Chinese Solar Billionaire Doubles Fortune Despite U.S. Sanctions

(Bloomberg) -- About a year ago, the US sanctioned trade with a little-known Chinese company at the heart of the solar energy supply chain, alleging it relies on forced labor in the Xinjiang region. The action had immediate and lasting effects, worsening relations between the two nations and plunging the US solar industry into chaos. .But in their economic and policy aims, the sanctions have yet to prove successful. Shares of Hoshine Silicon Industry Co. are up 111% since the restrictions were announced, while the fortune of founder Luo Liguo and his family has more than doubled. And, with a $1 billion investment from the Luos, Hoshine is expanding its operations in Xinjiang, further entrenching it and the region in the solar supply chain..Hoshine’s continued success points to the limits of the US actions, even as new legislation extends a ban on products from Xinjiang. The Chinese firm is the world’s leading producer of industrial silicon, a key component in the solar supply chain; the decline in US demand was more than offset by increasing exports to Europe, which is eager to wean itself off Russian fossil fuels. And the US stopped short of restricting Hoshine’s access to the US financial markets. .Hoshine has been linked to two state-sponsored campaigns involving Xinjiang’s Uyghurs and other minority groups. In one, China was accused of incarcerating more than 1 million people in so-called training centers where they would sometimes do work for various companies. The other is a nationwide program that moves workers from rural areas to urban factories. China says neither amounts to forced labor..The company isn’t the only firm in the solar supply chain linked to these programs, and the industry’s been under US scrutiny for years. But Chinese firms so dominate the sector that it’s harder for US buyers to find alternative suppliers than it is for Chinese manufacturers to sell to other markets, said James Cockayne, a former professor at the University of Nottingham who published a study last month on the effectiveness of Xinjiang sanctions..“In that sense, the sanctions may be causing US importers more pain than they’re causing Xinjiang producers,” Cockayne said by phone from Sydney. “Even if Hoshine’s impacted by forced labor laws, the prospects of growing demand for its products in other markets are fueling significant market interest.”.In an interview with a state-owned television station in April, Luo said he uses China’s policies as a guide to future opportunities. “Just believe in the government initiatives,” he told the Zhejiang broadcaster, explaining his move to exit real estate and dive into silicon more than a decade ago. “When the government calls for it, we do it, and when the government wants to restrain it, we quit.”.Transforming silicon found naturally in sand and rocks into the purer version requires a lot of heat. Xinjiang is rich with coal but too far from coastal power plants to be useful to China’s most dense urban areas. So the government lured energy-intensive industries there with the promise of cheap fuel. Today, Hoshine’s industrial silicon operations, like others, benefit from local coal resources and low energy prices, reducing costs by 3,700 yuan ($549) a ton compared with buying power from the grid. The savings amount to about 15% of the metal’s market price. .The companies have also benefitted from what the Chinese government describes as a series of “vocational education and training centers” for ethnic minorities in the Xinjiang region. According to Beijing, such centers are designed to teach a job and Chinese language skills, along with Communist Party ideology, building a workforce for the industries growing in the area..Others were critical of the campaigns. In 2019, a United Nations working group said an estimated 1 million people had “reportedly been sent to internment facilities under the guise of ‘counterterrorism and de-extremism’ policies since 2016.” After reports of the camps spurred outrage around the globe, China said in late 2019 that everyone had “graduated” and the training centers were closed..At the same time, China has operated a long-standing anti-poverty program that includes moving people from poor rural communities to higher-wage factory jobs elsewhere. It’s a national campaign, but researchers and activists argue that the tense political situation and recent mass detentions in Xinjiang give workers little choice but to participate..A June 2021 report from researchers at Sheffield Hallam University tied Hoshine to both programs. One of the company’s facilities in Xinjiang is located in the same industrial park as two internment camps, the authors said, and workers who stayed there may have been involved in mining quartz that Hoshine used to produce silicon. .The researchers scoured Hoshine’s own website and those of government agencies for press releases and articles describing the company’s connections to the campaigns. In one post, Hoshine said its hiring program is part of a “transformation of surplus rural labour into industrial workers and urban dwellers, making them fresh combat troops for industrialization, urbanization, and agricultural modernization.” In 2020, government officials in Hoshine’s home province of Zhejiang lauded its parent company for its efforts to “fight against poverty, enable local people to increase employment and income, and promote local industrial upgrading” in Xinjiang, according to the report. .“Hoshine had done lots of self-advertising about their involvement in labor transfer programs,” said Laura Murphy, one of the authors of the report and a professor at Sheffield Hallam who has investigated Hoshine’s activities in the region..Many rural workers were hesitant about working at the company, Murphy said. “There were very vivid stories of workers saying ‘We don’t have the skills, the interest, the language and we have responsibilities at home,’” she said. “The government kept coming back and taking things away until these people were forced to work at Hoshine’s plant. Part of the reason the stories were so rich is that Hoshine put it that way in their own words.”.The Biden administration accused Hoshine of being complicit with that abuse in June 2021. It ordered ports to detain shipments of any goods containing materials produced by the firm or its subsidiaries and restricted the ability of US companies to sell commodities, software and other technology to the Chinese company. A US Customs and Border Patrol investigation into Hoshine found it used intimidation, threats and restriction of movement, key indicators of forced labor. .The US didn’t specify members of the Luo family for punishment, though, nor did it cut off the company from the US financial system..“The US is just a problematic market.”.While Hoshine and the Luo family didn’t respond to requests for comment on the sanctions or the business more broadly for this story, the firm at the time called the US’s accusation an “outright lie with ulterior motives.” China’s Ministry of Foreign Affairs said the US action was “based on lies and disinformation” and vowed to “take all necessary measures to resolutely safeguard the legitimate rights and interests of Chinese companies.”.If any industry’s suffered, it’s been US solar developers. Hoshine’s industrial silicon production is the first of several steps in making solar panels. Hoshine sells its industrial silicon to refineries mostly in China but also in Germany and South Korea. The product, polysilicon, is then molded into bricks, sliced into thin square wafers, treated and wired up before being assembled together into the solar panels that adorn suburban rooftops and sprawling rural power farms..Because Hoshine is such a large producer and so far removed from the finished panels, many exporters didn’t immediately know if their products contained its silicon. They certainly couldn’t prove they didn’t, and US customs began detaining panels from the industry’s largest companies, all of which are based in China..After the sanctions were announced, US solar imports plummeted. Between July 2021 and May, they were $4.1 billion, down 24% from the same period the year before, according to BloombergNEF data..“The US is just a problematic market,” Paula Mints, founder of SPV Market Research, a San Francisco-based solar research firm, said citing the sanctions as well as an ongoing investigation into whether some solar panel makers have illegally avoided tariffs..While the US solar industry was suffering, Hoshine enjoyed its best year since it went public in 2017. Even as US sanctions were rippling through the solar supply chain, the price of industrial silicon surged 300% last fall after producers in another part of China were forced to cut output to save power amid a nationwide coal shortage. Chinese solar exports overall rose 71% to $35.6 billion from June 2021 through May this year. Germany, Spain and the Netherlands were among the largest buyers, along with Brazil, Japan and Australia..Hoshine’s market cap jumped from less than $9 billion in early June to a high of $41 billion on Sept. 14. Silicon prices and the company’s valuation have receded since then, but shares on the Shanghai Stock Exchange are up 111% since sanctions were announced.. Growing Fortunes.Luo’s daughter Luo Yi, a Hong Kong permanent resident, is vice-chairman of the company. His son Luo Yedong, a Chinese citizen, is general manager of the firm, and the family’s fortune has risen with the stock. Luo and his children own a 76% stake in Hoshine. In total, the family is worth about $12.8 billion after excluding collateral shares, according to the Bloomberg Billionaires Index..The company is continuing to grow in Xinjiang. In December, it signed an agreement with the municipal government in the region’s capital city, Urumqi, for a 35.5 billion yuan patchwork of investments that will expand Hoshine’s footprint in the solar supply chain. In May, Luo’s daughter and son purchased a combined 7 billion yuan of shares at a discount to the listed price, according to an exchange filing, a reinvestment earmarked to supplement working capital and liquidity..At the same time, the US has continued its crackdown on products made in the region. The Uyghur Forced Labor Prevention Act went into effect June 21, barring the import of anything made in Xinjiang unless companies can prove no forced labor was used in its production. US Customs and Border Protection officials released a list of dozens of entities for priority enforcement, including Hoshine and several of its polysilicon-making customers that have factories in Xinjiang..Still, Hoshine’s potential market is growing. Other countries haven’t followed the US in issuing their own sanctions on the company, and demand for solar panels is soaring..Hoshine is “showing little sign of needing to be out of Xinjiang and mitigate risks in a serious way,” said Nathan Picarsic, co-founder of consulting firm Horizon Advisory who has done extensive research in forced labor in Xinjiang. “It’s been pretty much steady as they go.”.More stories like this are available on bloomberg.com.©2022 Bloomberg L.P.

Chinese Solar Billionaire Doubles Fortune Despite U.S. Sanctions

Since the US sanctions were announced shares of Hoshine Silicon are up 111% and the fortune of the founder has more than doubled.

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