subsidies

Through scrutinizing China's industrial subsidies towards its solar photovoltaic (PV) sector from a theoretical perspective constructed by Michael Porter on the government's role in forging national comparative advantages, this study tries to capture recent dynamics in China's state capitalism, which has been evolving from a mercantile stage in which most subsidies were designed to influence factor conditions and supporting industries, to a new stage of domestic demand with more subsidies aimed at reshaping domestic demand conditions to absorb redundant manufacture capacity. China has emerged as the world's largest solar panel producer, but compared to its fast-expanding wind power market that has congenital advantages in attracting policy support, China's domestic solar PV market has been underdeveloped and failed to absorb a large part of its inflated production capacity. Empirical evidences have shown that in sync with the state's recent policy shift to domestic demand from export-orientated mercantile strategy, the government's role in supporting the solar PV industry has been transforming from subsidizing the production side to subsiding the demand side. As solar PV power generation is approaching the breaking point of grid parity with existing subsidies and feed-in tariffs, China could witness its PV installed capacity grow exponentially in the near future.