Upstream and downstream companies in China'ssolar power industry are debating the government's ban on polysilicon imported under processing trade, as the sector is expected to start feeling the real impact of the ban this year, according to the Economy & National Weekly.

The government implemented the ban on Sept. 1 last year in a bid to close a loophole that allowed foreign polysilicon suppliers to dodge punitive tariffs on their products through processing trade, according to the magazine.

In 2014, China introduced the punitive tariffs on imports from the United States, the European Union and South Korea after the US and EU slapped heavy anti-subsidy and anti-dumping duties on China's solar products, the magazine said.

Since there was a two-week gap between the announcement of the ban and its implementation in 2014, foreign polysilicon producers managed to secure processing trade orders of over 100,000 tonnes from Chinese companies.

Because these orders are valid only for a maximum of one year, downstream Chinese solar companies began lobbying the government to remove the ban while upstream companies have opposed the proposal, the magazine said. Polysilicon products ordered after the 2014 ban and imported under processing trade will be subject to higher tariffs on the finished products, it said.

Xi'an Longi Silicon Materials Corp wrote to the Ministry of Commerce on April 30 calling for the ban to be lifted on grounds that domestic suppliers of polysilicon cannot meet demand in the downstream solar sector in terms of either quantity or quality. Longi's call was supported by solar module makers Trina Solar and Yingli Solar, Zhonghuan Semiconductor Corp and Shaanxi Non-ferrous Metals Holding Group (Shaanxi Youser Group) in another letter dated May 25.

Shaanxi Youser Group signed a joint venture deal with American polysilicon producer REC Silicon Corp in 2014 to build Chinese production, the report noted.

Li Jing, an analyst at the China Nonferrous Metals Industry Association's silicon industry branch, said the two-week gap in 2014 forced local polysilicon suppliers to cut prices to compete with foreign companies, which pushed local suppliers in China to the brink.

Luoyang Zhonggui High-Technology Co, the third-largest silicon supplier in China, said its inventory of silicon will last for the next two months but if the company continues to suffer a negative cash flow it will go out of business in one year.

Whether Beijing will lift the ban depends on the US decision after the final review of the anti-dumping and anti-subsidy case against Chinese solar companies in July, said Chen Huiqing, head of legal affairs at the China Chamber of Commerce for Import and Export of Machinery and Electronic Products.

Wang Xiaoting, a solar analyst at Bloomberg New Energy Finance, pointed out that China usually set its policies in response to an opposing party's actions, and will take a step back if the US decides to do the same.