China Solar Giant to Hire Auditor as Xinjiang Scrutiny Grows

Daqo New Energy Corp., a key supplier to the solar industry, has shortlisted three global auditors to assess its operations amid international allegations over the use of forced labor in the western Chinese region of Xinjiang.

The New York-listed company, which operates in the region, has denied that it’s involved in the practice or in work programs that the U.S. and others say are used to oppress the local Muslim Uyghur minority. Executives discussed the plan as the firm opened up a Xinjiang plant this week to a small group of investors, analysts and media.

China Solar Giant to Hire Auditor as Xinjiang Scrutiny Grows

Two specialist U.S. auditing firms -- as well as one of the world’s biggest -- were being considered to carry out a review of the business that’s intended to address those concerns, Chief Financial Officer Ming Yang said Tuesday in an interview. The work would likely last about six months and cost several million dollars, Yang said, declining to name the auditors under discussion.

Selecting the auditors is just a first step. Getting them into China and securing access to key facilities and sites could be challenging given the closed nature of the highly surveilled region. Diplomats have complained in the past about being unable to freely visit Xinjiang.

“We would like them to have an unfettered process and the government has told us it will not interfere,” said Yang. “I think they may allow it because they know that nothing is happening here.”

Sanctions already imposed by the U.S. and some allies over alleged human-rights abuses in Xinjiang are seen as likely to be extended to China’s solar companies, raising the risk that imported shipments of Chinese panels could be stopped at the U.S. border. The U.S. Solar Energy Industries Association and others have previously raised concerns China hasn’t allowed independent, third-party audits in the region.

On Tuesday, Daqo executives led visitors through its sprawling plant located in Shihezi, a planned city about one hour by train from Xinjiang’s capital of Urumqi. The company says it has more than 2,000 workers at the facility, though observers only saw a small number of employees. Daqo has said that it doesn’t make sense to use forced labor because the polysilicon manufacturing process is highly automated.

In a control room at the Shihezi factory, around 40 men and women monitored the production of polysilicon from their desktops, checking items such as temperature, pressure, throughput and flow rates. Elsewhere, small groups of men in blue overalls and white hard hats worked side by side with robots to gently prepare tall columns of newly harvested polysilicon for crushing -- again by machines -- into smaller chunks before dispatching them to customers.

To make polysilicon, 99% pure silicon metal has to be refined until it is 99.9999% pure. The process most commonly used to do that involves highly corrosive chemicals and heat above 1,000 degrees Celsius -- which requires large amounts of electricity. That’s why Xinjiang, which has some of the cheapest power in China thanks to an abundance of coal, has become a popular location for producing the material.

While Yang said there was a “good probability” that the U.S. would take punitive actions against the industry, he downplayed the importance of the American market, saying it only accounted for between 10% to 15% of the global market where supply remains tight. “We’re sold out,” he said. “We believe the overall financial economic impact is very limited.”

China Solar Giant to Hire Auditor as Xinjiang Scrutiny Grows

Daqo is one of four companies that operate polysilicon plants in the region that together provide almost half of the global supply of the key building block for solar panels. The region has also become the center of widespread accusations that President Xi Jinping’s government is systematically oppressing minority communities there.

Researchers including Adrian Zenz and Horizon Advisory found links on government and company websites connecting three of the four companies manufacturing polysilicon in Xinjiang to the labor transfer program. Daqo was the one company that hasn’t been linked to the labor transfer program.

Daqo’s Yang said the company already seeks commitments from its suppliers that they not engage in activities that could be considered abusive. He also expects any human-rights audit to include an inspection of the company’s suppliers.

Daqo has described its Xinjiang subsidiary as a pilot program of Xinjiang Production and Construction Corps, a government-run organization that’s been sanctioned by the U.S. for ties to alleged human-rights abuses including mass arbitrary detention. Yang on Tuesday denied any link to the entity, saying Daqo doesn’t collaborate with it and that XPCC has no holdings in the company.

A page on Daqo’s website that mentioned its work with XPCC wasn’t accessible on Tuesday.

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