By Karen Freifeld, Michael Martina and David Shepardson

WASHINGTON (Reuters) -The Biden administration on Wednesday ordered a ban on U.S. imports of a key solar panel material from Chinese-based Hoshine Silicon Industry Co over forced labor allegations, two sources briefed on the matter said. The U.S. Commerce Department separately restricted exports to Hoshine, three other Chinese companies and the paramilitary Xinjiang Production and Construction Corps (XPCC), saying they were involved with the forced labor of Uyghurs and other Muslim minority groups in Xinjiang.

Reacting on Thursday, China’s foreign ministry spokesman Zhao Lijian said China will take “all necessary measures” to protect its companies’ rights and interests. Beijing has dismissed accusations of genocide and forced labor in Xinjiang as lies.

The three other companies added to the U.S. economic blacklist include Xinjiang Daqo New Energy Co, a unit of Daqo New Energy Corp; Xinjiang East Hope Nonferrous Metals Co, a subsidiary of Shanghai-based manufacturing giant East Hope Group; and Xinjiang GCL New Energy Material Co, part of GCL New Energy Holdings Ltd.

The Commerce Department said the companies and a paramilitary force, XPCC, “have been implicated in human rights violations and abuses in the implementation of China’s campaign of repression, mass arbitrary detention, forced labor and high-technology surveillance against Uyghurs, Kazakhs, and other members of Muslim minority groups in” Xinjiang.

At least some of the companies listed by the Commerce Department are major manufacturers of monocrystalline silicon and polysilicon that are used in solar panel production.

Hoshine Silicon Industry said on an interactive investor platform that it backed the Chinese foreign ministry’s reaction, adding that the firm does not export industrial silicon to the United States directly and the impact on its business would be limited.

Xinjiang Daqo New Energy Co responded Reuters’ request for comment with an email saying the company has “zero tolerance” towards forced labour, and that it does not sell directly to U.S. companies, or purchase from the United States and there would not be “a significant impact on the company’s business.”

The other companies or their parent firms did not immediately respond to requests for comment, or could not immediately be reached. XPCC could not immediately be reached for comment.

The “Withhold Release Order” by U.S. Customs and Border Protection only blocks imports of the material from Hoshine. A source familiar with the order said it does not impact the majority of U.S. imports of polysilicon and other silica-based products.

Dennis Ip, Regional Head of Power, Utilities, Renewables & Environment (PURE) Research at Daiwa said in a note to clients the immediate effect of the restrictions would be limited as the companies named do not have “vast contracts” with U.S. based wafer companies, but foresaw more action to come.

“However, we see possibility for the ban to gradually extend to include restrictions on all solar modules which contain Xinjiang-produced polysilicon,” he said.

Chinese module producers could still use polysilicon from Inner Mongolia and Yunnan for their U.S.-bound module shipments, he added.

About 45% of all polysilicon used in solar module production is produced in Xinjiang, with 35% produced in other parts of China. The remainder comes from outside China.

The global solar energy supply chain has been squeezed by record high costs for polysilicon, labour and freight.

A second source said the move does not conflict with President Joe Biden’s climate goals and support for the domestic solar industry.

The sources said the United States is continuing to investigate allegations of forced labor by Chinese companies who supply polysilicon.

The two sources familiar with the policy said the White House sees the actions as a “natural continuation” of the G7 agreement earlier this month to eliminate forced labor from supply chains.

The U.S. Treasury Department last year sanctioned XPCC for “serious rights abuses against ethnic minorities.”

The paramilitary organization remains powerful in Xinjiang’s energy and agriculture sectors, operating almost like a parallel state, having been sent to the region in the 1950s to build farms and settlements.

Foreign governments and human rights activists say it has been a force in the crackdown and surveillance of Uyghurs in the region, running some detention camps.

(Reporting by Karen Freifeld, David Shepardson, Michael Martina and David Brunnstrom; Additional reporting by Emily Chow in Shanghai and Min Zhang, Gabriel Crossley, Shivani Singh in Beijing and Beijing newsroom; Editing by Howard Goller, Lisa Shumaker, Richard Pullin & Simon Cameron-Moore)

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