EU legislation aimed at banning goods made with forced labour is set to impact China’s solar industry, yet experts warn Chinese firms will likely reroute their supply chains to dodge European regulators.

Earlier this week, the European Parliament voted to pass a long-awaited regulation prohibiting the sale, imports and export of goods made using forced labour, with 555 votes in favour, 6 against and 45 abstentions.

The European Commission is set to be the chief enforcer of the regulation and will investigate suspicious goods, supply chains and manufacturers globally. The law is slated to become effective in three years.

“If there is a suspected case of forced labour outside the European Union, the Commission will take the lead and will be able to do inspections in overseas countries,” said Maria Manuel Leitão Marques, a Portuguese member of the European Parliament (MEP), at a press conference.

“If there is a suspected case inside the European Union, the member state will lead the investigation,” she added.

At the conference, Samira Rafaela, a Dutch MEP, said there is a “big chance” solar panels from China will be identified as “high risk” once the law comes into effect, in 2027, because of “state-imposed forced labour indicators”.

“At the end, it is the Commission that needs to follow up… But there’s a big chance that it will be detected, because of the high-risk alarm that will ring a bell with customs authorities,” Rafaela said.

The UN estimates that more than a million people have been detained in a network of camps across China’s Xinjiang region, which Beijing describes as “political education” facilities. Some detainees are transferred within Xinjiang or elsewhere in the country to work in factories and other workplaces.

However, analysts warn Chinese suppliers are likely to skirt the EU legislation by shifting operations out of Xinjiang and even channelling exports through third countries. Chinese polysilicon manufacturers have already adopted the strategy in response to similar legislation in the US, the Uyghur Forced Labour Prevention Act (UFLPA).

“With the UFLPA, a lot of [solar product] shipments were initially stuck in port and they couldn’t get entry to the US because the burden of proof throughout the entire supply chain fell on the manufacturers,” says Marius Mordal Bakke, a senior analyst at intelligence firm Rystad.

In response, Bakke tells GTR, Chinese companies relocated polysilicon manufacturing out of Xinjiang and “instead opted to grow new manufacturing capacity in neighbouring provinces” such as Inner Mongolia and Sichuan.

“Eight months later, the amount of denied shipments going into the US has almost dropped to zero,” he says, suggesting there will be “similar effects” with the forced labour ban in Europe in the coming years.

“[There] will likely be a shortened period of less supply coming in, [and] prices may go up slightly, but it will not take them long to adapt to these policies and reroute their supply chains.”

Major Chinese wafer and module manufacturers such as JA Solar, Jinko Solar and LONGi Solar have established factories elsewhere in Asia, to continue exports to the US.

Yet a July 2023 report from Sheffield Hallam University says there is still a “high” or “very high” risk China’s biggest solar wafer and module producers are sourcing inputs from Xinjiang-based suppliers.

A February report from Bernreuter, a solar research agency, found exports of polysilicon from China to Vietnam have soared by around 700% since the UFLPA came into effect in June 2022.

“Having the wafer production facility outside China makes it easier for the manufacturers to document at the US Customs and Border Protection (CBP) agency that no silicon metal or polysilicon from Xinjiang has entered their supply chains for modules destined for the US,” the report says.

Customs statistics cited in the report show that polysilicon exports from China to Vietnam leapt to nearly 5000 metric tons last year, up from 639 in 2022.

“That raises doubts about the claims of a separate supply chain and should sound alarm bells at the CBP,” Bernreuter says.

EU officials have also raised concerns over the three-year implementation date of the forced labour law, arguing the 2027 start date means Chinese solar panels will continue to flow for years to come.

“The problem should have been solved already yesterday,” said Rafaela, the Dutch MEP, earlier this week.

The law “will already encourage a lot of companies to think twice now to start reforming their supply chains. But… until we have this regulation in place, the situation will keep existing”, she says.

Nonetheless, EU-based manufacturers have cheered the EU’s forced labour law and say it should protect the industry from China’s heavily subsidised solar sector.

“It is well known that a substantial portion of the materials used in solar panels originate from the Xinjiang province in China, where state-imposed forced labour is prevalent. The province accounts for about one-third of the world’s polysilicon production,” the European Solar Manufacturing Council says in a statement in response to the law’s passing.

“This polysilicon is used in Chinese-made solar panels, including most of those exported to Europe.

But the industry group says it expects the EU law will have a “significant positive impact” as it bans “all products” made with forced labour.