Chinese solar group blasts US calls to avoid supplies from Xinjiang

In a defiant rebuke, a Chinese solar group lashed out at calls to reroute solar supply chains away from the country's autonomous Xinjiang region, echoing recent statements by government officials who are pushing back on U.S. efforts to confront Beijing over alleged human rights abuses of Uighurs and other Muslim minority groups there.

The China Photovoltaic Industry Association, whose members include the world's largest solar manufacturers, said in a statement in January that some in the U.S. are using allegations of forced labor in the western region of China to meddle in the country's internal affairs.

"[If] they intend to use this as an excuse to profit from restricting and suppressing China and its companies, and interfering with normal business cooperation and competition, they will not only violate international trade rules and market economic principles, but also disrupt the global industry and supply chain," the group said. "That will harm the interests of companies and consumers, including that of the U.S., and will eventually lead to backlash against those who started this."

Xinjiang has emerged as a flashpoint in U.S.-China relations at a moment when U.S. President Joe Biden is trying to jumpstart domestic and international initiatives on climate change while also pressing Beijing on human rights issues. China is the world's top producer of greenhouse gas emissions as well as a dominant force in the global solar power market.

Beijing denies it is committing human rights abuses, and China's top diplomat, Yang Jiechi, recently said issues related to Xinjiang are a "red line" that the U.S. must not cross.

The Chinese solar group issued its statement after its U.S. counterpart, the Solar Energy Industries Association, called on companies to pull their supply chains out of Xinjiang, a major producer of the raw material polysilicon.

U.S. Secretary of State Antony Blinken has called repression of Uighurs in Xinjiang "genocide," and Sen. Marco Rubio, R-Fla., reintroduced a bill in January that would block imports of goods made wholly or in part in Xinjiang unless producers can prove they have not used forced labor. The U.S. House of Representatives passed similar legislation in 2020.

Horizon Advisory, a consultancy, recently said it found signs of forced labor in China's solar industry.

"Whether it is our member companies, their customers, which represent the world's largest brands, or policy makers, the world is sending clear signals that the burden of proof is on the supply chains to verify that people are not subject to any form of forced labor or forced relocation," John Smirnow, general counsel and vice president of market strategy at the Solar Energy Industries Association, said in a statement to S&P Global Market Intelligence. "Forced labor is abhorrent and will not be tolerated, and it isn't negotiable."

The Solar Energy Industries Association said 175 companies have pledged to "ensure that the solar supply chain is free of forced labor."

But the harshly worded statement from the Chinese solar group raises questions about how far manufacturers in that country will go to respond to U.S. concerns about labor practices in Xinjiang. The responses from manufacturers to allegations of human rights abuses in the region have been mixed, and a handful of the companies that signed the U.S. pledge to fight forced labor are also members of the Chinese group that rejected American scrutiny.

Julia Friedlander, deputy director of the Atlantic Council's GeoEconomics Center, said Chinese companies face a balancing act in "trying to keep their operations in play" for the U.S. market while "knowing that if they go too far to accommodate western concerns, the whip is going to crack on them from the capitol."

'Liable to feel pressure'

Beijing's position on Xinjiang leaves companies in China little room to address human rights issues, said Scott Harold, deputy director of The RAND Corporation's Center for Asia Pacific Policy.

"The Chinese Communist Party already declared that the official line on Xinjiang is there is no forced labor," Harold said in an interview. "Any company that runs afoul of China and the Communist Party is liable to feel pressure."

"Everyone knows that the issue of 'forced labor' is the lie of the century, completely fabricated by the institutions and officials from the U.S. and other western countries," the Chines solar group's statement said. "As many countries are increasing their commitment and targets related to climate change, we need more cooperation not division, and healthy competition not malicious smear tactics."

Some of America's leading solar panel suppliers are members of the group and also hold board seats at the Solar Energy Industries Association in the U.S.

American subsidiaries of two of those companies, JinkoSolar Holding Co. Ltd. and Q CELLS, were among the firms that pledged their support for rooting out potential labor abuses in the industry. Neither would comment on the statement issued by the China Photovoltaic Industry Association.

A Q CELLS spokesperson said the company is auditing its supply chain, "but we can confirm that Q CELLS does not operate in nor directly procure any materials from Xinjiang."

A JinkoSolar spokesperson said the company "has already undertaken necessary steps to ensure" the U.S. supply chain is not exposed to factories in Xinjiang. However, in a filing to the U.S. SEC in December 2020, JinkoSolar said some products it sells into the U.S. could contain material from Xinjiang, adding that it "may" reconfigure its supply chains if Washington enacts tight trade restrictions on the region.

Canadian Solar Inc., another leading panel supplier to the U.S. that is a member of both the American and Chinese solar groups, did not respond to a message seeking comment. The company, which is headquartered in Ontario but has a large manufacturing presence in China, did not sign the U.S. forced labor pledge.

"The opportunities are enormous for the entire international solar supply chain, even as we work to build a robust American manufacturing infrastructure," said Smirnow of the Solar Energy Industries Association. "We are asking Chinese solar companies to take necessary steps to help their own cause."

The Chinese solar group said that it is willing to "strengthen cooperation" with the U.S. market provided the Americans concede "that 'forced labor' is a lie."

Threat of disruption

It is impossible to say how many of the solar panels shipped to the U.S. at the end of 2020 contained material from Xinjiang.

Analysts at Roth Capital Partners LLC said late last year that a "large percentage" of the solar panels in the U.S. supply chain likely contain some Xinjiang polysilicon. During the fourth quarter of 2020, four of America's top solar panel suppliers were companies that source polysilicon or other components from factories in the region.

While parts of the solar industry appear to have moved quickly to try to cut their exposure to Xinjiang — by sourcing polysilicon from outside of the region and using supply-chain tracing systems to verify they are not exposed to factories there — analysts and market participants say some manufacturers in China have been slow to respond. The question of how much exposure the U.S. solar market still has to Xinjiang became more urgent in January when Rubio reintroduced his bill targeting imports from the region. The legislation has broad bipartisan support, and some version is widely expected to pass Congress.

But lawmakers are not the only ones scrutinizing U.S. business ties to Xinjiang.

Customs and Border Protection has ordered officers to seize some imports from Xinjiang. And Philip Dembowski, chief commercial officer at U.S. polysilicon maker Hemlock Semiconductor Group, said in October 2020 that the U.S. government asked his company for information about the polysilicon market.

If the government links a polysilicon company to labor abuses, Customs and Border Protection could seize shipments of solar cells and panels that contain the raw material from that producer. To make a seizure, the agency only needs information that "reasonably" indicates the use of forced labor.

Edurne Zoco, executive director of clean technology and renewables at IHS Markit, said polysilicon supplies are tight this year amid rising solar demand, and any "major unforeseen disruption" such as sanctions could cause a shortage of solar panels in the U.S. and elsewhere. (IHS Markit is subject to a merger with S&P Global pending regulatory and other customary approvals.)

Analysts also said the U.S. should expect China to respond to trade restrictions on Xinjiang. In 2010, for example, China reportedly blocked shipments of rare earth minerals to Japan after Japan detained a Chinese fishing boat captain whose vessel collided with Japanese Coast Guard ships in disputed waters. And China threatened to restrict mineral exports to the U.S. during a trade fight with the Trump administration.

"China will clearly try to fight back and not allow influence over what they consider internal politics and internal means of production," Thomas Duesterberg, a senior fellow at the Hudson Institute who specializes in trade and foreign policy, said in an interview. "China certainly has the capability of hurting us. This administration clearly is trying to move quickly and decisively toward green energy, and China is fairly dominant in the solar industry."