- China’s battery industry faces overcapacity despite booming demand from data centres and strong export growth.
- Battery storage exports reached $66 billion in the first ten months of 2025, making them China’s top transition-related export.
China’s battery industry is facing a familiar problem: overcapacity. Recently, the Chinese Ministry of Industry raised the alarm, warning that battery makers have expanded too quickly. Consequently, the surplus capacity now poses a significant risk to the industry, according to Reuters, which cited a meeting of the ministry.
Indeed, China is the world’s largest market for electric vehicles (EVs) and a major player in battery storage. However, much like EVs and solar panels, these transition-related industries benefited for years from generous government subsidies. As a result, companies were able to grow without fully considering the risks of overcapacity or the long-term consequences of their actions. Previously, the Chinese government had to intervene in the EV and solar panel sectors to control excessive production. Now, batteries appear to be the next focus.
Interestingly, the overcapacity problem emerges even as demand for battery storage continues to surge. The rapid expansion of data centres essentially drives this surge. For example, data centres draw enormous amounts of electricity from the grid, creating pressure on operators. Consequently, battery storage is becoming essential to ensure stable backup supplies and to prevent demand spikes from overloading the system.
Moreover, battery storage has proven to be one of China’s most profitable export industries. From January to October 2025, battery exports generated $66 billion in revenue, making them the country’s leading transition-related export. By comparison, electric vehicles brought in around $54 billion over the same period. Therefore, despite warnings of overcapacity, the battery sector remains highly lucrative.
Meanwhile, international developments highlight the growing importance of storage. For instance, Germany achieved a record number of new energy storage additions last year, reaching 7.3 GW. This growth further demonstrates that the global battery market remains robust, particularly as storage becomes a crucial tool for mitigating waste from wind and solar power during periods of low electricity demand.
Li Wei, a market analyst, commented that China’s industry now faces a delicate balancing act. On one hand, companies must meet domestic and international demand. On the other hand, unchecked expansion could depress prices and reduce profitability. Therefore, careful planning and regulation will be essential to stabilise the sector.
In conclusion, China’s battery sector is both thriving and facing challenges. Ultimately, balancing production with global demand and government oversight will determine whether the industry can maintain its profitable momentum while avoiding the pitfalls of overcapacity.