CATL is taking an undisclosed stake in Chongqing Yaoning New Energy Technology Co, a company backed by Geely Automobile Holdings Ltd that’s currently building a battery plant. Approval for the deal was confirmed in a recent statement by China’s State Administration for Market Regulation.

The green light signals China’s backing for consolidation efforts that are emerging in the country’s fast-growing battery sector, where years of expansion have been driven by the adoption of electric vehicles and a more recent boom in energy-storage facilities.

As competition grows, however, Beijing is trying to ensure that the industry avoids the fate of China’s solar industry, which dominates global manufacturing but has seen its top companies lose billions of dollars after a rapid build-out of factories outpaced growth in demand.

The approval of CATL’s acquisition “signals the government’s intention to promote consolidation,” said Vincent Sun, an analyst at Morningstar Inc. The absorption by major players of stakes in automaker-backed battery units “could prevent redundant expansion and accelerates efficiency,” he said.

At least twice this year, Beijing has warned the country’s leading battery makers to restrict capacity expansion and avoid the destructive price wars that have damaged solar and other renewable-energy industries in the past. China has also suspended construction of new projects to make power and energy-storage batteries pending a year-end review of capacity, local news outlet Caixin reported.

“Consolidation and a ban on new production facilities are two great tools in fighting oversupply,” said Leonid Mironov, portfolio manager at Gavekal Capital Ltd.

Uploaded by Liza Shireen Koshy