U.S. Blocks Some Solar Materials Made in Xinjiang Region

Source: By Jenny Leonard, Jennifer A Dlouhy, Brian Eckhouse and Ari Natter, Bloomberg • Posted: Thursday, June 24, 2021

The U.S. has barred some solar products made in China’s Xinjiang region, marking one of the Biden administration’s biggest steps yet to counter alleged human rights abuses against the country’s ethnic Uyghur Muslim minority.

Xinjiang — where advocacy groups and a panel of United Nations experts say Uyghurs and other minorities have been subjected to mass arbitrary detention and forced to work against their will — produces roughly half of global supply of polysilicon, a material critical for solar panels and semiconductors. China has denied the allegations, saying they’re an attempt to undermine successful businesses.

The move targeting Chinese manufacturer Hoshine Silicon Industry (Shanshan) Co., Ltd., announced Thursday, has implications for solar’s supply chain and could force U.S. companies to find material elsewhere. It comes after both the Trump and Biden administrations accused China of “genocide” in a campaign to erase the culture of the predominantly Muslim Uyghurs.

“Personnel at all U.S. ports of entry have been instructed to immediately begin detaining shipments that contain silica-based products made by Hoshine,” the White House said in a statement. “The United States will not tolerate forced labor in our supply chains.”

The steps fall short of a broader ban that had been sought by some activists, organized labor and lawmakers. But a person familiar with the U.S. move, who spoke anonymously before the announcement was made, said further actions may follow and investigations are ongoing.

The U.S. decision will “not impact the majority of imports,” though it represents “a substantive but measured first shot across the bow by the Biden administration,” Height Capital Markets analyst Benjamin Salisbury said in a note to clients.

See also: First Solar Main Winner From China Materials Block: Street Wrap

Hoshine is a dominant producer of the metallurgical silicon used to make solar-grade polysilicon, with its product supplying solar manufacturers such as Daqo New Energy Corp. Wacker Chemie AG and a unit of GCL-Poly Energy Holdings Ltd. are also customers, according to a Sheffield Hallam University analysisreleased this year. Hoshine’s shares fell 7.2% in Shanghai trading Thursday.

The U.S. is trying to cripple the industrial development of Xinjiang, and seeks to force poverty and unemployment on the region, Chinese Foreign Ministry Spokesman Zhao Lijian said Thursday at a regular press briefing in Beijing. “China strongly condemns the sanctions that the U.S. imposes on Chinese companies based on lies and disinformation,” he said. “China will take all necessary measures to resolutely safeguard the legitimate rights and interests of Chinese companies.”

Read more: How Biden Gave a Boost to One Xinjiang Solar Manufacturer

Tour of Daqo New Energy Corp.'s Polysilicon Plant

Polysilicon at a plant in Xinjiang province earlier in May. Photographer: Qilai Shen/Bloomberg

The U.S. Department of Labor also updated its “List of Goods Produced by Child Labor or Forced Labor” to include polysilicon made with forced labor in China, according to the White House statement.

Separately, the Commerce Department added five Chinese entities to its export blacklist. According to a notice on Thursday, they are Hoshine; Xinjiang Daqo New Energy Co. Ltd.; Xinjiang East Hope Nonferrous Metals Co. Ltd.; Xinjiang GCL New Energy Material Technology, Co. Ltd.; and Xinjiang Production & Construction Corps., which has previously been sanctioned. American companies that sell to those entities will then require approval from the U.S. government.

Hoshine, East Hope and GCL-Poly didn’t immediately reply to emailed requests for comment. Daqo could not comment on the issue, head of investor relations Kevin He said in a text message.In May, U.S. climate envoy John Kerry said officials “believe in some cases” that Chinese solar products are being produced by forced labor and confirmed the administration was mulling restrictions.

But Group of Seven leaders clashed earlier this month over how strongly to rebuke China over alleged forced labor practices. In the final communique, the G-7 called “on China to respect human rights and fundamental freedoms, especially in relation to Xinjiang.”

U.S. solar companies, which rely heavily on imported photovoltaic panels, had already begun shuffling supply chains in anticipation of the action. And at least one polysilicon producer in Xinjiang — Daqo New Energy Corp. — had opened itself to the possibility of audits and outside scrutiny in a bid to shield itself from U.S. sanctions.

Read more: A Xinjiang Solar Giant Breaks Ranks to Try and Woo the West

The Solar Energy Industries Association, a Washington-based trade group, which recently unveiled a traceability tool aimed at helping solar importers and manufacturers track the supply of materials, had said it supported the planned action. “The fact is we do not have transparency into supply chains in the Xinjiang region, and there is too much risk in operating there,” the association’s general counsel, John Smirnow, said in an emailed statement.

Still, the Biden administration’s move “could have a significant negative impact on the whole U.S. solar industry,” Roth Capital Partners LLC said in a research note for clients. “If implemented, module imports would need to prove that there is no content from Hoshine in order to enter the U.S.”

Hoshine produces about 800,000 metric tons of metallurgical silicon annually, according to Roth. “Access to solar modules in the U.S., in our view, could be severely limited by this order as we believe isolating and tracing MG-Si through the supply chain could present a significant challenge,” Roth said.

While Xinjiang is a major polysilicon hub, the material is sent for further processing in factories in other parts of China and other countries before it’s ultimately assembled into the solar panels that are shipped to the U.S. That creates additional challenges and would mean supply chain verification efforts would almost certainly require the cooperation of Chinese manufacturers.

A 1930 trade law bars the importation of goods that are mined, produced or manufactured by forced labor — and empowers the federal government to seize the products or block their entry into the U.S. Under former President Donald Trump, the U.S. Customs and Border Protection in January issued a withhold release order targeting cotton and tomato products produced in Xinjiang.

— With assistance by Dan Murtaugh, Michael Bellusci, Colum Murphy, and Philip Glamann