China’s Highflying Solar Stocks Face Political Risk
Americans are paying more attention to a desert corner of northwest China called the Xinjiang Uighur Autonomous Region, where the international community says the government has herded Muslim minorities into internment camps and forced-labor programs. Investors better pay heed, too.
Xinjiang might pose a surprise conflict for President Joe Biden’s environmental plans and to investors who prioritize environmental, social, and corporate governance, or ESG, factors. That’s because most of the silicon in the world’s solar panels is made in Xinjiang.
A report by geopolitical consulting firm Horizon Advisory questions whether Xinjiang forced labor is an ingredient in the products of China’s solar producers.
The report cites solar companies with Xinjiang-supplied content, including Daqo New Energy(ticker: DQ), JinkoSolar(JKS), GCL-Poly Energy Holdings(3800.Hong Kong), Xinte Energy(1799.Hong Kong), and LONGi Green Energy(601012.Singapore). Jinko-supplied solar plants are being built in America by NextEra Energy (NEE).
“This is a tough issue, and it’s hard for people on this side of the ocean to really know what’s going on there, other than to know that there is forced labor and no one outside of China denies it,” says Paul Rosenthal, a trade lawyer at Kelley Drye. Rosenthal has spent 20 years advising West Africa’s cocoa industry on how to avoid forced-labor problems.
Solar stocks like Daqo have soared with Biden’s green energy plans. Depositary shares of the Xinjiang-based silicon maker have risen fivefold in the past six months to $115 and lifted Daqo’s market capitalization to $8 billion.
Shares of the exchange-traded fund (TAN) and the Invesco WilderHill Clean EnergyETF (PBW) have doubled over the same stretch, in part thanks to substantial holdings in both Daqo and JinkoSolar. Daqo shares may have gotten an extra lift from the recent short-squeeze mania, given that a quarter of its free-trading float was short as of January. But concern over Xinjiang labor issues and the potential for congressional import restrictions could take some of the shine from those shares and grow awkward for Daqo’s depositary institution JPMorgan Chase(JPM), for ETF sponsors like Invesco (IVZ), and for ESG investors intent on doing well by doing good.
Source: barrons
