The photovoltaic (PV) sector has become pivotal in the global transition to renewable energy, with industrial policies playing a central role in shaping its development. As nations aim to accelerate the expansion of their renewable energy sectors, the effectiveness of these policies becomes increasingly important. This section explores the relationship between industrial policy and productivity within the PV industry, focusing on China, a key player in the global PV market. Using the theoretical framework of resource misallocation, this section analyzes the impact of China’s industrial policies on productivity in its PV industry. Protectionist policies that foster early industry growth led to rapid initial expansion, but their long-term implications for resource allocation and productivity are complex. While these policies initially helped the growth of emerging industries, they struggled to evolve alongside industrial development, exacerbating resource misallocation and ultimately leading to a decline in productivity. To enhance the effectiveness of industrial policy, a stronger focus is needed to evaluate industry performance, mitigate moral hazards, and encourage underperforming firms to exit the market to boost their overall productivity. Industrial policies may lead to inefficiencies and declining productivity; thus, policy adjustments are necessary to promote sustainable growth.