China has paused approvals for new battery storage factories amid a review of existing and planned capacity, Chinese financial news outlet Cailianshe reported this weekend, citing industry sources.

The temporary suspension applies to plants that have not yet started construction, and it comes amid growing concerns about overcapacity in the sector in the world's biggest manufacturer of batteries for energy storage. The move matters beyond China's borders: Chinese manufacturers supply the majority of the world's battery cells, so supply discipline at home could ripple through global energy storage project pipelines that depend on Chinese-made equipment.

China is the world's biggest market for electric vehicles and a top player in battery storage as well. But like electric vehicles (EVs) and solar panels, these energy transition-linked industries have enjoyed years of generous subsidies that allowed them to grow without any consideration of overcapacity and its consequences. The Chinese government has already had to clamp down on EVs and solar panels, and now, it seems, it is the turn of batteries. The intervention also aligns with Beijing's broader "anti-involution" drive, in which top policymakers have singled out cutthroat price competition in manufacturing as a problem to be reined in.

Chinese solar equipment manufacturers have also diversified into battery storage to tackle a chronic oversupply in the panel and equipment market that has crashed many sector players' bottom lines.

The surge in EVs and solar and wind power installations has resulted in excessive manufacturing capacity in these key non-hydrocarbon energy industries, igniting price wars that have hurt most companies in the sector, including the biggest solar panel manufacturers. Chinese authorities realized last year that cutthroat competition, overcapacity, and low-quality manufacturing are hurting enterprises.

The battery storage boom in China is now threatening this industry, too, and China's authorities have started to take measures to curb unrestrained growth.

In July, China's Ministry of Finance, the General Administration of Customs, and the State Taxation Administration announced that China would launch consumption taxes on batteries effective September 1, 2026.

Mercury-free primary batteries, nickel-metal hydride batteries, lithium primary batteries, lithium-ion batteries, and all-vanadium redox flow batteries will be taxed at 2% from September 2026 and at 4% from September 2027. Photovoltaic cells will face a 2% tax from April 2027 and 4% from April 2028.

China exempted new-technology batteries from the tax until December 2028. These include sodium-ion batteries, solid-state batteries, fuel cells, and advanced photovoltaic types such as perovskite, tandem and gallium arsenide cells. The exemption signals which chemistries Beijing wants to prioritize as older lithium-ion lines face tighter capacity controls and new tax burdens.

By Tsvetana Paraskova for Oilprice.com