Risk Factors
An investment in our ADSs involves certain
risks. You should carefully consider the risks described below as well as the other information, such as the risks described under
the heading “Item 3D. Risk Factors” in our annual report on Form 20-F for the year ended December 31, 2019 (our
“2019 annual report”) (as updated by this prospectus supplement), included or incorporated by reference in this prospectus
supplement and the accompanying prospectus before making an investment decision. Our business, financial condition or results of
operations could be materially and adversely affected by any of these risks. The value of our ADSs could decline due to any of
these risks, and you may lose all or part of your investment. In addition, please read “Special Note on Forward-Looking
Statements” in this prospectus supplement and the accompanying prospectus where we describe additional uncertainties associated
with our business and the forward-looking statements included or incorporated by reference in this prospectus supplement. Please
note that additional risks not presently known to us or that we currently deem immaterial may also impair our business and operations.
Risks Related to Our Business and Industry
Our future growth and profitability depend on the demand
for and the prices of solar power products and the development of photovoltaic technologies.
The rate and extent of market acceptance
for solar power depends on the availability of government subsidies and the cost-effectiveness, performance and reliability
of solar power relative to conventional and other renewable energy sources. Changes in government policies towards solar power
and advancements in PV technologies could significantly affect the demand for solar power products.
Demand for solar power products is also
affected by macroeconomic factors, such as energy supply, demand and prices, as well as regulations and policies governing renewable
energies and related industries. For example, in June 2016, the FIT in China for utility-scale projects was significantly reduced.
As a result, subsequent to a strong demand in the first half of 2016, the domestic market was almost frozen and the competition
in the global market also intensified in the second half of 2016. Meanwhile, in the United States, another major solar market of
ours, the solar PV projects faced great uncertainties under the administration of U.S. President Donald Trump because it is believed
that his administration favors traditional energy industries. The current international political environment, including existing
and potential changes to United States and China trade and tariffs policies, have resulted in uncertainty surrounding the future
of the global economy. There are also uncertainties associated with the United Kingdom leaving the European Union, since the referendum
in June 2016. The global solar module production capacity exceeded demand in 2019, which further intensified competition over pricing.
Consequently, the average selling price of our solar modules, which represented 95.8% and 93.0% of our total revenue in 2019 and
the nine months ended September 2020 respectively, decreased in 2018, 2019 and the nine months ended September 30, 2020 compared
to the respective prior periods.
Any reduction in the price of solar modules
will have a negative impact on our business and results of operations, including our margins. As a result, we may not continue
to be profitable on a quarterly or annual basis. In addition, if demand for solar power products weakens in the future, our business
and results of operations may be materially and adversely affected.
The reduction, modification, delay or elimination of government
subsidies and other economic incentives in solar energy industry may reduce the profitability of our business and materially adversely
affect our business.
We believe that market demand for
solar power and solar power products in the near term will continue to substantially depend on the availability of government
incentives because the cost of solar energy currently exceeds, and we believe will continue to exceed in the near term, the
cost of conventional fossil fuel energy and certain non-solar renewable energy, particularly in light of the low level of
oil prices in recent years. Examples of government sponsored financial incentives to promote solar energy include subsidies
from the central and local governments, preferential tax rates and other incentives. The availability and size of such
subsidies and incentives depend, to a large extent, on political and policy developments relating to environmental concerns
and other macro-economic factors. Moreover, government incentive programs are expected to gradually decrease in scope or
be discontinued as solar power technology improves and becomes more affordable relative to other types of energy. Negative
public or community response to solar energy projects could adversely affect the government support and approval of our solar
energy business. Adverse changes in government regulations and policies relating to solar energy industry and their
implementation, especially those relating to economic subsidies and incentives, could significantly reduce the profitability
of our business and materially and adversely affect the state of the industry.
We received government grants totaling
RMB147.9 million, RMB52.2 million, RMB63.0 million (US$9.3 million) and RMB82.3 million (US$12.1 million) for 2017, 2018, 2019
and the nine months ended September 30, 2020, respectively, which included government grants for our production scale expansion,
technology upgrades, export market development and solar power project development. We cannot assure you that we will continue
to receive government grants and subsidies in future periods at a similar level or at all.
As a substantial part of our operations
are in the PRC, the policies and regulations adopted by the PRC government towards the solar energy industry are important to the
continuing success of our business. Although there has been regulatory support for solar power generation such as subsidies, preferential
tax treatment and other economic incentives in recent years, future government policies may not be as supportive. The PRC central
government may reduce or eliminate existing incentive programs for economic, political, financial or other reasons. In addition,
the provincial or local governments may delay the implementation or fail to fully implement central government regulations, policies
or initiatives. Until the solar energy industry becomes commercially profitable without subsidies, a significant reduction in the
scope or the discontinuation of government incentive programs in the PRC or other jurisdictions could materially and adversely
affect market demand for our products and negatively impact our revenue and profitability.
Besides the PRC, various foreign governments
have used policy initiatives to encourage or accelerate the development and adoption of solar power and other renewable energy
sources, including certain countries in Europe, notably Italy, Germany, France, Belgium and Spain; certain countries in Asia, including
Japan, India and South Korea; countries in North America, such as the United States and Canada; as well as Australia. Examples
of government-sponsored financial incentives to promote solar power include capital cost rebates, FIT, tax credits, net metering
and other incentives to end-users, distributors, project developers, system integrators and manufacturers of solar power products.
Governments may reduce or eliminate existing
incentive programs for political, financial or other reasons, which will be difficult for us to predict. Reductions in FIT programs
may result in a significant fall in the price of and demand for solar power and solar power products. For example, subsidies have
been reduced or eliminated in some countries such as China, Germany, Italy, Spain and Canada. In May 2018, the National Development
and Reform Commission of China (the “NDRC”), the Ministry of Finance and the National Energy Administration in China
(the “NEA”) issued a joint notice temporarily halting subsidies for utility-scale solar projects, slashing the
quota on distributed solar projects which are eligible for subsidies in 2018 and greatly reducing FIT. The German market represents
a major portion of the European solar market for ground-mounted systems and a stable residential and commercial rooftop market.
The first subsidy-free grid parity projects of the industry were connected to the grid in 2020, which act as a driver for the additional
market growth. Starting from 2011, major export markets for solar power and solar power products such as Japan, Germany, Italy,
Spain and the United Kingdom continued to reduce their FIT as well as other incentive measures. For example, from 2012 to 2020,
the Japanese government cut down its FIT from JPY40 to JPY21 for projects below 10 KW and from JPY42 to JPY13 for projects above
10 KW.
In 2019, we generated 82.5% of our total
revenue from overseas markets, and North America, Asia Pacific (except China which includes Hong Kong and Taiwan) and Europe represented
25.4%, 24.6% and 17.5% of our total revenue, respectively. In the nine months ended September 30, 2020, we generated 81.9% of our
total revenue from overseas markets, and North America, Asia Pacific (except China which includes Hong Kong and Taiwan) and Europe
represented 31.4%, 22.4% and 14.4% of our total revenue, respectively. As a result, any significant reduction in the scope or discontinuation
of government incentive programs in the overseas markets, especially where our major customers are located, could cause demand
for our products and our revenue to decline and have a material adverse effect on our business, financial condition, results of
operations and prospects. In addition, the announcement of a significant reduction in incentives in any major market may have an
adverse effect on the trading price of our ADSs.
We are exposed to significant guarantee liabilities and
if the debtors default, our financial position would be materially and adversely affected.
In connection with our disposal of JinkoPower—a
downstream business—in 2016, we entered into a master service agreement with JinkoPower, where we agreed to provide a guarantee
for JinkoPower’s financing obligations under certain of its loan agreements entered into within a three-year period from
October 2016, amounted to RMB2.33 billion (US$342.7 million) as of September 30, 2020. In addition, we have provided guarantees
to certain of our related parties. As of September 30, 2020, we had liabilities associated with guarantees to related parties of
RMB60.8 million (US$9.0 million). In the event that JinkoPower or the relevant related parties (as the case may be) fail to perform
their respective obligations or otherwise default under the relevant loan agreements or other contracts, we will become liable
for their respective obligations under those loan agreements or other contracts, which could materially and adversely affect our
financial condition.
We require a significant amount of cash to fund our operations
and future business developments. If we cannot obtain additional funding on terms satisfactory to us when we need it, our growth
prospects and future profitability may be materially and adversely affected.
We require a significant amount of cash
to fund our operations, including payments to suppliers for our polysilicon feedstock. We may also require additional cash due
to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue,
as well as our research and development activities in order to remain competitive.
Our working capital was RMB1.24 billion
(US$182.4 million) as of September 30, 2020. Our management believes that our current cash position, the cash expected to be generated
from operations, and funds available from borrowings under our credit facilities will be sufficient to meet our working capital
and capital expenditure requirements for at least the next 12 months.
Our ability to obtain external financing
is subject to a number of uncertainties, including:
|
·
|
our future financial condition, results of operations and cash flow;
|
|
·
|
the general condition of the global equity and debt capital markets;
|
|
·
|
regulatory and government support, such as subsidies, tax credits and other incentives;
|
|
·
|
the continued confidence of banks and other financial institutions in our company and the solar power industry;
|
|
·
|
economic, political and other conditions in the PRC and elsewhere; and
|
|
·
|
our ability to comply with any financial covenants under the debt financing.
|
Any additional equity financing may be
dilutive to our shareholders and any debt financing may require restrictive covenants. Additional funds may not be available on
terms commercially acceptable to us. Failure to manage discretionary spending and raise additional capital or debt financing as
required may adversely impact our ability to achieve our intended business objectives. See “—Our substantial indebtedness
could adversely affect our business, financial condition and results of operations.”
Uncertainty about the future of LIBOR and certain other
interest “benchmarks” may adversely affect our business.
LIBOR, the London Interbank Offered Rate,
is widely used as a reference for setting interest rates on loans globally. LIBOR and certain other interest “benchmarks”
may be subject to regulatory guidance and/or reform that could cause interest rates under our current or future debt agreements
to perform differently than in the past or cause other unanticipated consequences. We have used LIBOR as a reference rate on our
US$187.24 million credit facilities. Combined we had borrowings of US$118.75 million outstanding on these facilities as of September
30, 2020.
On July 27, 2017, the United Kingdom Financial
Conduct Authority (“FCA”), which regulates the LIBOR, announced that it intends to stop persuading or compelling banks
to submit rates for the calculation of LIBOR to the administrator of LIBOR after 2021. In June 2019, the FCA asked banks and markets
to stop using the LIBOR as a basis for pricing contracts. These announcements indicate that the continuation of LIBOR on the current
basis cannot and will not be guaranteed after 2021. It is impossible to predict whether and to what extent banks will continue
to provide LIBOR submissions to the administrator of LIBOR or whether any additional reforms to LIBOR may be enacted in the United
Kingdom or elsewhere. At this time, no consensus exists as to what rate or rates may become accepted alternatives to LIBOR and
it is impossible to predict the effect of any such alternatives on the value of LIBOR-based securities and variable rate loans
or other financial arrangements, given LIBOR’s role in determining market interest rates globally. On March 25, 2020, the
FCA stated that although the central assumption that firms cannot rely on LIBOR being published after the end of 2021 has not changed,
the outbreak of COVID-19 has impacted the timing of many firms’ transition planning, and the FCA will continue to assess
the impact of the COVID-19 pandemic on transition timelines and update the marketplace as soon as possible. It is unclear if after
2021 LIBOR will cease to exist or if new methods calculating LIBOR will be established such that it continues to exist after 2021.
Moreover, on July 12, 2019, the Staff of
the SEC’s Division of Corporate Finance, Division of Investment Management, Division of Trading and Markets, and Office of
the Chief Accountant issued a statement about the potentially significant effects on financial markets and market participants
when LIBOR is discontinued in 2021 and no longer available as a reference benchmark rate. The Staff encouraged all market participants
to identify contracts that reference LIBOR and begin transitions to alternative rates. On December 30, 2019, the SEC’s Chairman,
Division of Corporate Finance and Office of the Chief Accountant issued a statement to encourage audit committees in particular
to understand management’s plans to identify and address the risks associated with the elimination of LIBOR, and, specifically,
the impact on accounting and financial reporting and any related issues associated with financial products and contracts that reference
LIBOR, as the risks associated with the discontinuation of LIBOR and transition to an alternative reference rate will be exacerbated
if the work is not completed in a timely manner.
Uncertainty as to the nature of alternative
reference rates and as to potential changes or other reforms to LIBOR may adversely affect LIBOR rates and other interest rates.
In the event that a published LIBOR rate is unavailable after 2021, the value of such securities, loans or other financial arrangements
may be adversely affected, and, to the extent that we are the issuer of or obligor under any such instruments or arrangements,
our cost thereunder may increase. Currently, the manner and impact of this transition and related developments, as well as the
effect of these developments on our funding costs, investment and trading securities portfolios and business, is uncertain, which
may adversely affect our business, prospects, liquidity, capital resources, financial performance or financial condition.
The oversupply of solar cells and modules in the solar
industry may cause substantial downward pressure on the prices of our products and reduce our revenue and earnings.
In 2011, the solar industry experienced
oversupply across the value chain, and by the end of the year, solar module, cell and wafer pricing all decreased. Demand for solar
products remained soft in 2012 and at the end of 2012, solar module, cell and wafer pricing had all further decreased. Although
the global economy has improved since 2013, demand for solar modules in Europe fell significantly in 2013. As a result, many solar
power producers that typically purchase solar power products from manufacturers like us were unable or unwilling to expand their
operations.
Our average module selling price decreased
in 2018, 2019 and the nine months ended September 30, 2020 compared to the respective prior periods. Continued increases in solar
module production in excess of market demand may result in further downward pressure on the price of solar cells and modules, including
our products. Increasing competition could also result in us losing sales or market share. If we are unable, on an ongoing basis,
to procure silicon, solar wafers and solar cells at reasonable prices, or mark up the price of our solar modules to cover our manufacturing
and operating costs, our revenue and gross margin will be adversely impacted, either due to higher costs compared to our competitors
or due to inventory write-downs, or both. In addition, our market share may decline if our competitors are able to price their
products more competitively.
We face risks associated with the manufacturing, marketing,
distribution and sale of our products internationally and the construction and operation of our overseas manufacturing facilities,
and if we are unable to effectively manage these risks, our ability to expand our business abroad may be restricted.
In 2017, 2018, 2019 and the nine months
ended September 30, 2020, we generated 62.8%, 73.6%, 82.5% and 81.9%, respectively, of our total revenue from sales outside China.
We also have manufacturing facilities in the United States and Malaysia. In January 2018, we entered into a master solar module
supply agreement (the “Master Agreement”) with NextEra Energy, Inc., or NextEra. Under the Master Agreement, as amended
in March 2018, we will supply NextEra up to 2,750 MW of high-efficiency solar modules over four years. In conjunction with
the Master Agreement, we established our first U.S. factory in Jacksonville, Florida, which commenced production in the third quarter
of 2018 and reached full production capacity of 400 MW in the first half of 2019. We plan to continue to increase manufacturing
and sales outside China and expand our customer base overseas.
The manufacturing, marketing, distribution
and sale of our products internationally, as well as the construction and operation of our manufacturing facilities outside of
China may expose us to a number of risks, including those associated with:
|
·
|
fluctuations in currency exchange rates;
|
|
·
|
costs associated with understanding local markets and trends;
|
|
·
|
costs associated with establishment of overseas manufacturing facilities;
|
|
·
|
marketing and distribution costs;
|
|
·
|
customer services and support costs;
|
|
·
|
risk management and internal control structures for our overseas operations;
|
|
·
|
compliance with the different commercial, operational, environmental and legal requirements;
|
|
·
|
obtaining or maintaining certifications for production, marketing, distribution and sales of our products or, if applicable,
services;
|
|
·
|
maintaining our reputation as an environmentally friendly enterprise for our products or services;
|
|
·
|
obtaining, maintaining or enforcing intellectual property rights;
|
|
·
|
changes in prevailing economic conditions and regulatory requirements;
|
|
·
|
transportation and freight costs;
|
|
·
|
employing and retaining manufacturing, technology, sales and other personnel who are knowledgeable about, and can function
effectively in, overseas markets;
|
|
·
|
trade barriers such as trade remedies, which could increase the prices of the raw materials for our solar products, and export
requirements, tariffs, taxes and other restrictions and expenses, which could increase the prices of our products and make us less
competitive in some countries;
|
|
·
|
challenges due to our unfamiliarity with local laws, regulation and policies, our absence of significant operating experience
in local market, increased cost associated with establishment of overseas operations and maintaining a multinational organizational
structure; and
|
|
·
|
other various risks that are beyond our control.
|
Our manufacturing capacity outside
China requires us to comply with different laws and regulations, including national and local regulations relating to
production, environmental protection, employment and the other related matters. Due to our limited experience in doing
business in the overseas markets, we are unfamiliar with local laws, regulation and policies. Our failure to obtain the
required approvals, permits, licenses, filings or to comply with the conditions associated therewith could result in fines,
sanctions, suspension, revocation or non-renewal of approvals, permits or licenses, or even criminal penalties, which
could have a material adverse effect on our business, financial condition and results of operations.
For example, in September 2020, the Uyghur
Forced Labor Prevention Act (the “UFLP Act”) was passed by the U.S. House of Representatives. If the UFLP Act is enacted
into law, goods manufactured wholly or in part in Xinjiang, China will not be allowed to enter the United States unless the U.S.
Customs and Border Protection determines that the goods are not manufactured by forced labor and reports such a determination to
U.S. Congress and to the public. We monitor our manufacturing facilities to ensure no forced labor is used. Our direct sales to
the U.S. market accounted for 25.4% and 31.4% of our total revenues in 2019 and the ninth months ended September 30, 2020, respectively.
Currently part of our products sold to the U.S. may have used polysilicon and ingots manufactured in Xinjiang. If the UFLP Act
is enacted, given the difficulty in proving no use of forced labor throughout the supply chain, we may have to reconfigure our
supply chain to provide our U.S. clients with products (including their components) manufactured outside Xinjiang. Any such maneuver
could result in significantly higher manufacturing and other costs to us, delay our product supply to the U.S. market, and reduce
demand for our products.
As we enter into new markets in different
jurisdictions, we will face different business environments and industry conditions, and we may spend substantial resources familiarizing
ourselves with the new environment and conditions. To the extent that our business operations are affected by unexpected and adverse
economic, regulatory, social and political conditions in the jurisdictions in which we have operations, we may experience project
disruptions, loss of assets and personnel, and other indirect losses that could adversely affect our business, financial condition
and results of operations. For instance, our manufacturing facility in the United States may expose us to various risks, including,
among others, failure to obtain the required approvals, permits or licenses, or to comply with the conditions associated therewith,
failure to procure economic incentives or financing on satisfactory terms, and failure to procure construction materials, production
equipment and qualified personnel for the manufacturing facility in a timely and cost-effective manner. Any of these events
may increase the related costs, or impair our ability to run our operations in the future on a cost effective basis, which could
in turn have a material adverse effect on our business and results of operations.
We are subject to anti-dumping and countervailing
duties imposed by the U.S. government. We are also subject to safeguard investigation and other foreign trade investigations initiated
by the U.S. government and anti-dumping investigation and safeguard investigations initiated by governments in our other markets.
Our direct sales to the U.S. market accounted
for 15.3%, 10.9%, 25.4% and 31.4% of our total revenue in 2017, 2018, 2019 and the nine months ended September 30, 2020, respectively.
In 2011, SolarWorld Industries America Inc., a solar panel manufacturing company in the United States, filed anti-dumping and
countervailing duty petitions with the United States Department of Commerce (the “U.S. Department of Commerce”) and
United States International Trade Commission (the “U.S. International Trade Commission”) against the Chinese solar
industry, accusing Chinese producers of crystalline silicon photovoltaic (“CSPV”) cells, whether or not assembled into
modules, of selling their products (i.e., CSPV cells or modules incorporating these cells) in the United States at less than fair
value, and of receiving financial assistance from the Chinese governments that benefited the production, manufacture, or exportation
of such products. JinkoSolar was on the list of the solar companies subject to such investigations by the U.S. Department of Commerce.
On November 9, 2011, the U.S. Department of Commerce announced that it launched the anti-dumping duty and countervailing duty
investigation into the accusations. On December 7, 2012, the U.S. Department of Commerce issued the anti-dumping duty order and
countervailing duty order. As a result, cash deposits were required to pay on import into the United States of the CSPV cells,
whether or not assembled into modules from China. The announced cash deposit rates applicable to us were 13.94% (for anti-dumping)
and 15.24% (for countervailing). The actual anti-dumping duty and countervailing duty rates at which entries of covered merchandise
are finally assessed may differ from the announced deposit rates because they are subject to the subsequent administrative reviews
by U.S. Department of Commerce.
In January 2014, the U.S. Department of
Commerce initiated the first administrative review of the anti-dumping duty order and countervailing duty order with respect
to CSPV cells, whether or not assembled into modules, from China. In July 2015, the U.S. Department of Commerce issued the final
results of this first administrative review,according to which the anti-dumping and countervailing rates applicable to us
were 9.67% and 20.94%, respectively. Such rates apply as the final rates on the import into the United States of the CSPV cells,
whether or not assembled into modules from China, from May 25, 2012 to November 30, 2013 for dumping, and from March 26, 2012
to December 31, 2012 for countervailing, respectively. Such rates were the cash deposit rates applicable to us from July 14, 2015.
In February 2015 and February 2016, the U.S. Department of Commerce initiated the second administrative and the third administrative
review of the anti-dumping duty order and countervailing duty order with respect to CSPV cells, whether or not assembled into
modules, from China, respectively. The U.S. Department of Commerce issued the final results of the second administrative review
in June and July of 2016 and the final results of the third administrative review in July 2017. As we were not included in the
second and the third administrative review, the rates applicable to us remained at 9.67% (for anti-dumping) and 20.94% (for
countervailing) after this review. In February 2017, the U.S. Department of Commerce initiated the fourth administrative review
of the anti-dumping duty order and countervailing duty order with respect to CSPV cells, whether or not assembled into modules,
from China. In July 2018, the U.S. Department of Commerce published the final results of the fourth administrative review. As
we were not included in this anti-dumping administrative review, the anti-dumping deposit rates applicable to us remained
at 9.67%. The countervailing deposit rates applicable to us were 13.20% after this review. On October 30, 2018, the U.S. Department
of Commerce amended the final results of the fourth countervailing administrative review. As a result, the countervailing deposit
rates applicable to us were 10.64% after this amendment. On October 29, 2020, the U.S. Department of Commerce amended the final
results of the fourth countervailing administrative review pursuant to the final judgement of the United States Court of International
Trade; the final subsidy rate applicable to us for the entries made during the period from January 1, 2015 through December 31,
2015 was changed to 4.22%. In November 2017, the U.S. Department of Commerce and the U.S. International Trade Commission initiated
five-year reviews to determine whether revocation of the anti-dumping and countervailing duty orders with respect to CSPV
cells, whether or not assembled into modules from China, would likely lead to continuation or recurrence of material injury. In
March 2018, the U.S. Department of Commerce determined that revocation of the countervailing order would likely lead to continuation
or recurrence of a net countervailable subsidy. In March 2019, the U.S. International Trade Commission determined that revocation
of the countervailing order would likely lead to the continuation or recurrence of countervailable subsidies. In February 2018,
the U.S. Department of Commerce initiated the fifth administrative review of the anti-dumping duty order and countervailing
duty order with respect to CSPV cells, whether or not assembled into modules, from China. In July and August 2019, the U.S. Department
of Commerce issued the final results of the fifth administrative review, according to which the anti-dumping and countervailing
deposit rates applicable to us were 4.06% and 12.76%, respectively. In December 2019, the U.S. Department of Commerce amended
the final results of the fifth countervailing administrative review. As a result, the countervailing deposit rate applicable to
us was 12.7% after this amendment. In March 2019, the U.S. Department of Commerce initiated the sixth administrative review of
the anti-dumping duty order and countervailing duty order with respect to CSPV cells, whether or not assembled into modules, from
China. In October 2020, the U.S. Department of Commerce issued the final result of the sixth anti-dumping administrative review,
according to which the anti-dumping deposit rate applicable to us was 68.93%. In December 2020, the U.S. Department of Commerce
amended the final result of the sixth anti-dumping administrative review, according to which the anti-dumping deposit rate applicable
to us was 95.5% after such amendment. In December 2020, the U.S. Department of Commerce issued the final result of the sixth countervailing
administrative review, according to which the countervailing deposit rate applicable to us was 12.67%. In February 2020, the U.S.
Department of Commerce initiated the seventh administrative review of the anti-dumping duty order and countervailing duty order
with respect to CSPV cells, whether or not assembled into modules, from China. The seventh administrative review is pending as
of the date of this prospectus supplement, and therefore, the final anti-dumping and countervailing rates applicable to us
are subject to change.
In 2013, SolarWorld Industries
America Inc. filed a separate petition with the U.S. Department of Commerce and the U.S. International Trade Commission
resulting in the institution of new anti-dumping and countervailing duty investigations against import of certain CSPV
products from China. The petitions accused Chinese producers of such certain CSPV modules of dumping their products in the
United States and receiving countervailable subsidies from the Chinese government. This action excluded from its scope the
CSPV cells, whether or not assembled into modules, from China. In February 2015, following the affirmative injury
determination made by U.S. International Trade Commission, the U.S. Department of Commerce issued the anti-dumping duty
order and countervailing duty order. As a result, the final cash deposits were required to pay on import into the United
States of the CSPV modules assembled in China consisting of CSPV cells produced in a customs territory other than China. The
announced cash deposit rates applicable to us were 65.36% (for anti-dumping) and 38.43% (for countervailing). The actual
anti-dumping duty and countervailing duty rates at which entries of covered merchandise are finally assessed may differ
from the announced deposit rates because they are subject to the administrative reviews by the U.S. Department of Commerce.
In April 2016 and April 2017, the U.S. Department of Commerce initiated the first and the second administrative reviews of
the anti-dumping duty order and countervailing duty order with respect to CSPV modules assembled in China consisting of
CSPV cells produced in a customs territory other than China, respectively. In July and September 2017, the U.S. Department of
Commerce issued the final results of this first administrative review. The second administrative reviews of the
anti-dumping duty order and countervailing duty order were rescinded by the U.S. Department of Commerce in August 2017
and November 2017, respectively. In May 2019, the U.S. Department of Commerce initiated the third administrative reviews of
the anti-dumping duty order and countervailing duty order with respect to CSPV modules assembled in China consisting of CSPV
cells produced in a customs territory other than China. The final results of the third administrative reviews are still
pending as of the date of our 2019 annual report. We were not included in this third administrative reviews, therefore, the
cash deposit rates applicable to us remained at 65.36% (for anti-dumping) and 38.43% (for countervailing). In January
2020, the U.S. Department of Commerce and the U.S. International Trade Commission initiated five-year reviews to determine
whether revocation of the anti-dumping and countervailing duty orders with respect to CSPV modules assembled in China,
consisting of CSPV cells produced in a customs territory other than China, would likely lead to continuation or recurrence of
material injury. In May 2020, the U.S. Department of Commerce determined that revocation of the antidumping and
countervailing orders would likely lead to a continuation or recurrence of dumping and countervailable subsidies. In
September 2020, the U.S. International Trade Commission determined that revocation of the countervailing and antidumping duty
orders would likely lead to continuation or recurrence of material injury to an industry in the United States within a
reasonably foreseeable time.
In May 2017, U.S. International Trade Commission
initiated global safeguard investigation to determine whether CSPV cells (whether or not partially or fully assembled into other
products) were being imported into the United States in such increased quantities as to be a substantial cause of serious injury,
or the threat thereof, to the domestic industry producing an article like or directly competitive with the imported articles (“Section
201 Investigation”). The Section 201 Investigation was not country specific. They involved imports of the products under
investigation from all sources, including China. In September 2017, the U.S. International Trade Commission voted affirmatively
in respect of whether imports of CSPV cells (whether or not partially or fully assembled into other products) were causing serious
injury to domestic producers of CSPV products. On January 22, 2018, the U.S. President made the final decision to provide a remedy
to the U.S. industry, and the CSPV cells/modules concerned were subject to the safeguard measures established in the U.S. President’s
final result, which included that the CSPV cells and modules imported would be subject to additional duties of 30%, 25%, 20% and
15% from the first year to the fourth year, respectively, except for the first 2.5 GW of all imported CSPV cells concerned in each
of those four years, which are excluded from the additional tariff. On October 10, 2020, the U.S. President issued a proclamation
and determined that the section 201 duty of the fourth year beginning in February 2021 will be 18%, instead of 15%. It is believed
that the costs of solar power projects in the United States may increase and the demand for solar PV products in the United States
may be adversely impacted due to the decision of the White House under the Section 201 Investigation. Although we opened our manufacturing
facility in the United States, and the products manufactured in such facility will not be subject to tariffs, we will still be
subject to tariffs if we ship our products from our manufacturing facilities overseas into the United States. Our imports of solar
cells and modules into the United States were subject to the duties imposed by Section 201 Investigation starting from February
2018. Accordingly, our business and profitability of these products may be materially and adversely impacted by the decision of
the White House under the Section 201 Investigation.
In August 2017, the United States
Trade Representative initiated an investigation pursuant to the Trade Act of 1974, as amended (the “Trade Act”),
to determine whether acts, policies, and practices of the Government of China related to technology transfer, intellectual
property, and innovation were actionable under the Trade Act (“Section 301 Investigation”). The findings from the
United States Trade Representative with the assistance of the interagency Section 301 committee showed that the acts,
policies, and practices of the Chinese government related to technology transfer, intellectual property and innovation were
unreasonable or discriminatory and burdened or restricted the U.S. commerce. On March 22, 2018, the U.S. President directed
his administration to take a range of actions responding to China’s acts, policies, and practices involving the unfair
and harmful acquisition of U.S. technology. These actions included imposing an additional duty of 25% on products from China
in aerospace, information and communication technology, and machinery. On April 3, 2018, the United States Trade
Representative proposed a list of products from China which would be subject to the additional duty. In June and July 2018,
the United States Trade Representative proposed three lists of products of from China which were worth approximately
US$250 billion (US$34 billion for List 1, US$16 billion for List 2 and US$200 billion for List 3), among which, products
on List 1 and List 2 would be imposed a 25% additional duty and products on List 3 would be imposed a 10% additional duty.
Certain of our production equipment and raw materials exported from China to be used in our new manufacturing facility in the
United States and our solar PV products exported from China were covered by these three lists. In July, August and September
2018, the United States Trade Representative published that the Customs and Border Protection would begin to collect
additional duties on the products exported from China on List 1 on July 6, 2018, those on List 2 on August 23, 2018 and those
on List 3 on September 24, 2018, respectively. On March 5, 2019, the United States Trade Representative determined that the
rates of additional duty for the products on List 3 would remained at 10% until further notice. On May 9, 2019, the United
States Trade Representative determined to increase the rates of additional duty for the products on List 3 from 10% to 25%
with an effective date on May 10, 2019. In August 2019, the United States Trade Representative determined to impose an
additional 10% duty on the fourth list of products of Chinese origin with an annual aggregate trade value of approximately
US$300 billion (“List 4”). Certain of our production equipment and raw materials of Chinese origin to be
used in our new manufacturing facility in the United States were covered by List 4. The tariff subheadings under List 4 were
separated into two lists with different effective dates: the list set forth in annex A of the notice issued by the United
States Trade Representative became effective on September 1, 2019; and the list set forth in annex C of the notice became
effective on December 15, 2019. On August 30, 2019, the United States Trade Representative determined to increase the rate of
additional duty for the products covered by List 4 from 10% to 15%. On December 18, 2019, the United States Trade
Representative determined to suspend indefinitely the imposition of additional 15% duty on products covered by annex C of
List 4. On January 15, 2020, the United States Trade Representative determined to reduce the rate of the additional duty on
products covered by annex A of List 4 from 15% to 7.5%, which became effective on February 14, 2020. The lists of products,
which the United States Trade Representative may further revise, may affect the solar industry and the operation of our new
manufacturing facility in the United States.
Our direct sales to the European market
accounted for 7.9%, 7.9%, 17.5% and 14.4% of our total revenue in 2017, 2018, 2019 and the nine months ended September 30, 2020,
respectively. On June 6, 2013, the European Union imposed provisional anti-dumping duty on the solar panels originating in
or consigned from China, including JinkoSolar’s products, at the starting rate of 11.8% until August 5, 2013, and followed
by an increased rate averaging 47.6%.
On July 27, 2013, the European Union and
Chinese trade negotiators announced that a price undertaking had been reached pursuant to which Chinese manufacturers, including
JinkoSolar, would limit their exports of solar panels to the European Union and for no less than a minimum price, in exchange for
the European Union agreeing to forgo the imposition of anti-dumping duties on these solar panels from China. The offer was
approved by the European Commission on August 2, 2013. The China Chamber of Commerce for Import and Export of Machinery and Electronic
Products (the “CCCME”), was responsible for allocating the quota among Chinese export producers, and JinkoSolar had
been allocated a portion of the quota. Solar panels imported exceeding the annual quota will be subject to anti-dumping duties.
On December 5, 2013, the European Council announced its final decision imposing definitive anti-dumping and anti-subsidy
duties on imports of CSPV cells and modules originating in or consigned from China. An average duty of 47.7%, consisting of the
anti-dumping and anti-subsidy duties, was applied for a period of two years beginning on December 6, 2013 to Chinese solar
panel exporters who cooperated with the European Commission’s investigations. On the same day, the European Commission announced
its decision to confirm the acceptance of the price undertaking offered by Chinese export producers, including JinkoSolar, with
CCCME in connection with the anti-dumping proceeding and to extend the price undertaking to the anti-subsidy proceeding,
which would exempt them from both anti-dumping and anti-subsidy duties. Since November 17, 2016, we have officially withdrawn
from the European Union price undertaking agreement.
In May 2015, the European Commission
initiated an investigation concerning the possible circumvention of anti-dumping measures and countervailing measures
imposed on imports of CSPV modules and key components (i.e. cells) originating in or consigned from China by imports of CSPV
modules and key components (i.e. cells) consigned from Malaysia and Taiwan, whether declared as originating in Malaysia and
Taiwan or not (“Anti-circumvention Investigations”). In February 2016, the European Commission made
definitive result of this Anti-circumvention Investigations. According to the definitive results, the 53.4% of the
anti-dumping duty and 11.5% of the countervailing duty were applicable to the imports of CSPV modules and key components
(i.e. cells) originating in or consigned from the People’s Republic of China, was extended to imports of CSPV modules
and key components (i.e. cells) consigned from Malaysia and Taiwan whether declared as originating in Malaysia and in Taiwan
or not.
In December 2015, the European Commission
initiated expiry reviews of the existing countervailing measures and anti-dumping measures applicable to imports of CSPV modules
and key components (i.e. cells) originating in or consigned from the People’s Republic of China. Such expiry reviews would
determine whether the existing countervailing measures and anti-dumping measures would expire or continue to apply. In March
2017, the European Commission made final determination to continue the existing countervailing measures and anti-dumping measures
for another 18 months.
In March 2017, the European Commission
initiated a partial interim review of the anti-dumping and countervailing measures applicable to imports of CSPV modules and
key components (i.e. cells) originating in or consigned from China. Such partial interim review examined whether the then existing
anti-dumping and countervailing measures, including European Union price undertaking agreement, can still be considered as
an appropriate form for the measures. In September 2017, the European Commission determined that the price undertaking would be
replaced with a new variable duty minimum import price and a new measure to the Chinese companies that withdrew voluntarily from
price undertaking without any non-compliance issues, including certain Chinese affiliates of us.
In October 2016, Jinko Solar Technology
Sdn.Bhd, our manufacturing facility in Malaysia, lodged a request to European Commission for an exemption from the anti-dumping
and countervailing measures extended to imports of CSPV modules and key components, including solar cells, consigned from Malaysia
and Taiwan, despite the declaration of their originations. In November 2017, the European Commission concluded that Jinko Solar
Technology Sdn.Bhd fulfilled the criteria laid down in the basic anti-dumping Regulation and basic anti-subsidy Regulation
and would be exempted from such extended measures.
The European Union is one of the most important
markets for solar products. Anti-dumping, countervailing duties or both imposed on imports of our products into the European
Union could materially adversely affect our affiliated European Union import operations, increase our cost of selling into the
European Union, and adversely affect our sales in European Union.
In September 2018, the European Commission
decided not to extend trade defense measures on solar panels from China. The European Union anti-dumping and anti-subsidy
measures applicable to imports of CSPV modules and key components (i.e. cells) originating in or consigned from China expired on
September 3, 2018.
In December 2014, Canada initiated the
anti-dumping and countervailing investigations on imports of CSPV modules from China. In June 2015, the Canada Border Services
Agency (“CBSA”) found that the CSPV modules under investigation had been dumped and subsidized. In July 2015, the Canadian
International Trade Tribunal found that the dumping and subsidizing of the above-mentioned goods had not caused injury, but
were threatening to cause injury to the domestic industry. As a result, import into Canada of our CSPV modules under investigation
from China was subject to the anti-dumping and countervailing duties. The countervailing duty rate (RMB per Watt) applicable
to Jiangxi Jinko and Zhejiang Jinko are 0.028 and 0.046, respectively. For anti-dumping duties, CBSA had set normal value for
the imported CSPV modules and the anti-dumping duty would be the difference between the export price and normal value if the
export price is lower the normal value. No anti-dumping duties would apply if the export price is equal or more than the normal
value.
In May 2014, Australian Anti-dumping
Commission initiated anti-dumping investigation against CSPV modules imported from China. In October 2015, the Australian Anti-dumping
Commission decided to terminate this investigation and decided no imposition of any anti-dumping duty on imported CSPV modules
from China. However, in January 2016, the Australian Anti-dumping Commission resumed this investigation.
In October 2016, Australian Anti-dumping
Commission made final determination to uphold its original results, i.e. to terminate the investigation and decided no imposition
of any anti-dumping duty on imported CSPV modules from China.
In July 2016, Turkish Ministry of Economy
initiated anti-dumping investigation against photovoltaic panels and modules classified in Turkish Customs Tariff Code 8541.40.90.00.14,
from China. In July 2017, Turkish Ministry of Economy made the final affirmative result of this investigation, pursuant to which
import into Turkey of our CSPV panels and modules under investigation from China would be subject to the anti-dumping duty.
The anti-dumping duty applicable to us was US$20 per m2.
In July 2017, the Department of Commerce
of India initiated anti-dumping investigation concerning imports of solar cells whether or not assembled partially or fully
in modules or panels or on glass or some other suitable substrates originating in or exported from mainland China, Taiwan and Malaysia.
Such investigation was terminated in March 2018 by the Department of Commerce of India as requested by Indian Solar Manufacturers
Association, representing applicants of the domestic industry.
In December 2017, the Directorate General
of Safeguards of India initiated a safeguard investigations concerning imports of “solar cells whether or not assembled in
modules or panels” (“PUC”) into India to protect the domestic producers of like and directly competitive articles
(to the solar cells whether or not assembled in modules or panels) from serious injury/threat of serious injury caused by such
increased imports (the “India Safeguard Investigations”). The India Safeguard Investigations were not country specific
and involved imports for the products under investigation from all sources, including China. In January 2018, the Directorate General
of Safeguards Customs and Central Excise recommended a provisional safeguard duty to be imposed at the rate of 70% ad valorem
on the imports of PUC falling under Customs Tariff Item 85414011 of the Customs Tariff Act, 1975 from all countries, including
PRC and Malaysia, except some developing countries. In May 2018, Indian central government overruled the Directorate General of
Safeguards Customs and Central Excise’s recommendation of provisional safeguard duty at the rate of 70% ad valorem on
the imports of PUC. On July 16, 2018, Directorate General of Trade Remedies published the final findings of Safeguard Investigations
and recommended to impose the safeguard duty for a period of two years. As of July 30, 2018, Ministry of Finance of India issued
a Notification No. 01/2018-Customs (SG) to impose safeguard duty at the following rate effective from July 30, 2018:
|
·
|
25% ad valorem minus anti-dumping duty payable, if any, when imported during the period from July 30, 2018 to July
29, 2019 (both days inclusive);
|
|
·
|
20% ad valorem minus anti-dumping duty payable, if any, when imported during the period from July 30, 2019 to January
29, 2020 (both days inclusive); and
|
|
·
|
15% ad valorem minus anti-dumping duty payable, if any, when imported during the period from January 30, 2020 to
July 29, 2020 (both days inclusive).
|
Nothing contained in this notification
shall apply to imports of PUC from countries notified as developing countries vide notification no.19/2016-custom (NT) dated
February 5, 2016 except PRC and Malaysia.
In March 2020, the Directorate General
of Trade Remedies of India initiated a review examining the need for continued imposition of safeguards duty on imports of solar
cells whether or not assembled in modules or panels into India. On July 18, 2020, the Directorate General of Trade Remedies of
India issued the final findings of review investigation for continued imposition of safeguards duty and recommended extension of
safeguards duty for a period of another one year. On July 29, 2020, Ministry of Finance of India issued a Notification No.02/2020-Customs
(SG) to impose safeguard duty at the following rate effective from July 30, 2020:
|
•
|
14.9% ad valorem minus anti-dumping duty payable, if any, when imported during the period from July 30, 2020 to January
29, 2021 (both days inclusive); and
|
|
•
|
14.5% ad valorem minus anti-dumping duty payable, if any, when imported during the period from January 30, 2021 to July
29, 2021 (both days inclusive).
|
Nothing contained in this notification
shall apply to imports of PUC from countries notified as developing countries vide notification No. 19/2016-Customs (N.T.) dated
the February 5, 2016, except the PRC, Thailand and Vietnam.
Imposition of anti-dumping and countervailing
orders in one or more markets may result in additional costs to us, our customers or both, which could materially adversely affect
our business, financial condition, results of operations and future prospects.
Volatility in the prices of silicon raw materials makes
our procurement planning challenging and could have a material adverse effect on our results of operations and financial condition.
The prices of polysilicon, the essential
raw material for solar cell and module products and silicon wafers have been subject to significant volatility. Historically, increases
in the price of polysilicon had increased our production costs. Since the first half of 2010, as a result of the growth of newly
available polysilicon manufacturing capacity worldwide, there has been an increased supply of polysilicon, which has driven down
its price and the price of its downstream products. Since the second half of 2011, the prices of polysilicon and silicon wafers
further fell significantly. From 2011 to 2012, the prices of solar products declined, and prices began to stabilize in the first
half of 2013. From 2013 to 2017, the price of polysilicon slightly fluctuated, while the price of polysilicon decreased in 2018
and 2019 and increased in the nine months ended September 30, 2020.
We expect that the prices of virgin polysilicon
feedstock may continue to be subject to volatility, making our procurement planning challenging. For example, if we refrain from
entering into fixed-price, long-term supply contracts, we may miss the opportunities to secure long-term supplies of
virgin polysilicon at favorable prices if the spot market price of virgin polysilicon increases significantly in the future. On
the other hand, if we enter into more fixed-price, long-term supply contracts, we may not be able to renegotiate or otherwise
adjust the purchase prices under such long-term supply contracts if the spot market price declines. As a result, our cost of
silicon raw materials could be higher than that of our competitors who source their supply of silicon raw materials through floating-price
arrangements or spot market purchases. To the extent we may not be able to fully pass on higher costs and expenses to our customers,
our profit margins, results of operations and financial condition may be materially adversely affected.
We may not be able to obtain sufficient raw materials
in a timely manner or on commercially reasonable terms, which could have a material adverse effect on our results of operations
and financial condition.
In 2017, 2018, 2019 and the nine months
ended September 30, 2020, our five largest suppliers accounted for 72.5%, 56.4%, 55.9% and 77.4%, respectively, of our total silicon
purchases by value. In 2017, four of our suppliers individually accounted for more than 10%, and our largest supplier accounted
for 23.9% of our total silicon purchases by value. In 2018, three of our suppliers individually accounted for more than 10%, and
our largest supplier accounted for 15.5% of our total silicon purchases by value. In 2019, one of our suppliers individually accounted
for more than 10%, which accounted for 23.3% of our total silicon purchases by value. In the nine months ended September 30, 2020,
five of our suppliers individually accounted for more than 10%, and our largest supplier accounted for 25.6% of our total silicon
purchases by value.
Although the global supply of polysilicon
has increased significantly, we may experience interruption to our supply of silicon or other raw materials or late delivery in
the future for the following reasons, among others:
|
·
|
suppliers under our silicon material supply contracts may delay deliveries for a significant period of time without incurring
penalties;
|
|
·
|
our virgin polysilicon suppliers may not be able to meet our production needs consistently or on a timely basis;
|
|
·
|
compared with us, some of our competitors who also purchase virgin polysilicon from our suppliers have longer and stronger
relationships with and have greater buying power and bargaining leverage over some of our key suppliers; and
|
|
·
|
our supply of silicon or other raw materials is subject to the business risk of our suppliers, some of whom have limited operating
history and limited financial resources, and one or more of which could go out of business for reasons beyond our control in the
current economic environment.
|
Our failure to obtain the required amounts
of silicon raw materials and other raw materials, such as glass, in a timely manner and on commercially reasonable terms could
increase our manufacturing costs and substantially limit our ability to meet our contractual obligations to our customers. Any
failure by us to meet such obligations could have a material adverse effect on our reputation, ability to retain customers, market
share, business and results of operations and may subject us to claims from our customers and other disputes. Furthermore, our
failure to obtain sufficient silicon and other raw materials would result in under-utilization of our production facilities
and an increase in our marginal production costs. Any of the above events could have a material adverse effect on our growth, profitability
and results of operations.
The loss of, or a significant reduction in orders from,
any of our customers could significantly reduce our revenue and harm our results of operations.
In 2017, 2018, 2019 and the nine months
ended September 30, 2020, sales to our top five customers represented 21.8%, 20.5%, 23.6% and 21.5% of our total revenue, respectively.
In 2017, 2018, 2019 and the nine months ended September 30, 2020, our largest customer accounted for 5.7%, 7.2%, 7.0% and 5.9%,
respectively, of our total revenue. Our relationships with some of our key customers for solar modules have been developed over
a relatively short period of time and are generally in nascent stages. Our key module customers include NextEra, Consolidated Edison
Development, Trung Nam Construction Investment, Concho Bluff, Swinerton Builders. We cannot assure you that we will be able to
continue to generate significant revenue from these customers or that we will be able to maintain these customer relationships.
In addition, we purchase solar wafers and cells and silicon raw materials through toll manufacturing arrangements that require
us to make significant capital commitments to support our estimated production output. In the event our customers cancel their
orders, we may not be able to recoup prepayments made to suppliers, which could adversely influence our financial condition and
results of operations. The loss of sales to any of these customers could also have a material adverse effect on our business, prospects
and results of operations.
We manufacture a majority of our products in several provinces
in China, which exposes us to various risks relating to long-distance transportation of our silicon wafers and solar cells
in the manufacturing process.
The geographical separation of our manufacturing
facilities in China necessitates constant long-distance transportation of substantial volumes of our silicon wafers and solar
cells between Jiangxi Province, Zhejiang Province, Xinjiang Uygur Autonomous Region and Sichuan Province. We produce silicon wafers
in Jiangxi, Xinjiang and Sichuan, solar cells in Zhejiang, and solar modules in Jiangxi, Zhejiang and Anhui. As a result, we transport
a substantial volume of our silicon wafers and solar cells within China.
The constant long-distance transportation
of a large volume of our silicon wafers and solar cells may expose us to various risks, including (i) increases in transportation
costs, (ii) loss of our silicon wafers or solar cells as a result of any accidents that may occur in the transportation process,
(iii) delays in the transportation of our silicon wafers or solar cells as a result of any severe weather conditions, natural disasters
or other conditions adversely affecting road traffic, and (iv) disruptions to our production of solar cells and solar modules as
a result of delays in the transportation of our silicon wafers and solar cells. Any of these risks could have a material adverse
effect on our business and results of operations.
Prepayment arrangements to our suppliers for the procurement
of silicon raw materials expose us to the credit risks of such suppliers and may also significantly increase our costs and expenses,
which could in turn have a material adverse effect on our financial condition, results of operations and liquidity.
Our supply contracts generally include
prepayment obligations for the procurement of silicon raw materials. As of September 30, 2020, we had RMB2.03 billion (US$298.4
million) of advances to our suppliers. We generally do not receive collateral to secure such payments for these contracts, and
even if we do, the collateral we received is deeply subordinated and shared with all other customers and other senior lenders of
the suppliers.
Our prepayments, secured or
unsecured, expose us to the credit risks of our suppliers, and reduce our chances of obtaining the return of such prepayments
in the event that our suppliers become insolvent or bankrupt. Moreover, we may have difficulty recovering such prepayments if
any of our suppliers fails to fulfill its contractual delivery obligations to us. Accordingly, a default by our suppliers to
whom we have made substantial prepayment may have a material adverse effect on our financial condition, results of operations
and liquidity. For example, in January 2013, we notified Wuxi Zhongcai Technological Co. Ltd. (“Wuxi Zhongcai”),
one of our former polysilicon providers, to terminate our long-term supply agreement, in response to adverse developments
in Wuxi Zhongcai’s business. In February 2013, we became involved in two lawsuits with Wuxi Zhongcai over the supply
agreement. We provided full provision for the RMB93.2 million of the outstanding balance of prepayments to Wuxi Zhongcai in
2012. We received final judgements from the Supreme People’s Court for the two lawsuits in January and February 2019,
respectively, which provided that, among others, Wuxi Zhongcai shall fully return our prepayments and interests accrued
thereon. In December 2019, we entered into a settlement agreement for the enforcement of the Supreme People’s
Court’s final judgements with Wuxi Zhongcai, Wuxi Zhongcai Group Co., Ltd., the parent company of Wuxi Zhongcai, Wuxi
Zhongcai New Materials Co., Ltd. and the legal representative of Wuxi Zhongcai. According to the settlement agreement, Wuxi
Zhongcai and Wuxi Zhongcai Group Co., Ltd. will return our prepayments and interests by the end of June 2020 while Wuxi
Zhongcai New Materials Co., Ltd. and Wuxi Zhongcai’s legal representative are jointly and severally liable for Wuxi
Zhongcai’s obligations under the settlement agreement. As of the date of this prospectus supplement, we have received
the full repayment of RMB93.2 million (US$13.7 million) from Wuxi Zhongcai.
Decreases in the price of solar power products, including
solar modules, may result in additional provisions for inventory losses.
We typically plan our production and inventory
levels based on our forecasts of customer demand, which may be unpredictable and can fluctuate materially. Recent market volatility
has made it increasingly difficult for us to accurately forecast future product demand trends. Due to the decrease in the prices
of solar power products, including solar modules, which have been our principal products since 2010, we recorded inventory provisions
of RMB313.7 million, RMB220.2 million, RMB135.9 million (US$20.0 million) and RMB157.7 million (US$23.2 million) in 2017, 2018,
2019 and the nine months ended September 30, 2020, respectively. If the prices of solar power products continue to decrease, the
carrying value of our existing inventory may exceed its market price in future periods, thus requiring us to make additional provisions
for inventory valuation, which may have a material adverse effect on our financial position and results of operations.
Shortage or disruption of electricity supply may adversely
affect our business.
We consume a significant amount of electricity
in our operations. With the rapid development of the PRC economy, demand for electricity has continued to increase. There have
been shortages or disruptions in electricity supply in various regions across China, especially during peak seasons, such as the
summer, or when there are severe weather conditions. We cannot assure you that there will not be disruptions or shortages in our
electricity supply or that there will be sufficient electricity available to us to meet our future requirements. Shortages or disruptions
in electricity supply and any increases in electricity costs may significantly disrupt our normal operations, cause us to incur
additional costs and adversely affect our profitability.
We face intense competition in solar power product markets.
If we fail to adapt to changing market conditions and to compete successfully with existing or new competitors, our business prospects
and results of operations would be materially adversely affected.
The markets for solar power products are
intensely competitive. We compete with manufacturers of solar power products such as Longi Green Energy Technology Co., Trina Solar
Ltd., Canadian Solar Inc. and JA Solar Holdings Co., Ltd., in a continuously evolving market. Certain downstream manufacturers,
some of which are also our customers and suppliers, have also built out or expanded their silicon wafer, solar cell, or solar module
production operations.
Some of our current and potential competitors
have a longer operating history, stronger brand recognition, more established relationships with customers, greater financial and
other resources, a larger customer base, better access to raw materials and greater economies of scale than we do. Furthermore,
some of our competitors are integrated players in the solar industry that engage in the production of virgin polysilicon. Their
business models may give them competitive advantages as these integrated players place less reliance on the upstream suppliers,
downstream customers or both.
The solar industry faces competition from other types
of renewable and non-renewable power industries.
The solar industry faces competition from
other renewable energy companies and non-renewable power industries, including nuclear energy and fossil fuels such as coal,
petroleum and natural gas. Technological innovations in these other forms of energy may reduce their costs or increase their safety.
Large-scale new deposits of fossil fuel may be discovered, which could reduce their costs. Local governments may decide to
strengthen their support for other renewable energy sources, such as wind, hydro, biomass, geothermal and ocean power, and reduce
their support for the solar industry. The inability to compete successfully against producers of other forms of power would reduce
our market share and negatively affect our results of operations.
Technological changes in the solar power industry could
render our products uncompetitive or obsolete, which could reduce our market share and cause our revenue and net income to decline.
The solar power industry is characterized
by evolving technologies and standards. These technological evolutions and developments place increasing demands on the improvement
of our products, such as solar cells with higher conversion efficiency and larger and thinner silicon wafers and solar cells. Other
companies may develop production technologies that enable them to produce silicon wafers, solar cells and solar modules with higher
conversion efficiencies at a lower cost than our products. Some of our competitors are developing alternative and competing solar
technologies that may require significantly less silicon than crystalline silicon wafers and solar cells, or no silicon at all.
Technologies developed or adopted by others may prove more advantageous than ours for commercialization of solar power products
and may render our products obsolete. As a result, we may need to invest significant resources in research and development to maintain
our market position, keep pace with technological advances in the solar power industry, and effectively compete in the future.
Our failure to further refine and enhance our products and processes or to keep pace with evolving technologies and industry standards
could cause our products to become uncompetitive or obsolete, which could materially adversely reduce our market share and affect
our results of operations.
Existing regulations and policies and changes to these
regulations and policies may present technical, regulatory and economic barriers to the purchase and use of solar power products,
which may significantly reduce demand for our products.
The market for electricity generation products
is heavily influenced by government regulations and policies concerning the electric utility industry, as well as by policies adopted
by electric utility companies. These regulations and policies often relate to electricity pricing and technical interconnection
requirements for customer-owned electricity generation. In a number of countries, these regulations and policies are being
modified and may continue to be modified. Customer purchases of, or further investment in the research and development of, alternative
energy sources, including solar power technology, could be deterred by these regulations and policies, which could result in a
significant reduction in the demand for our products. For example, without a regulatory mandated exception for solar power systems,
utility customers may be charged interconnection or standby fees for putting distributed power generation on the electric utility
grid. These fees could increase the cost of and reduce the demand for solar power, thereby harming our business, prospects, results
of operations and financial condition.
In addition, we anticipate that solar
power products and their installation will be subject to oversight and regulation in accordance with national and local regulations
relating to building codes, safety, environmental protection, utility interconnection, and metering and related matters. Any new
government regulations or utility policies pertaining to solar power products may result in significant additional expenses to
the users of solar power products and, as a result, could eventually cause a significant reduction in demand for our products.
We may face termination and late charges and risks relating
to the termination and amendment of certain equipment purchases contracts. Our reliance on equipment and spare parts suppliers
may also expose us to potential risks.
We transact with a limited number of
equipment suppliers for all our principal manufacturing equipment and spare parts, including our silicon ingot furnaces,
squaring machines, wire saws, diffusion furnaces, firing furnaces and screen print machine. We may rely on certain major
suppliers to provide a substantial portion of the principal manufacturing equipment and spare parts as part of our expansion
plan in the future. If we fail to develop or maintain our relationships with these and other equipment suppliers, or should
any of our major equipment suppliers encounter difficulties in the manufacturing or shipment of its equipment or spare parts
to us, including due to natural disasters or otherwise fail to supply equipment or spare parts according to our requirements,
it will be difficult for us to find alternative providers for such equipment on a timely basis and on commercially reasonable
terms. As a result, our production and result of operation could be adversely affected.
Selling our products on credit terms may increase our
working capital requirements and expose us to the credit risk of our customers.
To accommodate and retain customers in
the negative market environment, many solar module manufacturers, including us, make credit sales and extend credit terms to customers,
and this trend is expected to continue in the industry. Most of our sales are made on credit terms and we allow our customers to
make payments after a certain period of time subsequent to the delivery of our products. Our accounts receivable turnover were
77 days, 93 days, 85 days and 79 days in 2017, 2018, 2019 and the nine months ended September 30, 2020, respectively. Correspondingly,
we recorded provisions for accounts receivable of RMB264.7 million, RMB256.6 million, RMB318.2 million (US$46.9 million) and
RMB325.9 million (US$48.0 million) as of December 31, 2017, 2018 and 2019 and September 30, 2020, respectively. Based on our ongoing
assessment of the recoverability of our outstanding accounts receivable, we may need to continue to provide for doubtful accounts
and write off overdue accounts receivable we determine as not collectible.
Selling our products on credit terms has
increased, and may continue to increase, our working capital requirements, which may negatively affect our liquidity. We may not
be able to maintain adequate working capital primarily through cash generated from our operating activities and may need to secure
additional financing for our working capital requirements, which may not be available to us on commercially acceptable terms or
at all.
In addition, we are exposed to the credit
risk of customers to which we have made credit sales in the event that any of such customers becomes insolvent or bankrupt or otherwise
does not make timely payments. For example, we sell our products on credit to certain customers in emerging or promising markets
in order to gain early access to such markets, increase our market share in existing key markets or enhance the prospects of future
sales with rapidly growing customers. There are high credit risks in doing business with these customers because they are often
small, young and high-growth companies with significant unfunded working capital, inadequate balance sheets and credit metrics
and limited operating histories. If these customers are not able to obtain satisfactory working capital, maintain adequate cash
flow, or obtain construction financing for the projects where our solar products are used, they may be unable to pay for products
they have ordered from us or for which they have taken delivery. Our legal recourse under such circumstances may be limited if
the customers’ financial resources are already constrained or if we wish to continue to do business with these customers.
We are exposed to various risks related to legal or administrative
proceedings or claims that could adversely affect our financial condition, results of operations and reputation, and may cause
loss of business.
Litigation in general can be expensive,
lengthy and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict.
We and/or our directors and officers may be involved in allegations, litigation or legal or administrative proceedings from time
to time.
In July 2008, Jiangxi Jinko entered
into a long-term supply agreement with Wuxi Zhongcai, a producer of polysilicon materials. Jiangxi Jinko provided a
prepayment of RMB95.6 million pursuant to such contract. Wuxi Zhongcai subsequently halted production as a result of the
adverse changes in the polysilicon market. In February 2013, Jiangxi Jinko sued Wuxi Zhongcai in Shangrao City Intermediate
People’s Court for the refund of the outstanding balance of our prepayment of RMB93.2 million after deducting delivery
made to Jiangxi Jinko by an affiliate of Wuxi Zhongcai. In February 2013, Wuxi Zhongcai sued Jiangxi Jinko in Shanghai Pudong
New Area People’s Court for RMB2.7 million for breaching the contract by failing to make allegedly required payments
and rejected the refund of the prepayment of RMB95.6 million to Jiangxi Jinko. In December 2015, Jiangxi Jinko made an
alternation of the claim under which it requested the refund of the prepayment of RMB93.2 million, the interests accrued from
such prepayment, and the liquidated damages in the amount of RMB93.2 million. In January 2016, Wuxi Zhongcai also changed the
complaint, in which it claimed for the liquidated damages amounting to RMB102.0 million and the losses suffered from the
termination of the agreement in the amount of RMB150.0 million, and rejected the refund of the prepayment of RMB95.6 million
to Jiangxi Jinko. Shanghai High People’s Court ruled on both lawsuits in June 2017. In Jiangxi Jinko v. Wuxi
Zhongcai, the court sided with Wuxi Zhongcai and denied Jiangxi Jinko’s complaint. In Wuxi Zhongcai v. Jiangxi
Jinko, the court decided that Wuxi Zhongcai shall retain the balance of our prepayment in the amount of RMB93.2 million
and the remaining claims of Wuxi Zhongcai were denied. Jiangxi Jinko appealed both court decisions. Wuxi Zhongcai appealed
the decision on Wuxi Zhongcai v. Jiangxi Jinko. We provided full provision for the RMB93.2 million of the outstanding
balance of prepayments to Wuxi Zhongcai in 2012. We received final judgements for the two lawsuits from the Supreme
People’s Court in January and February 2019, respectively, which provide that, among others, Wuxi Zhongcai shall fully
return our prepayments and interests accrued thereon. In December 2019, we entered into a settlement agreement for the
enforcement of the Supreme People’s Court’s final judgements with Wuxi Zhongcai, Wuxi Zhongcai Group Co., Ltd.,
the parent company of Wuxi Zhongcai, Wuxi Zhongcai New Materials Co., Ltd. and the legal representative of Wuxi Zhongcai.
According to the settlement agreement, Wuxi Zhongcai and Wuxi Zhongcai Group Co., Ltd. will return our prepayments and
interests by the end of June 2020 while Wuxi Zhongcai New Materials Co., Ltd. and Wuxi Zhongcai’s legal representative
are jointly and severally liable for Wuxi Zhongcai’s obligations under the settlement agreement. As of the date of this
prospectus supplement, we have received the full repayment of RMB93.2 million (US$13.7 million) from Wuxi Zhongcai.
In the fourth quarter of 2017, we decided
to fulfill the demand for our solar products in South Africa through other overseas manufacturing facilities, and closed our manufacturing
facility in South Africa. In December 2017, the South African Revenue Services (“SARS”), issued a letter of demand
in terms of the Customs and Excise Act (the “Act”). The demand was for the amount of approximately ZAR573.1 million
against JinkoSolar (Pty) Ltd. SARS alleged that JinkoSolar (Pty) Ltd’s importation of certain components for the manufacturer
of solar panels and the rebate of customs duty did not comply with the Act. We were of the view that SARS’ decision to persist
with the letter of demand for the amounts in question was without any legal basis and intended on vigorously defending JinkoSolar
(Pty) Ltd against all these claims. JinkoSolar (Pty) Ltd submitted an application to SARS for the suspension of payment for the
amount demanded. In February 2018, JinkoSolar (Pty) Ltd lodged an internal appeal in terms of sections 77A–77F of the Act
against the decision of SARS to claim the amounts demanded and the basis thereof to the Customs National Appeals Committee of South
Africa. In December 2018, Jiangxi Jinko transferred 100% equity interest in Jinko Solar Investment (Pty) Ltd to an independent
third party, at which point both Jinko Solar Investment (Pty) Ltd and its subsidiary JinkoSolar (Pty) Ltd were no longer our affiliated
companies and their financial results were no longer consolidated into our consolidated financial statements.
In November 2018, one of our
customers in Singapore (the “Singapore Customer”) filed two Notices of Arbitration (“NoAs”) in two
arbitrations with Arbitration No. ARB374/18/PPD (“ARB 374”) and Arbitration No. ARB375/18/PPD (“ARB
375”), respectively, against Jinko Solar Import & Export Co., Ltd. (“Jinko IE”) at Singapore
International Arbitration Centre. These NoAs were subsequently amended by the Singapore Customer, and Jinko IE received the
amended Notices of Arbitration from the Singapore Customer on December 20, 2018. The Singapore Customer claimed respectively
in ARB 374 and ARB 375 that the photovoltaic solar modules supplied by Jinko IE to the Singapore Customer under the purchase
agreement dated December 25, 2012 (“2012 Contract”) and January 28, 2013 (“2013 Contract”) were
defective. The Singapore Customer sought, inter alia, orders that Jinko IE replace the modules and/or that Jinko IE
compensate the Singapore Customer for any and all losses sustained by the Singapore Customer as a result of the supply of
allegedly defective modules. In January 2019, Jinko IE issued its responses to the NoAs in ARB 374 and ARB 375, disputing the
Singapore Customer’s reliance on the arbitration clauses in the 2012 Contract and the 2013 Contract, denying all claims
raised by the Singapore Customer, and disputing that the Singapore Customer was entitled to the reliefs claimed in the
arbitrations. Arbitration tribunals in both ARB 374 and ARB 375 were constituted on September 5, 2019, which directed on
January 14, 2020 that (i) the Singapore Customer shall submit its statement of claim in both ARB 374 and ARB 375 and Jinko IE
shall submit its statement of defense no later than five months after Singapore Customer’s submission of statement of
claim; and (ii) the hearing of the arbitrations shall be bifurcated with the liability issue to be first determined by the
tribunals, and then depending on the outcome of the liability issue, the issue of remedies/damages payable to be determined
in the subsequent proceedings in such manner as may be directed by the tribunals. On August 7, 2020, the Singapore Customer
submitted its statement of claim in both ARB 374 and ARB 375, and Jinko IE is required to submit its statement of defense
before January 7, 2021. In the statement of claim, the Singapore Customer maintained its claim that the photovoltaic solar
modules supplied by Jinko IE to them under the 2012 Contract and the 2013 Contract were defective, and that Jinko IE should
be liable in respect of all the modules supplied under the 2012 Contract and the 2013 Contract. The arbitrations are still in
the preliminary stage and it is difficult to provide an in-depth assessment of the Singapore Customer’s claims. We
believe that Jinko IE has reasonable grounds to challenge the Singapore Customer’s claims in the arbitrations on
jurisdiction and merits and will vigorously defend against the claims made by the Singapore Customer. Information available
prior to issuance of the financial statements did not indicate that it is probable that a liability had been incurred at the
date of the financial statements and we are also unable to reasonably estimate the range of any liability or reasonably
possible loss, if any.
In March 2019, Moura Fábrica Solar
– Fabrico e Comércio de Painéis Solares, Lda. (“MFS”) submitted a request for arbitration at International
Chamber of Commerce (Case No. 24344/JPA) against Projinko Solar Portugal, Unipessoal Lda (“Projinko”) in connection
with dispute arising out of (i) a business unit lease agreement (the “Business Unit Lease Agreement”) entered into
on August 23, 2013 between MFS and Jinko Solar (Switzerland) AG (“Jinko Switzerland”), (ii) an assignment agreement
dated May 26, 2014, whereby Jinko Switzerland assigned and transferred to Projinko all rights, title, interest, liabilities and
obligations under the Business Unit Lease Agreement, and (iii) an amendment agreement relating to the Business Unit Lease Agreement
dated December 29, 2015 (the Business Unit Lease Agreement, the assignment agreement and the amendment agreement are collectively
referred to as “Lease Agreements”). In order to ensure the performance of parties’ respective obligations under
the Lease Agreements, a guarantee from the parent company of MFS, Acciona Energia, S.A.U. and a bank guarantee was granted in favor
of Projinko, and a guarantee from the parent company of Projinko, Jiangxi Jinko, and a bank guarantee was also granted in favor
of MFS. The notice of request for arbitration had not been duly and effectively served by MFS to Projinko. In July 2019, MFS submitted
a request at International Chamber of Commerce to join Jinko Switzerland and Jiangxi Jinko as two additional parties, alleging
they were indispensable to the current dispute and claiming against Projinko, Jiangxi Jinko and Jinko Switzerland recovery of two
drawdowns by Projinko under the bank guarantee in the amount of €1,965,170 and €846,604.41, respectively, with the interests
thereon as well as economic damages suffered by MFS as a result thereof.
In September 2019, Jiangxi Jinko and Jinko
Switzerland submitted to the International Chamber of Commerce that they rejected to arbitrate any dispute with MFS and were not
bound by valid and effective arbitration agreement with MFS; Jiangxi Jinko and Jinko Switzerland also opposed the constitution
of an arbitration tribunal and the jurisdiction of any arbitration tribunal that may be constituted in the present case. On July
3, 2020, MFS submitted a statement of claim claiming against Projinko, Jiangxi Jinko and Jinko Switzerland for recovery of two
drawdowns by Projinko under the bank guarantee in an aggregated amount of €2,812,000, with the interests thereon as well as
economic damages suffered by MFS as a result thereof. On September 3, 2020, Projinko, Jiangxi Jinko and Jinko Switzerland submitted
their statements of defense requesting the tribunal dismiss all claims made by MFS against Projinko, Jiangxi Jinko and Jinko Switzerland;
Projinko submitted also its counterclaim against MFS requesting the tribunal order MFS to pay Projinko €1,008,170.00 plus
accrued interest as a recovery of drawdown by MFS under the bank guarantee granted in favor of MFS. As of the date of this prospectus
supplement, the arbitration proceeding is still at the submission stage, and the next round for the claimant, the respondent and
additional parties to submit their respective reply and rejoinder will be from December 2020 to January 2021. We believe Projinko,
Jiangxi Jinko and Jinko Switzerland have reasonable grounds to challenge MFS’ claim in the present case, and will vigorously
defend against the claim made by MFS.
In March 2019, Hanwha Q CELLS (defined
below) filed patent infringement lawsuits against our company and a number of our subsidiaries.
(i) On March 4, 2019, Hanwha Q CELLS
USA Inc. and Hanwha Q CELLS & Advanced Materials Corporation (collectively, “Plaintiffs A”) filed suit
against JinkoSolar Holding Co., Ltd and several of its subsidiary entities, i.e. JinkoSolar (U.S.) Inc., Jinko Solar (U.S.)
Industries Inc., Jinko Solar Co., Ltd, Zhejiang Jinko Solar Co., Ltd and Jinko Solar Technology Sdn.Bhd (collectively
“Respondents”) at the U.S. International Trade Commission (“ITC”). In the complaint, it was alleged
that certain photovoltaic solar cells and modules containing these solar cells supplied by the Respondents infringed U.S.
Patent No. 9,893,215 purportedly owned by Hanwha Q CELLS & Advanced Materials Corporation and Plaintiffs A requested a
permanent limited exclusion order and a cease and desist order be issued against the Respondents’ allegedly infringing
products. On March 5, 2019, Hanwha Q CELLS & Advanced Materials Corporation filed a suit against the Respondents before
the U.S. District Court for the District of Delaware (“District Court”) alleging that certain photovoltaic solar
cells and modules containing these solar cells supplied by the Respondents infringed U.S. Patent No. 9,893,215 allegedly
owned by Hanwha Q CELLS & Advanced Materials Corporation and sought reliefs including compensation for alleged
infringement activities, enhanced damages and reasonable attorney fees. On April 9, 2019, the ITC published the Notice of
Institution on Federal Register. On April 15, 2019, the District Court granted our motion to stay the court litigation
pending final resolution of the ITC. On May 3, 2019, the Respondents submitted their response to the complaint of Plaintiffs
A to the ITC requesting ITC among other things to deny all relief requested by Plaintiffs A. On September 13, 2019, the
Respondents filed motion for summary determination of non-infringement with ITC. On April 10, 2020, the administrative law
judge issued the initial determination granting the Respondents’ motion for summary determination of non-infringement.
On June 3, 2020, the ITC determined to affirm the initial determination issued by the administrative law judge granting
respondents’ motions for summary determination of non-infringement and terminate the investigation (the “Final
Determination”). On July 31, 2020, Plaintiffs A appealed to the Federal Circuit Courts of Appeals against the
ITC’s Final Determination. On August 27, 2020, the Respondents filed the motion to intervene of such appeal.
(ii) On March 4, 2019, Hanwha Q CELLS GmbH
(“Plaintiff B”), filed a patent infringement claim against JinkoSolar GmbH before the Düsseldorf Regional Court
in Germany alleging that certain photovoltaic solar cells and modules containing these solar cells supplied by JinkoSolar GmbH
infringed EP2 220 689 purportedly owned by Plaintiff B. On April 10, 2019, JinkoSolar GmbH filed the first brief with the court
stating JinkoSolar GmbH would defend itself against the complaint. On September 9, 2019, JinkoSolar GmbH filed its statement of
defense with the court (the “Statement of Defense”), requesting that the claim be dismissed and that Plaintiff B to
bear the costs of the legal dispute. On March 3, 2020, Plaintiff B filed its reply to the Statement of Defense with the court.
On April 20, 2020, JinkoSolar GmbH filed its rejoinder with the court commenting on Plaintiff B’s reply on March 3, 2020.
On May 5, 2020, the oral hearing regarding the validity of the EP2 220 689, Plaintiff B's entitlement to sue, and the infringement
was held before the Düsseldorf Regional Court. On June 16, 2020, the Düsseldorf Regional Court sided with Plaintiff B
and ordered that the third party cell technology contained in certain modules delivered by JinkoSolar GmbH infringes Plaintiff
B’s patent (the “Judgment”). JinkoSolar GmbH filed its notice of appeal on July 15, 2020. On September 28, 2020,
Plaintiff B has submitted the request for penalty to Düsseldorf Regional Court, claiming that JinkoSolar GmbH violated the
Judgment by continuing to promote infringing products. On October 16, 2020, JinkoSolar GmbH submitted grounds of appeal to the
Düsseldorf Higher Regional Court. JinkoSolar GmbH submitted its response to Plaintiff B’s request for penalty on November
30, 2020.
(iii) On March 12, 2019, Hanwha Q CELLS
& Advanced Materials Corporation and Hanwha Q CELLS Australia Pty Ltd (“Plaintiffs C”, together with Plaintiffs
A and Plaintiff B, “Hanwha Q CELLS Plaintiffs”) filed suit at Federal Court of Australia (“FCA”) against
Jinko Solar Australia Holdings Co. Pty Ltd (“Jinko AUS”). It was alleged that certain photovoltaic solar cells and
modules containing these solar cells supplied by Jinko AUS infringed Australian Patent No. 2008323025 purportedly owned by Plaintiffs
C. The FCA served Jinko AUS as the Respondent and the first case management hearing was held on April 12, 2019. The FCA heard
the application, and made orders for the conduct of the proceeding at the first case management hearing, following which Jinko
AUS submitted its defense and cross-claim to Plaintiffs C’s statement of claim on July 22, 2019. Shortly before the second
case management hearing which was held on October 2, 2019, Plaintiffs C requested an amendment to Australian Patent No. 2008323025
(“Amendment Application”), following which FCA directed Plaintiffs C to give discovery and produce documents in respect
to the Amendment Application. The third case management hearing was held on December 13, 2019, after which Jinko AUS submitted
particulars of opposition to the Amendment Application and requested for further and better discovery in respect to the Amendment
Application. The FCA granted Plaintiffs C’s Amendment Application on August 28, 2020. Another case management hearing was
held on November 16, 2020 and FCA directed that until March 12, 2021 Jinko AUS to file a precise statement identifying the reasons
why certain photovoltaic solar cells and modules supplied by Jinko AUS do not infringe Australian Patent No. 2008323025. A more
extensive case management hearing will be held on March 23, 2021 and will set the matter down for a final hearing in the year of
2022 on dates to be advised.
We believe that Hanwha Q CELLS
Plaintiffs’ claims in all the above-mentioned cases are lacking legal merit, and will vigorously defend against the
claims made by them. We are considering all legal avenues including challenging the validity of U.S. Patent No. 9,893,215
(“the ‘215 Patent”), EP 2 220 689 and Australian Patent No. 2008323025 (collectively, the “Asserted
Patents”), and demonstrating our non-infringement of the Asserted Patents. On June 3, 2019, we filed a petition for
inter partes review (“IPR”) of the ‘215 Patent with the U.S. Patent and Trademark Appeal Board
(“PTAB”). IPR is a trial proceeding conducted at the PTAB to review the patentability of one or more claims in a
patent. On December 10, 2019, the PTAB instituted the IPR proceedings of the patentability of claims 12-14 of the ‘215
patent claims in view of prior art. On September 9, 2020, we attended the oral hearing of IPR of the ‘215 patent. On
December 9, 2020, the PTAB issued the final decision on our petition for IPR, finding that all challenged claims 12-14 of the
‘215 patent are unpatentable. Information available prior to issuance of the financial statements did not indicate that
it is probable that a liability had been incurred at the date of the financial statements and we are also unable to
reasonably estimate the range of any liability or reasonably possible loss, if any.
In addition, failure to maintain the integrity
of internal or customer data could result in harm to our reputation or subject us to costs, liabilities, fines or lawsuits.
Regardless of the merits, responding to
allegations, litigation or legal or administration proceedings and defending against litigation can be time-consuming and costly,
and may result in us incurring substantial legal and administrative expenses, as well as divert the attention of our management.
Any such allegations, lawsuits or proceedings could have a material adverse effect on our business operations. Further, unfavorable
outcomes from these claims or lawsuits could adversely affect our business, financial condition and results of operations.
We may continue to undertake acquisitions, investments,
joint ventures or other strategic alliances, and such undertakings may be unsuccessful.
We may continue to grow our operations
through acquisitions, participation in joint ventures or other strategic alliances with suppliers or other companies in China and
overseas along the solar power industry value chain in the future. Such acquisitions, participation in joint ventures and strategic
alliances may expose us to new operational, regulatory, market and geographical risks as well as risks associated with additional
capital requirements and diversion of management resources. Our acquisitions may expose us to the following risks:
|
·
|
There may be unforeseen risks relating to the target’s business and operations or liabilities of the target that were
not discovered by us through our legal and business due diligence prior to such acquisition. Such undetected risks and liabilities
could have a material adverse effect on our business and results of operations in the future.
|
|
·
|
There is no assurance that we will be able to maintain relationships with previous customers of the target, or develop new
customer relationships in the future. Loss of our existing customers or failure to establish relationships with new customers could
have a material adverse effect on our business and results of operations.
|
|
·
|
Acquisitions will generally divert a significant portion of our management and financial resources from our existing business
and the integration of the target’s operations with our existing operations has required, and will continue to require, significant
management and financial resources, potentially straining our ability to finance and manage our existing operations.
|
|
·
|
There is no assurance that the expected synergies or other benefits from any acquisition or joint venture investment will actually
materialize. If we are not successful in the integration of a target’s operations, or are otherwise not successful in the
operation of a target’s business, we may not be able to generate sufficient revenue from its operations to recover costs
and expenses of the acquisition.
|
|
·
|
Acquisition or participation in new joint venture or strategic alliance may involve us in the management of operation in which
we do not possess extensive expertise.
|
The materialization of any of these risks
could have a material adverse effect on our business, financial condition and results of operations.
We may be subject to non-competition or other similar
restrictions or arrangements relating to our business.
We may from time to time enter into non-competition,
exclusivity or other restrictions or arrangements of a similar nature as part of our sales agreements with our customers. Such
restrictions or arrangements may significantly hinder our ability to sell additional products, or enter into sales agreements with
new or existing customers that plan to sell our products, in certain markets. As a result, such restrictions or arrangements may
have a material adverse effect on our business, financial condition and results of operations.
In October 2016, we entered into a
side agreement with JinkoPower and the investors of JinkoPower, pursuant to the non-compete provisions of which we
undertake not to develop any downstream solar power project with a capacity of over 2 MW in China after the disposition of
our equity interest in JinkoPower in the fourth quarter of 2016. This non-competition covenant may adversely affect our
growth prospects in China.
In September 2017, we provided a non-compete
commitment to JinkoPower where we undertake to cease developing new downstream solar projects. In addition, for our existing offshore
downstream solar power projects that we are constructing and will connect to the grid, we undertake to endeavor to cause those
projects to be transferred to JinkoPower, its subsidiaries or other qualified third parties, to the extent that such transfers
will not contravene with applicable laws and regulations and that we are able to obtain written consent of the relevant contracting
parties for those projects. This non-competition undertaking may adversely affect our operating results.
The NEA released a “Technology Top
Runner” program in 2017, which has more stringent technology standards than other “Top Runner” programs, to promote
solar projects using higher-efficiency modules (requiring a conversion efficiency rate of 18.9% or above for monocrystalline solar
cells and 18.0% or above for multicrystalline solar cells) and most advanced technologies (especially breakthrough technologies
that have not reached the stage of mass production). In order to promote our high-efficiency modules and cutting-edgy N-type battery
technologies, (i) we and JinkoPower jointly established Poyang Luohong Power Co., Ltd. (“Poyang Luohong”), a PRC company,
in the third quarter of 2018, in which we then held 51% equity interest and had made capital contribution of RMB98 million in cash
as of December 31, 2018, and (ii) we formed a bidding consortium with JinkoPower to bid for “Technology Top Runner”
solar projects, and had won a 250 MW “Technology Top Runner” solar project in Shangrao, Jiangxi Province (the “Technology
Top Runner Project”). We supplied N-type monocrystalline modules to this project, whose conversion efficiency is even higher
than our P-type monocrystalline PERC modules. The Technology Top Runner Project was developed by Poyang Luohong. We sold all of
our equity interest in Poyang Luohong to an independent third party, and filed the change of ownership with Shangrao Market Supervision
Administration on December 17, 2019. We currently do not have plans to develop solar projects in China or overseas. As of September
30, 2020, we did not own any solar project in China, and we had only one solar power project in operation and one project under
construction outside China.
Our substantial indebtedness could adversely affect our
business, financial condition and results of operations.
We typically require a significant amount
of cash to meet our capital requirements, including the expansion of our production capacity, as well as to fund our operations.
As of September 30, 2020, we had RMB10.15 billion (US$1.49 billion) in outstanding short-term borrowings (including the current
portion of long-term bank borrowings and failed sale-leaseback financing) and RMB4.91 billion (US$722.6 million) in outstanding
long-term bank borrowings (excluding the current portion of long-term bank borrowings and failed sale-leaseback financing).
In November 2014, we signed a US$20.0 million
two-year credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”), the term of which was later
extended to November 2024. The credit limit was raised to US$40.0 million in June 2015, to US$60.0 million in July 2016 and further
to US$90.0 million in January 2020 through amendments to the credit agreement. Borrowings under the credit agreement would be used
to support our working capital and business operations in the United States.
In May 2015, we signed a US$20.0 million
three-year bank facility agreement with Barclay Bank, which was subsequently raised to US$40.0 million, to support our working
capital and business operations. The term of this bank facility has been extended to March 2021.
In September 2016, we signed a US$25.0
million two-year bank facility agreement with Malayan Banking Berhad, the term of which was extended to September 2021, to support
our working capital and business operations in Malaysia.
In July 2017, we entered into a four-year
financial lease in the amount of RMB600.0 million to support the improvement of our production efficiency.
In July 2018, we signed a JPY5.30 billion
syndicated loan agreement with a bank consortium led by Sumitomo Mitsui Banking Corporation to provide working capital and support
for our business operations in Japan. The loan was downsized to JPY5.00 billion after annual review in June 2020.
In May 2019, we issued convertible senior
notes of US$85 million in aggregate principal amount due 2024 to support capital expenditure and supplement working capital. The
notes will mature on June 1, 2024 and the holders will have the right to require us to repurchase for cash all or any portion of
their notes on June 1, 2021. The interest rate is 4.5% per annum payable semi-annually, in arrears.
In September 2019, we signed an RMB100
million one-year bank facility agreement with Malayan Banking Berhad, the term of which is renewable annually, to supplement our
working capital. As of the date of this prospectus supplement, the term of this bank facility has been extended to September 2021,
and this bank facility has been fully drawn down.
We may not have sufficient funds available
to meet our payment obligations in light of the amount of bank borrowings due in the near term future. This level of debt and the
imminent repayment of our notes and other bank borrowings could have significant consequences on our operations, including:
|
·
|
reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate
purposes as a result of our debt service obligations, and limiting our ability to obtain additional financing;
|
|
·
|
limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the
industry in which we operate and the general economy; and
|
|
·
|
potentially increasing the cost of any additional financing.
|
Any of these factors and other consequences
that may result from our substantial indebtedness could have an adverse effect on our business, financial condition and results
of operations as well as our ability to meet our payment obligations under our debt.
In addition, we are exposed to various
types of market risk in the normal course of business, including the impact of interest rate changes. As of September 30, 2020,
RMB771.6 million (US$113.6 million) of our long-term borrowings bears interest at variable rates, generally linked to market
benchmarks such as the benchmark interest rate issued by local banks. Any increase in interest rates would increase our finance
expenses relating to our variable rate indebtedness and increase the costs of refinancing our existing indebtedness and issuing
new debt. Furthermore, since the majority of our short-term borrowings came from Chinese banks, we are exposed to lending policy
changes by the Chinese banks. If the Chinese government changes its macroeconomic policies and forces Chinese banks to tighten
their lending practices, or if Chinese banks are no longer willing to provide financing to solar power companies, including us,
we may not be able to extend our short-term borrowings or make additional borrowings in the future.
We may also incur gain or loss in relation
to our change in the fair value of our financial instruments. The change in fair value of financial instruments may fluctuate significantly
from period to period due to factors that are largely beyond our control, and may result in us recording substantial gains or losses
as a result of such changes. As a result of the foregoing, you may not be able to rely on period to period comparisons of our operating
results as an indication of our future performance.
Our failure to maintain sufficient collateral under certain
pledge contracts for our short-term loans may materially adversely affect our financial condition, liquidity and results of
operations.
As of September 30, 2020, we had
short-term borrowings (including the current portion of long-term bank borrowings and failed sale-leaseback
financing) of RMB10.15 billion (US$1.49 billion), including the current portion of long-term bank borrowings and failed
sale-leaseback financing, secured by certain of our inventory with net book value of RMB379.2 million (US$55.8 million), land
use rights, property, plant and equipment with total net book value of RMB3.18 billion (US$468.1 million), and account
receivables of RMB851.0 million (US$125.3 million). We cannot assure you that we will not be requested by the pledgees
to provide additional collateral to bring the value of the collateral to the level required by the pledgees if our inventory
depreciates in the future. If we fail to provide additional collateral upon request, the pledgees will be entitled to require
the immediate repayment of the outstanding bank loans. In addition, the pledgees may auction or sell the inventory.
Furthermore, we may be subject to liquidated damages pursuant to relevant pledge contracts. Although the pledgees have
conducted regular site inspections on our inventory since the pledge contracts were executed, they have not requested us to
provide additional collateral or take other remedial actions. However, we cannot assure you the pledgees will not require us
to provide additional collateral in the future or take other remedial actions or otherwise enforce their rights under the
pledge contracts and loan agreements. If any of the foregoing occurs, our financial condition, liquidity and results of
operations may be materially adversely affected.
We rely principally on dividends and other distributions
on equity paid by our principal operating subsidiary, and limitations on their ability to pay dividends to us could have a material
adverse effect on our business and results of operations.
We are a holding company and rely principally
on dividends paid by Jiangxi Jinko, our principal operating subsidiary, for cash requirements. Applicable PRC laws, rules and regulations
permit payment of dividends by our PRC subsidiaries only out of their retained earnings, if any, determined in accordance with
PRC accounting standards. Our PRC subsidiaries are required to set aside a certain percentage of their after-tax profit based
on PRC accounting standards each year as reserve funds for future development and employee benefits, in accordance with the requirements
of relevant laws and provisions in their respective articles of associations. The percentage should not be less than 10%, unless
the reserve funds reach 50% of our registered capital. In addition, under PRC laws, our PRC subsidiaries are prohibited from distributing
dividends if there is a loss in the current year. As a result, our PRC subsidiaries may be restricted in their ability to transfer
any portion of their net income to us whether in the form of dividends, loans or advances. Any limitation on the ability of our
subsidiaries to pay dividends to us could materially adversely limit our ability to grow, make investments or acquisitions that
could be beneficial to our businesses, pay dividends or otherwise fund and conduct our business.
If we are unable to implement our strategy to expand our
PRC operations by completing an initial public offering and listing on the STAR Market, our ability to strengthen our market position
and operations in the PRC, including our ability to expand our production capacity and increase our revenues, could be adversely
affected.
In September 2020, we announced that we
are considering the opportunity to list Jiangxi Jinko, after certain intragroup restructuring, on the Shanghai Stock Exchange’s
Sci-Tech innovation board (the “STAR Market”) within the next three years (the “STAR Listing”). Jiangxi
Jinko is our principal operating company and, prior to the STAR Listing process, was our wholly owned subsidiary. We may not be
able to complete the STAR Listing for a number of reasons, many of which are outside our control. For example, Jiangxi Jinko must
succeed in obtaining PRC governmental approvals required to permit the STAR Listing, and one or more of those approvals may be
denied, or significantly delayed, by the PRC regulators for reasons outside our control or unknown to us. In addition, the STAR
Listing application may be denied or delayed by the Shanghai Stock Exchange at its discretion.
If we are unable to complete the STAR Listing,
we may need to seek other sources of funds to realize our business strategy, such as expanding our production capacity at Jiangxi
Jinko, which funds may not be available to us at commercially reasonable terms, or at all. Any such inability to obtain funds may
impair our ability to grow Jiangxi Jinko’s business, which could have a material adverse effect on our consolidated operating
results and on the price of our ADSs. Moreover, it may take as long as three years before we know whether the STAR Listing will
be completed, and therefore we may, in the interim, forego or postpone other alternative actions to strengthen our operations and
production capacity in the PRC. In addition, the process underlying the STAR Listing could result in significant diversion of management
time as well as substantial out-of-pocket costs, which could further impair our ability to expand our business.
Even if we complete the STAR Listing, we may not achieve
the results contemplated by our business strategy (including with respect to use of proceeds from that offering) and therefore
the price of our ADSs may not increase, or may even drop.
Even if the STAR Listing is
completed, we cannot assure you that we will realize any or all of our anticipated benefits of the STAR Listing. Our
completion of the STAR Listing may not have the anticipated effects of strengthening our market position and operations in
the PRC. If the STAR Listing is completed, Jiangxi Jinko will have broad discretion in the use of the proceeds from the STAR
Listing, and it may not spend or invest those proceeds in a manner that results in our operating success or with which
holders of our shares and ADSs agree. Our failure to successfully leverage the completion of the STAR Listing to expand our
production capacity in the PRC could result in a decrease in the price of the ADSs. In addition, we cannot assure you that
the success of Jiangxi Jinko will have an attendant positive effect on the price of the ADSs.
Jiangxi Jinko’s status as a publicly traded company
that is controlled, but less than wholly owned, by our company could have an adverse effect on us.
As the result of actions being taken in
connection with the STAR Listing, including placement of shares by Jiangxi Jinko, our principal operating subsidiary, to certain
PRC investors and our controlling shareholders, Jiangxi Jinko is no longer a wholly owned subsidiary of our company. This minority
interest in Jiangxi Jinko will increase upon completion of the STAR Listing, and the interests of Jiangxi Jinko of these minority
shareholders may diverge from the interests of our company and our other subsidiaries in the future. We may face conflicts of interest
in managing, financing or engaging in transactions with Jiangxi Jinko, or allocating business opportunities between our subsidiaries.
Our company will retain majority ownership
of Jiangxi Jinko after the STAR Listing, but Jiangxi Jinko will be managed by a separate board of directors and officers and those
directors and officers will owe fiduciary duties to the various stakeholders of Jiangxi Jinko, including shareholders other than
our wholly-owned subsidiary. In the operation of Jiangxi Jinko’s business, there may be situations that arise whereby the
directors and officers of Jiangxi Jinko, in the exercise of their fiduciary duties, take actions that may be contrary to the best
interests of our company.
During or after the STAR Listing process,
there might be certain requirements of the PRC law, including demands from the CSRC, the Shanghai Stock Exchange or other relevant
authorities, that might have a bearing on holders of our ordinary shares and ADSs. Recently in order to comply with the PRC law,
some of our senior management resigned from our company, while retaining the same roles at Jiangxi Jinko.
In the future, Jiangxi Jinko may issue
options, restricted shares and other forms of share-based compensation to its directors, officers and employees, which could dilute
our company’s ownership in Jiangxi Jinko. In addition, Jiangxi Jinko may engage in capital raising activities in the future
that could further dilute our company’s ownership interest.
Our organizational structure will become
more complex, including as a result of preparations for the STAR Listing. We will need to continue to scale and adapt our operational,
financial and management controls, as well as our reporting systems and procedures, at both our company and Jiangxi Jinko. The
continued expansion of our infrastructure will require us to commit substantial financial, operational and management resources
before our revenue increases and without any assurances that our revenue will increase.
It is difficult to predict the effect of the proposed
STAR Listing on the ADSs.
The China Securities Regulatory Commission,
or the CSRC, initially launched the STAR Market in June 2019 and trading on the Market began in July 2019. No assurance can be
given regarding the effect of the STAR Listing on the market price of the ADSs. The market price of the ADSs may be volatile or
may decline, for reasons other than the risk and uncertainties described above, as the result of investor negativity or uncertainty
with respect to the impact of the proposed STAR Listing.
Holders of our ordinary shares and ADSs
may have limited opportunities to purchase Jiangxi Jinko’s shares even if the STAR Listing were completed. Investors may
elect to invest in our business and operations by purchasing Jiangxi Jinko’s shares in the STAR Listing or on the STAR Market
rather than purchasing the ADSs, and that reduction in demand could lead to a decrease in the market price for the ADSs.
Any failure to maintain effective internal control could
have a material adverse effect on our business, results of operations and the market price of the ADSs.
The SEC, as required by Section 404 of
the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), adopted rules requiring most public companies to
include a management report on such company’s internal control over financial reporting in its annual report, which contains
management’s assessment of the effectiveness of our company’s internal control over financial reporting. In addition,
when a company meets the SEC’s criteria, an independent registered public accounting firm must report on the effectiveness
of our company’s internal control over financial reporting.
Our management and independent
registered public accounting firm have concluded that our internal control over financial reporting as of December 31, 2019
was effective. However, we cannot assure you that in the future our management or our independent registered public
accounting firm will not identify material weaknesses during the Section 404 of the Sarbanes-Oxley Act audit process or
for other reasons. In addition, because of the inherent limitations of internal control over financial reporting, including
the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may
not be prevented or detected on a timely basis. As a result, if we fail to maintain effective internal control over financial
reporting or should we be unable to prevent or detect material misstatements due to error or fraud on a timely basis,
investors could lose confidence in the reliability of our financial statements, which in turn could harm our business,
results of operations and negatively impact the market price of the ADSs, and harm our reputation. Furthermore, we have
incurred and expected to continue to incur considerable costs and to use significant management time and other resources in
an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.
Failure to achieve satisfactory production volumes of
our products could result in higher unit production costs.
The production of silicon wafers, solar
cells, solar modules and recovered silicon materials involves complex processes. Deviations in the manufacturing process can cause
a substantial decrease in output and, in some cases, disrupt production significantly or result in no output. From time to time,
we have experienced lower-than-anticipated manufacturing output during the ramp-up of production lines. This often
occurs during the introduction of new products, the installation of new equipment or the implementation of new process technologies.
As we bring additional lines or facilities into production, we may operate at less than intended capacity during the ramp-up
period. In addition, the decreased demand in global solar power product market, including the demand for solar modules, may also
cause us to operate at less than intended capacity. This would result in higher marginal production costs and lower output, which
could have a material adverse effect on our business, financial condition and results of operations.
Demand for solar power products may be adversely affected
by seasonality.
Demand for solar power products tends to
be weaker during the winter months partly due to adverse weather conditions in certain regions, which complicate the installation
of solar power systems, our operating results may fluctuate from period to period based on the seasonality of industry demand for
solar power products. Our sales in the first quarter of any year may also be affected by the occurrence of the Chinese New Year
holiday during which domestic industrial activity is normally lower than that at other times. Such fluctuations may result in the
underutilization of our capacity and increase our average costs per unit. In addition, we may not be able to capture all of the
available demand if our capacity is insufficient during the summer months. As a result, fluctuations in the demand for our products
may have a material adverse effect on our business, financial condition and results of operations.
Unsatisfactory performance of or defects in our products
may cause us to incur additional expenses and warranty costs, damage our reputation and cause our sales to decline.
Our products may contain defects that are
not detected until after they are shipped or inspected by our customers.
Our silicon wafer sales contracts normally
require our customers to conduct inspection before delivery. We may, from time to time, allow those of our silicon wafer customers
with good credit to return our silicon wafers within a stipulated period, which normally ranges from 7 to 15 working days after
delivery, if they find our silicon wafers do not meet the required specifications. Our standard solar cell sales contract requires
our customer to notify us within 7 days of delivery if such customer finds our solar cells do not meet the specifications stipulated
in the sales contract. If our customer notifies us of such defect within the specified time period and provides relevant proof,
we will replace those defective solar cells with qualified ones after our confirmation of such defects.
Our solar modules are typically sold with
a 10-year warranty for material and workmanship and a 25-year (30-year for dual glass module) linear power output warranty
against the maximum degradation of the actual power output for each year after the warranty start date. If a solar module is defective
during the relevant warranty period, we will either repair or replace the solar module. As we continue to increase our sales to
the major export markets, we may be exposed to increased warranty claims.
In May 2011, we engaged PowerGuard
Specialty Insurance Services (“PowerGuard”), a firm specialized in unique insurance and risk management solutions
for the wind and solar energy industries, to provide insurance coverage for the product warranty services of our solar
modules worldwide effective from May 1, 2011. We renewed the insurance policy provided by PowerGuard upon its expiration in
every May from 2011 to 2019. The policy offered back-to-back coverage through a maximum of ten-year limited
product defects warranty, as well as a 25-year (30-year for dual glass module) linear warranty against degradation of
module power output from the time of delivery. In April 2020, our engagement with PowerGuard expired. In December 2018, we
engaged Ariel Syndicate 1910 of Lloyd’s (“Ariel Re”), a firm specialized in unique insurance and risk
management solutions for the wind and solar energy industries, to provide insurance coverage for the product warranty
services of our solar modules worldwide effective from May 2019. We plan to renew the insurance policy provided by Ariel Re
at the end of 2020. The policy offers back-to-back coverage through a maximum of ten-year limited product defects
warranty, as well as a 25-year (30-year for dual glass module) linear warranty against degradation of module power
output from the time of delivery.
If we experience a significant increase
in warranty claims, we may incur significant repair and replacement costs associated with such claims. In addition, product defects
could cause significant damage to our market reputation and reduce our product sales and market share, and our failure to maintain
the consistency and quality throughout our production process could result in substandard quality or performance of our products.
If we deliver our products with defects, or if there is a perception that our products are of substandard quality, we may incur
substantially increased costs associated with returns or replacements of our products, our credibility and market reputation could
be harmed and our sales and market share may be materially adversely affected.
Fluctuations in exchange rates could adversely affect
our results of operations.
We derive a substantial portion of our
sales from international customers and a significant portion of our total revenue have been denominated in foreign currencies,
particularly, Euros and U.S. dollars. Our sales outside China represented 62.8%, 73.6%, 82.5% and 81.9% of our total revenue in
2017, 2018, 2019 and the nine months ended September 30, 2020, respectively. As a result, we may face significant risks resulting
from currency exchange rate fluctuations, particularly, among Renminbi, Euros and U.S. dollars. For example, we expect our revenue
and gross margin to be adversely affected by the recent appreciation of Renminbi against U.S. dollars, as a substantial portion
of our sales are denominated in U.S. dollars. Furthermore, we have outstanding debt obligations, and may continue to incur debts
from time to time, denominated and repayable in foreign currencies. We incurred a foreign-exchange loss of RMB114.3 million
in 2017, a foreign exchange gain of RMB33.7 million in 2018, a foreign exchange gain of RMB8.8 million (US$1.3 million) in 2019,
and a foreign exchange loss of RMB113.1 million (US$16.7 million) in the nine months ended September 30, 2020. We cannot predict
the impact of future exchange rate fluctuations on our results of operations and may incur net foreign currency losses in the future.
Our consolidated financial statements are
expressed in Renminbi. The functional currency of our principal operating subsidiary, Jiangxi Jinko, is also Renminbi. To the extent
we hold assets denominated in Euros or U.S. dollars, any appreciation of Renminbi against the Euro or U.S. dollar could reduce
the value of our Euro-or U.S. dollar-denominated consolidated assets. On the other hand, if we decide to convert our Renminbi
amounts into Euros or U.S. dollars for business purposes, including foreign debt service, a decline in the value of Renminbi against
the Euro or U.S. dollar would reduce the Euro or U.S. dollar equivalent amounts of the Renminbi we convert. In addition, a depreciation
of Renminbi against the U.S. dollar could reduce the U.S. dollar equivalent amounts of our financial results and the dividends
we may pay in the future, if any, all of which may have a material adverse effect on the price of our ADSs.
Since June 2010, the Renminbi has
fluctuated against the U.S. dollar, at times significantly and unpredictably. On November 30, 2015, the Executive Board of
the International Monetary Fund completed the regular five-year review of the basket of currencies that make up the
Special Drawing Right (the “SDR”), and decided that with effect from October 1, 2016, Renminbi will be a freely
usable currency and will be included in the SDR basket as a fifth currency, along with the U.S. dollar, the Euro, the
Japanese yen and the British pound. In the fourth quarter of 2016, the RMB has depreciated significantly in the backdrop of a
surging U.S. dollar and persistent capital outflows of China. With the development of the foreign exchange market and
progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future
announce further changes to the exchange rate system and we cannot assure you that the Renminbi will not appreciate or
depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC
or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future. Any currency
exchange losses we recognize may be magnified by PRC exchange control regulations that restrict our ability to convert
Renminbi into foreign currency.
Limited hedging transactions are available
in China to reduce our exposure to exchange rate fluctuations. Although we have entered into a number of foreign-exchange forward
contracts and foreign exchange options with local banks to manage our risks associated with foreign-exchange rates fluctuations,
we cannot assure you that our hedging efforts will be effective. Our currency exchange losses may be magnified by PRC exchange
control regulations that restrict our ability to convert Renminbi into foreign currency. As a result, fluctuations in exchange
rates may have a material adverse effect on our results of operations.
Our operating history may not be a reliable predictor
of our prospects and future results of operations.
We commenced processing recoverable silicon
materials in June 2006, and manufacturing silicon wafers in 2008. We commenced producing solar cells in July 2009 following our
acquisition of Zhejiang Jinko, which has manufactured solar cells since June 2007, and we commenced producing solar modules in
August 2009. We commenced our solar power generation and solar system integration service business in late 2011.
Although our revenue experienced significant
growth in the past, we cannot assure you that our revenue will increase at previous rates or at all, or that we will be able to
continue to operate profitably in future periods. We also experienced net losses in each quarter from the fourth quarter of 2011
to the first quarter of 2013. Our operating history may not be a reliable predictor of our future results of operations, and past
revenue growth experienced by us should not be taken as indicative of the rate of revenue growth, if any, that can be expected
in the future. We believe that period to period comparisons of our operating results and our results for any period should not
be relied upon as an indication of future performance.
Our operations are subject to natural disasters, adverse
weather conditions, operating hazards, environmental incidents and labor disputes.
We may experience earthquakes, floods,
mudslides, snowstorms, typhoon, power outages, labor disputes or similar events beyond our control that would affect our operations.
Our manufacturing processes involve the use of hazardous equipment, such as furnaces, squaring machines and wire saws. We also
use, store and generate volatile and otherwise dangerous chemicals and waste during our manufacturing processes, which are potentially
destructive and dangerous if not properly handled or in the event of uncontrollable or catastrophic circumstances, including operating
hazards, fires and explosions, natural disasters, adverse weather conditions and major equipment failures, for which we cannot
obtain insurance at a reasonable cost or at all.
In addition, our silicon wafer and solar
module production and storage facilities are located in close proximity to one another in the Shangrao Economic Development Zone
in Jiangxi Province, and our solar cell production and storage facilities are located in close proximity to one another in Haining,
Zhejiang Province. The occurrence of any natural disaster, unanticipated catastrophic event or unexpected accident in either of
the two locations could result in production curtailments, shutdowns or periods of reduced production, which could significantly
disrupt our business operations, cause us to incur additional costs and affect our ability to deliver our products to our customers
as scheduled, which may adversely affect our business, financial condition and results of operations. Moreover, such events could
result in severe damage to property, personal injuries, fatalities, regulatory enforcement proceedings or our being named as a
defendant in lawsuits asserting claims for large amounts of damages, which in turn could lead to significant liabilities.
Our Haining facility suspended operation
from September 17, 2011 to October 9, 2011 due to an environmental incident. Occurrences of natural disasters, as well as accidents
and incidents of adverse weather in or around Shangrao, Haining and Penang in the future may result in significant property damage,
electricity shortages, disruption of our operations, work stoppages, civil unrest, personal injuries and, in severe cases, fatalities.
Such incidents may result in damage to our reputation or cause us to lose all or a portion of our production capacity, and future
revenue anticipated to be derived from the relevant facilities.
Our founders collectively have significant influence over
our management and their interests may not be aligned with our interests or the interests of our other shareholders.
As of the date of this prospectus supplement,
our founders, Xiande Li who is our chairman and chief executive officer, Kangping Chen who is our director, and Xianhua Li who
is our director, beneficially owned 9.6%, 6.6% and 3.3%, respectively, or 19.6% in the aggregate, of our outstanding ordinary shares.
If the founders act collectively, they will have a substantial influence over our business, including decisions regarding mergers,
consolidations and the sale of all or substantially all of our assets, election of directors, dividend policy and other significant
corporate actions. They may take actions that are not in the best interest of our company or our securities holders. For example,
this concentration of ownership may discourage, delay or prevent a change in control of our company, which could deprive our shareholders
of the opportunity to receive a premium for their shares as part of a sale of our company and might reduce the price of our ADSs.
On the other hand, if the founders are in favor of any of these actions, these actions may be taken even if they are opposed by
a majority of our other shareholders, including you and those who invest in ADSs. In addition, under our current articles of association,
the quorum required for the general meeting of our shareholders is two shareholders entitled to vote and present in person or by
proxy or, if the shareholder is a corporation, by its duly authorized representative representing not less than one-third in nominal
value of our total issued voting shares. As such, a shareholders resolution may be passed at our shareholders meetings with the
presence of our founders only and without the presence of any of our other shareholders, which may not represent the interests
of our other shareholders, including holders of ADSs.
We have limited insurance coverage and may incur losses
resulting from product liability claims, business interruption or natural disasters.
We are exposed to risks associated with
product liability claims in the event that the use of our products results in property damage or personal injury. Since our products
are ultimately incorporated into electricity generating systems, it is possible that users could be injured or killed by devices
that use our products, whether as a result of product malfunctions, defects, improper installations or other causes. Due to our
limited operating history, we are unable to predict whether product liability claims will be brought against us in the future or
to predict the impact of any resulting adverse publicity on our business. The successful assertion of product liability claims
against us could result in potentially significant monetary damages and require us to make significant payments. Our product liability
insurance coverage is limited and we may not have adequate resources to satisfy a judgment in the event of a successful claim against
us. In addition, we do not carry any business interruption insurance. As the insurance industry in China is still in its relatively
early stage of development, even if we decide to take out business interruption coverage, such insurance available in China offers
limited coverage compared with that offered in many other countries. Any business interruption or natural disaster could result
in substantial losses and diversion of our resources and materially adversely affect our business, financial condition and results
of operations.
The grant of employee share options and other share-based
compensation could adversely affect our net income.
As of the date of this prospectus supplement,
share options with respect to 9,194,356 ordinary shares have been granted to our directors, officers and employees pursuant to
our 2009 Long Term Incentive Plan, and there are 69,336 ordinary shares issuable upon the exercise of outstanding options granted
under the plan. As of the date of this prospectus supplement, share options with respect to 10,455,980 ordinary shares have been
granted to our directors, officers and employees pursuant to our 2014 Equity Incentive Plan, and there are 938,212 ordinary shares
issuable upon the exercise of outstanding options granted under the plan. U.S. GAAP requires us to recognize share-based compensation
as compensation expense in the consolidated statement of operations based on the fair value of equity awards on the date of the
grant, with the compensation expense recognized over the period in which the recipient is required to provide service in exchange
for the equity award. If we grant more share options to attract and retain key personnel, the expenses associated with share-based
compensation may adversely affect our net income. However, if we do not grant share options or reduce the number of share options
that we grant, we may not be able to attract and retain key personnel.
Our lack of sufficient patent protection in and outside
of China may undermine our competitive position and subject us to intellectual property disputes with third parties, both of which
may have a material adverse effect on our business, results of operations and financial condition.
We have developed various production process
related know-how and technologies in the production of our products. Such know-how and technologies play a critical role
in our quality assurance and cost reduction. In addition, we have implemented a number of research and development programs with
a view to developing techniques and processes that will improve production efficiency and product quality. Our intellectual property
and proprietary rights from our research and development programs will be crucial in maintaining our competitive edge in the solar
power industry. As of the date of this prospectus supplement, we have 888 patents and 372 pending patent applications in China.
Our patents’ validity is generally ten years. We plan to continue to seek to protect our intellectual property and proprietary
knowledge by applying for patents for them. However, we cannot assure you that we will be successful in obtaining patents in China
in a timely manner or at all. Moreover, even if we are successful, China currently affords less protection to a company’s
intellectual property than some other countries, including the United States. We also use contractual arrangements with employees
and trade secret protections to protect our intellectual property and proprietary rights. Nevertheless, contractual arrangements
afford only limited protection and the actions we may take to protect our intellectual property and proprietary rights may not
be adequate.
In addition, others may obtain knowledge
of our know-how and technologies through independent development. Our failure to protect our production process, related know-how
and technologies, our intellectual property and proprietary rights or any combination of the above may undermine our competitive
position. Third parties may infringe or misappropriate our proprietary technologies or other intellectual property and proprietary
rights. Policing unauthorized use of proprietary technology can be difficult and expensive. Litigation, which can be costly and
divert management attention and other resources away from our business, may be necessary to enforce our intellectual property rights,
protect our trade secrets or determine the validity and scope of our proprietary rights. We cannot assure you that the outcome
of such potential litigation will be in our favor. An adverse determination in any such litigation will impair our intellectual
property and proprietary rights and may harm our business, prospects and reputation.
We may be exposed to intellectual property infringement
or misappropriation claims by third parties, which, if determined adversely to us, could cause us to pay significant damage awards
and subject us to injunctions prohibiting sale of our products in certain markets.
Our success depends on our ability to use
and develop our technology and know-how, and to manufacture and sell our recovered silicon materials, silicon wafers, solar
cells and solar modules, develop solar power projects or otherwise operate our business in the solar industry without infringing
the intellectual property or other rights of third parties. We may be subject to litigation involving claims of patent infringement
or violation of intellectual property rights of third parties. The validity and scope of claims relating to solar power technology
patents involve complex scientific, legal and factual questions and analyses and, therefore, may be highly uncertain. The defense
and prosecution of intellectual property suits, patent opposition proceedings, trademark disputes and related legal and administrative
proceedings can be both costly and time-consuming and may significantly divert our resources and the attention of our technical
and management personnel. An adverse ruling in any such litigation or proceedings could subject us to significant liability to
third parties, require us to seek licenses from third parties, to pay ongoing royalties, or to redesign our products or subject
us to injunctions prohibiting the manufacture and sale of our products or the use of our technologies. Protracted litigation could
also result in our customers or potential customers deferring or limiting their purchase or use of our products until resolution
of such litigation.
Our business depends substantially on the continuing efforts
of our founders, executive officers and key technical personnel, as well as our ability to maintain a skilled labor force. Our
business may be materially adversely affected if we lose their services.
Our success depends on the continued
services of our founders, Mr. Xiande Li, Mr. Kangping Chen and Mr. Xianhua Li, and other executive officers and key
personnel. We do not maintain key-man life insurance on any of our founders, executive officers and key personnel. If one
or more of our founders, executive officers and key personnel are unable or unwilling to continue in their present positions,
we may not be able to readily replace them, if at all. As a result, our business may be severely disrupted and we may have to
incur additional expenses in order to recruit and retain new personnel. In addition, if any of our executives joins a
competitor or forms a competing company, we may lose some of our customers. Each of our founders, executive officers and key
personnel has entered into an employment agreement with us that contains confidentiality and non-competition provisions.
However, if any dispute arises between our founders, executive officers or key personnel and us, we cannot assure you, in
light of uncertainties associated with the PRC legal system, that these agreements could be enforced in China where most of
our founders, executive officers and key personnel reside and hold most of their assets. See “—Risks Related to
Doing Business in China—Uncertainties with respect to the PRC legal system could have a material adverse effect on
us” in this prospectus supplement.
Furthermore, recruiting and retaining capable
personnel, particularly experienced engineers and technicians familiar with our products and manufacturing processes, is vital
to maintain the quality of our products and improve our production methods. There is substantial competition for qualified technical
personnel, and we cannot assure you that we will be able to attract or retain qualified technical personnel. If we are unable to
attract and retain qualified employees, key technical personnel and our executive officers, our business may be materially adversely
affected.
Compliance with environmentally safe production and construction
and renewable energy development regulations can be costly, while non-compliance with such regulations may result in adverse
publicity and potentially significant monetary damages, fines and suspension of our business operations.
We are required to comply with all national
and local environmental protection regulations for our operations, including in China, the United States and Malaysia. For example,
regulations on emission trading and pollution permits in Zhejiang Province allow entities to increase their annual pollution discharge
limit by purchasing emissions trading credits. Entities that purchase emission credits can increase their annual discharge limit
by registering the credits with the relevant environmental authorities and amending their pollution permits or obtaining new ones.
We have entered into several emissions trading contracts to purchase credits to increase our annual discharge limit and registered
all credits as required under a local regulation that became effective on October 9, 2010. However, as our business grows, we may
increase our discharge level in the future and we cannot guarantee you that we will continue to be below our annual discharge limit.
The penalties for exceeding the annual discharge limit may include corrective orders, fines imposed by the local environmental
authority of up to RMB50,000 or, in extreme circumstances, revocation of our pollution permit. Some of our subsidiaries need to
obtain and maintain pollution discharge permits or registrations, and some of our subsidiaries are in the process of application
for such permits and registrations, which are subject to application, renewal or extension on an annual basis or within a longer
period. We cannot assure you that we are or will be able to successfully obtain, renew or extend these permits in a timely manner
or at all.
We use, store and generate volatile and
otherwise dangerous chemicals and wastes during our manufacturing processes, and are subject to a variety of government regulations
related to the use, storage and disposal of such hazardous chemicals and waste. In accordance with the requirements of the Regulations
on the Safety Management of Hazardous Chemicals, which became effective on March 15, 2002 and were amended on December 1, 2011
and December 7, 2013, we are required to engage state-qualified institutions to conduct the safety evaluation on our storage
instruments related to our use of hazardous chemicals and file the safety evaluation report with the competent safety supervision
and administration authorities every three years. In compliance with Jiaxing City environmental authority’s requests, we
commenced efforts to meet their targets for hazardous chemical and wastes in May 2012. Environmental authorities of Haining City
and Jiaxing City evaluated our efforts and confirmed that we satisfied their targets in September 2012. Moreover, we filed a report
with the competent safety supervision and administration authorities and public security agencies concerning the actual storage
situation of our hyper-toxic chemicals and other hazardous chemicals that constitute major of hazard sources.
Moreover, we are required to obtain
construction permits before commencing constructing production facilities. We are also required to obtain the approvals from
PRC environmental protection authorities before commencing commercial operations of our manufacturing facilities. We are also
required to comply with renewable energy development regulations and directives for our operations in China. We commenced
construction of a portion of our solar cell and solar module production facilities prior to obtaining the construction
permits and commenced operations of certain of our production facilities prior to obtaining the environmental approvals for
commencing commercial operation and completing the required safety evaluation procedure and we, through Poyang Luohong, a
joint venture in which we then held 51% equity interest, had commenced the construction of the Technology Top Runner Project
prior to obtaining the construction permits, land use certificates and certain other approvals. Although we have subsequently
obtained all required environmental approvals covering all of existing production capacity except a portion of solar cell and
solar module production capacity and we have disposed of all our equity interest in Poyang Luohong, we cannot assure you that
we will not be penalized by the relevant government authorities for our non-compliance with the PRC environmental
protection, safe production and construction regulations, including renewable energy development regulations and
directives.
In late August 2011, our Haining facility
experienced a suspected leakage of fluoride into a nearby small water channel due to extreme and unforeseen weather conditions.
On September 15, 2011, residents of Hongxiao Village in proximity to the Haining facility gathered to protest the discharge. The
Haining facility suspended production on September 17, 2011. We also took steps recommended by an environmental engineering firm
licensed by the PRC government (“Licensed Engineers”). On September 28, 2011, a committee of experts (the “Experts
Committee”) established by the Haining government approved a set of recommendations developed by the Licensed Engineers with
our assistance and the Haining government to be implemented by us. On October 6, 2011, the Experts Committee, the Environmental
Bureau of the Haining government and representatives of Hongxiao Village reviewed the steps taken by us based on the recommendations
of the Experts Committee and provided their comments to JinkoSolar’s management. On October 9, 2011, the Experts Committee
notified us that the Experts Committee was satisfied with the steps taken by us and we resumed production at the Haining facility.
In 2012, we carried out a series of environmental protection efforts intended to ensure our compliance with relevant standards
and requirements. In January 2013, Haining City environmental authority issued the “Environmental Management Compliance Certificate
for 2012” to us, confirming our compliance with environmental requirements.
Although we will try to take measures to
prevent similar incidents from occurring again in the future, we cannot assure you that our operations will not be disrupted by
similar or other environmental incidents. In addition, the relevant authorities may issue more stringent environmental protection,
safe production and construction regulations in the future that may impact our manufacturing facilities in China or abroad, and
the costs of compliance with new regulations could be substantial. If we fail to comply with the future environmentally safe production
and construction laws and regulations, we may be required to pay fines, suspend construction or production, or cease operations.
Moreover, any failure by us to control the use of, or to adequately restrict the discharge of, dangerous substances could subject
us to potentially significant monetary damages and fines or the suspension of our business operations.
We face risks related to health epidemics and other outbreaks.
In particular, we were, and could be further, adversely affected by the global outbreak of COVID-19.
Our business could be adversely affected
by the effects of novel coronavirus (“COVID-19”), Ebola virus disease, influenza A (“H1N1”), avian flu,
severe acute respiratory syndrome (“SARS”), or other epidemic outbreak.
In December 2019, a strain of
COVID-19 was reported to have surfaced in Wuhan, China, which subsequently spread throughout China. The Chinese central
government and local governments in Wuhan and other cities in China have introduced various temporary measures to contain the
COVID-19 outbreak, such as extension of the Lunar New Year holidays and travel restrictions, which have impacted and could
further impact national and local economy to different degrees. As the COVID-19 subsequently spreads globally, many
governments in other countries and regions have also introduced travel restrictions, lock-down policies, suspension of
business activities and other temporary measures. The global spread of the COVID-19 has created significant volatility and
uncertainty, as well as economic disruption. Our production could be severely affected if our employees or the regions in
which our facilities are located are affected by the COVID-19. For example, a facility could be closed by government
authorities for a sustained period of time, some or all of our workforce could be unavailable due to quarantine, fear of
catching the disease or other factors, and local, national or international transportation or other infrastructure could be
affected, leading to delays or loss of production. In addition, our suppliers and customers are subject to similar risks,
which could lead to a shortage of raw materials or a reduction in our customers’ demand for our products. We may have
to decrease the selling price of our products to attract and retain customers if the demand for our products decreases. We
rely on a variety of common carriers to transport our raw materials from our suppliers, and to transport products from us to
our customers. Problems suffered by any of these common carriers could result in shipping delays, increased costs or some
other supply chain disruption and could therefore have a material adverse effect on our operations. While it is unknown how
long these conditions will last and what the complete financial effect will be to us, our supply of certain raw materials and
logistics during the first quarter of 2020 was temporarily affected, causing some module shipments to be postponed to the
second quarter of 2020. As a result, some of our customers delayed their payments, which temporarily affected our cash flow.
In addition, our capacity utilization rate of certain overseas manufacturing facility has been temporarily affected as we
have to limit the number of workers gathering at the facility pursuant to the instructions of the local authorities. In the
second and third quarters of 2020, logistics and transportation continued to be affected in certain parts of the world and
regional demands were adjusting due to the pandemic. In response to the COVID-19 outbreak, we implemented a number of
initiatives to ensure business continuity, including ensuring the safety and health of our employees and minimizing the
impact of the outbreak on production and delivery by stocking up on critical raw materials and optimizing production and
logistics, as well as flexibly adjusting the manufacturing facilities from which we ship our products. The situation of the
COVID-19 outbreak is very fluid and we are closely monitoring its impact on us. There may be further adverse impact on our
operation, liquidity, financial condition and results of operations if the conditions last a sustained period of time and
continue to develop globally.
In April 2009, an outbreak of influenza
A caused by the H1N1 virus occurred in Mexico and the United States, and spread into a number of countries rapidly. There have
also been reports of outbreaks of a highly pathogenic avian flu, caused by the H1N1 virus, in certain regions of Asia and Europe.
In past few years, there were reports on the occurrences of avian flu in various parts of China, including a few confirmed human
cases. In April 2013, there were reports of cases of H7N9 avian flu in southeast China, including deaths in Shanghai and Zhejiang
Province. An outbreak of avian flu in the human population could result in a widespread health crisis that could adversely affect
the economies and financial markets of many countries, particularly in Asia. Additionally, any recurrence of SARS, a highly contagious
form of atypical pneumonia, similar to the occurrence in 2003 which affected China, Hong Kong, Taiwan, Singapore, Vietnam and certain
other countries, would also have similar adverse effects.
These outbreaks of contagious diseases
and other adverse public health developments in China and around the world would have a material adverse effect on our business
operations. These could include our ability to travel or ship our products outside China as well as temporary closure of our manufacturing
facilities. Such closures or travel or shipment restrictions would severely disrupt our business operations and adversely affect
our financial condition and results of operations. We have not adopted any written preventive measures or contingency plans to
combat any future outbreak of avian flu, SARS or any other epidemic.
Risks Related to Doing Business in China
We may fail to comply with laws and regulations regarding
PV production in China.
On January 15, 2018, the Ministry of Industry
and Information Technology of China (the “MIIT”) promulgated the Standard Conditions of Photovoltaic Production Industry,
or the Photovoltaic Production Rule, in place of its old version, which establishes a basic regulatory framework for PV production
industry. The Photovoltaic Production Rule provides, among other matters, requirements in relation to the production layout, project
establishment filing and enterprise qualification, requirements with regard to the production scale, product quality, cell efficiency,
energy consumption and operational life span of various PV products, and requirements related to quality management and obtaining
the pollution discharge permits and other environmental requirements. On May 29, 2020, the MIIT published the draft Interim Standard
Conditions of Photovoltaic Production Industry (2020 version) (Draft for Comment), for public comment, or the 2020 Draft Photovoltaic
Production Rule, which among other things, strengthens requirements with regard to the investment standard, product quality and
cell efficiency, and sets forth encouragement in intelligent manufacturing. It is not certain whether and when the 2020 Draft Photovoltaic
Production Rule will be officially promulgated, and whether it will be in the same form and content as the 2020 Draft Photovoltaic
Production Rule, and if enacted in substantially the form published for public comment, such tightened requirements may increase
our compliance and production costs. Our failure to comply with these rules and the laws and regulations related thereto, if and
when effective, could result in fines, sanctions, suspension, revocation or non-renewal of approvals, permits or licenses, which
could have a material adverse effect on our business, financial condition and results of operations.
We cannot assure you that we will be able
to promptly and adequately respond to changes of laws and regulations, or that our employees and contractors will act in accordance
with our internal policies and procedures. Failure to comply with such laws and regulations relating to PV production may materially
adversely affect our business, financial condition and results of operations.
Our auditor, like other independent registered public
accounting firms operating in China, is not permitted to be subject to inspection by the Public Company Accounting Oversight Board,
and consequently investors may be deprived of the benefits of such inspection; furthermore, the inspection status of our auditor
may affect the ability of our securities to continue to be traded in the United States.
Our auditor, the independent
registered public accounting firm that issued the audit reports included elsewhere in our 2019 annual report, as an auditor
of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight
Board (United States), or PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular
inspections to assess its compliance with applicable professional standards. Our auditor is located in, and organized under
the laws of, the PRC, which is a jurisdiction where the PCAOB has been unable to conduct inspections without the approval of
the Chinese authorities. In May 2013, PCAOB announced that it had entered into a Memorandum of Understanding on
Enforcement Cooperation with the China Securities Regulatory Commission, or CSRC and the PRC Ministry of Finance, which
establishes a cooperative framework between the parties for the production and exchange of audit documents relevant to
investigations undertaken by PCAOB, the CSRC or the PRC Ministry of Finance in the United States and the PRC, respectively.
PCAOB continues to be in discussions with the CSRC, and the PRC Ministry of Finance to permit joint inspections in the PRC of
audit firms that are registered with PCAOB and audit Chinese companies that trade on U.S. exchanges.
On December 7, 2018, the SEC and the PCAOB
issued a joint statement highlighting continued challenges faced by the U.S. regulators in their oversight of financial statement
audits of U.S.-listed companies with significant operations in China. However, it remains unclear what further actions, if
any, the SEC and PCAOB will take to address the problem. This lack of PCAOB inspections in China prevents the PCAOB from fully
evaluating audits and quality control procedures of our independent registered public accounting firm. As a result, we and investors
in our ADSs are deprived of the benefits of such PCAOB inspections.
As part of a continued regulatory focus
in the United States on access to audit and other information currently protected by national law, in particular China’s,
both houses of the United States Congress recently approved the Holding Foreign Companies Accountable Act, or the HFCA Act, legislation
that would require the SEC to maintain a list of issuers making ongoing SEC reporting filings using auditors from a non-U.S. jurisdiction
that the PCAOB is not able to inspect or investigate completely because of a position taken by the relevant non-U.S. jurisdiction.
The HFCA Act would require the SEC to prohibit the U.S. trading (including on U.S. exchanges or the over-the-counter markets) of
securities of issuers that are included on this list for three consecutive years. The earliest of such three consecutive years
would be the first year following the HFCA Act’s enactment into law. The HFCA Act would also require companies on the list
to certify that they are not owned or controlled by a foreign government and make certain additional disclosures in their SEC filings,
including disclosure of whether governmental entities in the applicable non-U.S. jurisdiction have a controlling financial interest
in the issuer, the names of Chinese Communist Party members on the issuer or the issuer’s operating entity’s board
of directors and whether the issuer’s articles contain a charter of the Chinese Communist Party. The HFCA Act was passed
by the Senate on May 20, 2020 and by the House of Representatives on December 2, 2020;it is still pending the signature of the
president before becoming law.
In addition to legislative action, on
June 4, 2020, President Trump issued a memorandum directing the President's Working Group on Financial Markets, or the PWG,
which is chaired by the Secretary of the Treasury and includes the Chairman of the Board of Governors of the Federal Reserve
System, the Chairman of the SEC and the Chairman of the Commodity Futures Trading Commission, to discuss and make
recommendations regarding the risks faced by U.S. investors from Chinese companies and companies with significant operations
in China that are listed on U.S. stock exchanges, which are imposed by Chinese government’s refusal to permit the PCAOB
to conduct inspections of auditors in China. In a letter dated July 24, 2020, which was released on August 7, 2020, the PWG
responded to the president's request with a report entitled “Protecting United States Investors from Significant Risks
from Chinese Companies,” which includes various recommendations to address issues from countries in which PCAOB is
unable to inspect auditors, which it refers to as NCJs. One of the report’s recommendation is to require U.S. exchanges
to adopt enhanced listing standards that companies would be required to meet at the time of any new listing or by January 1,
2022 for continued listings. U.S. listed companies that fail to meet these proposed enhanced standards would be subject to
delisting and trading suspensions. The recommended listing standards would require that PCAOB have access to work papers of
the principal audit firm for the audit of the listed company or, for companies that are unable to satisfy this work papers
access standard as a result of governmental restrictions in NCJs, they could instead provide a co-audit from a U.S. PCAOB
registered audit firm where the PCAOB determines it has sufficient access to audit work papers and practices to conduct an
appropriate inspection of the co-audit firm. One of the report’s recommended requirements for such co-audits is that
the government of the relevant NCJ would have to permit the U.S. accounting firm working on the co-audit to perform the work
and retain the relevant work papers outside of the NCJ. However, because Chinese law prohibits audit firms that operate in
China and Hong Kong from releasing certain documentation of Chinese companies without explicit government permission, it is
unclear if these requirements would be consistent with Chinese law. The report also includes recommendations for enhanced
disclosure requirements for China-based companies and funds exposed to China-based groups, requiring more due diligence on
behalf of index providers, and guidance for investment advisers.
Future developments in respect of the issues
discussed above are uncertain, including because the legislative developments are subject to the legislative process and the regulatory
developments are subject to the rule-making process and other administrative procedures. However, if any of the administrative
proceedings, legislative actions or regulatory changes discussed above were to proceed in ways that are detrimental to China-based
issuers, it could cause us to fail to be in compliance with U.S. securities laws and regulations, we could cease to be listed on
the NYSE or another U.S. exchange, and trading of our shares and ADSs in the United States could be prohibited. Any of these actions,
or uncertainties in the market about the possibility of such actions, could adversely affect our access to the U.S. capital markets
and the price of our ADSs and ordinary shares and could result in adverse consequences under our outstanding borrowings.
Inspections of other firms that the PCAOB
has conducted outside the PRC have identified deficiencies in those firms' audit procedures and quality control procedures, which
may be addressed as part of the inspection process to improve future audit quality. The inability of the PCAOB to conduct inspections
of auditors in China makes it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s
audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections,
which could cause investors and potential investors in our stock to lose confidence in our audit procedures and reported financial
information and the quality of our financial statements.
Proceedings instituted by the SEC against certain PRC-based
accounting firms, including our independent registered public accounting firm, could result in financial statements being determined
to not be in compliance with the requirements of the Securities Exchange Act of 1934.
In December 2012, the SEC instituted administrative
proceedings against the Big Four PRC-based accounting firms, including our independent registered public accounting firm, alleging
that these firms had violated U.S. securities laws and the SEC’s rules and regulations thereunder by failing to provide to
the SEC the firms’ audit work papers with respect to certain PRC-based companies that are publicly traded in the United
States.
On January 22, 2014, the administrative
law judge presiding over the matter rendered an initial decision that each of the firms had violated the SEC’s rules of practice
by failing to produce audit papers and other documents to the SEC. The initial decision censured each of the firms and barred them
from practicing before the SEC for a period of six months.
On February 6, 2015, the four China-based
accounting firms each agreed to a censure and to pay a fine to the SEC to settle the dispute and avoid suspension of their ability
to practice before the SEC and audit U.S.-listed companies. The settlement required the firms to follow detailed procedures
and to seek to provide the SEC with access to Chinese firms’ audit documents via the CSRC. Under the terms of the settlement,
the underlying proceeding against the four China-based accounting firms was deemed dismissed with prejudice four years after
entry of the settlement. The four-year mark occurred on February 6, 2019. While we cannot predict if the SEC will further challenge
the four China-based accounting firms’ compliance with U.S. law in connection with U.S. regulatory requests for audit
work papers or if the results of such a challenge would result in the SEC imposing penalties such as suspensions, if the accounting
firms are subject to additional remedial measures, our ability to file our financial statements in compliance with SEC requirements
could be impacted. A determination that we have not timely filed financial statements in compliance with SEC requirements could
ultimately lead to the delisting of our ADSs from NYSE or the termination of the registration of our ADSs under the Securities
Exchange Act of 1934, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United
States.
The approval of the MOFCOM for or in connection with our
corporate restructuring in 2007 and 2008 may be subject to revocation, which will have a material adverse effect on our business,
operating results and trading price of our ADSs.
On August 8, 2006, six PRC
governmental and regulatory agencies, including the Ministry of Commerce of the People’s Republic of China (the
“MOFCOM”), and the CSRC promulgated a rule entitled “Provisions Regarding Mergers and Acquisitions of
Domestic Enterprises by Foreign Investors”, or Circular 10, which became effective on September 8, 2006 and was amended
in June 2009. Article 11 of Circular 10 requires PRC domestic enterprises or domestic natural persons to obtain the prior
approval of MOFCOM when an offshore company established or controlled by them proposes to merge with or acquire a PRC
domestic company with which such enterprises or persons have a connected relationship.
On January 1, 2020, the Foreign Investment
Law of the People’s Republic of China (the “Foreign Investment Law”) came into effect. On February 5, 2020, the
MOFCOM stated in a reply to the public that the provisions in Circular 10 do not conflict with the Foreign Investment Law and its
implementing regulations should continue to apply. The MOFCOM will, in conjunction with the implementation of the Foreign Investment
Law and its implementing regulations, study relevant issues related to Circular 10 and start relevant work at appropriate time
to further improve the foreign mergers and acquisitions system under the framework of the Foreign Investment Law.
We undertook a restructuring in 2007, or
the 2007 Restructuring, and our founders and JinkoSolar Technology Limited, previously Paker Technology Limited (“JinkoSolar
Technology”), obtained the approval of Jiangxi MOFCOM, for the acquisition of certain equity interest in Jiangxi Desun and
the pledge by our founders of their equity interest in Jiangxi Desun to JinkoSolar Technology, or the 2007 acquisition and pledge.
However, because our founders are PRC natural persons and they controlled both JinkoSolar Technology and Jiangxi Desun, the 2007
acquisition and pledge would be subject to Article 11 of Circular 10 and therefore subject to approval by MOFCOM at the central
government level. To remedy this past non-compliance, we undertook another corporate restructuring in 2008, or the 2008 Restructuring,
under which the share pledge was terminated on July 28, 2008 and JinkoSolar Technology transferred all of its equity interest in
Jiangxi Desun to Long Faith Creation Limited (“Long Faith”), an unrelated Hong Kong company, on July 31, 2008. In addition,
on November 11, 2008, we received written confirmation from Jiangxi MOFCOM in its reply to our inquiry that there had been no modification
to the former approvals for the 2007 acquisition and pledge and JinkoSolar Technology’s transfer of its equity interest in
Jiangxi Desun to Long Faith, and we might continue to rely on those approvals for further transactions. Nevertheless, we cannot
assure you that MOFCOM will not revoke such approval and subject us to regulatory actions, penalties or other sanctions because
of such past non-compliance. If the approval of Jiangxi MOFCOM for the 2007 acquisition and pledge were revoked and we were not
able to obtain MOFCOM’s retrospective approval for the 2007 acquisition and pledge, Jiangxi Desun may be required to return
the tax benefits to which only a foreign-invested enterprise was entitled and which were recognized by us during the period
from April 10, 2007 to December 31, 2007, and the profit distribution to JinkoSolar Technology in December 2008 may be required
to be unwound. Under an indemnification letter issued by our founders to us, our founders have agreed to indemnify us for any monetary
losses we may incur as a result of any violation of Circular 10 in connection with the restructuring we undertook in 2007. We cannot
assure you, however, that this indemnification letter will be enforceable under the PRC law, our founders will have sufficient
resources to fully indemnify us for such losses, or that we will not otherwise suffer damages to our business and reputation as
a result of any sanctions for such non-compliance.
Meanwhile, given the uncertainty with respect
to what constitutes a merger with or acquisition of a PRC domestic enterprise and what constitutes circumvention of its approval
requirements under the Circular 10, we cannot assure you that the 2008 Restructuring is in all respects compliance with Circular
10. If MOFCOM subsequently determines that its approval of the 2008 Restructuring was required, we may face regulatory actions
or other sanctions by MOFCOM or other PRC regulatory agencies. Such actions may include compelling us to terminate the contracts
between Jiangxi Desun and us, the limitation of our operating privileges in China, the imposition of fines and penalties on our
operations in China, restrictions or prohibition on the payment or remittance of dividends by Jiangxi Jinko or others that may
have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as
the trading price of our ADSs.
Adverse changes in political and economic policies of
the PRC government could have a material adverse effect on the overall economic growth of the PRC, which could reduce the demand
for our products and materially adversely affect our competitive position.
Our business is primarily based in the
PRC and a portion of our sales are made in the PRC. Accordingly, our business, financial condition, results of operations and prospects
are affected significantly by economic, political and legal developments in the PRC. The PRC economy differs from the economies
of most developed countries in many respects, including:
|
·
|
the level of government involvement;
|
|
·
|
the level of development;
|
|
·
|
the control of foreign exchange; and
|
|
·
|
the allocation of resources.
|
While the PRC economy has grown significantly
in the past 30 years, the growth has been uneven, both geographically and among various sectors of the economy. The PRC government
has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit
the overall PRC economy, but may have a negative effect on us. For example, our financial condition and results of operations may
be materially adversely affected by government control over capital investments or changes in tax regulations that are applicable
to us.
The PRC economy has been transitioning
from a planned economy to a more market-oriented economy. Although in recent years the PRC government has implemented measures
emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the
establishment of sound corporate governance in business enterprises, a substantial portion of the productive assets in China is
still owned by the PRC government. The continued control of these assets and other aspects of the national economy by the PRC government
could materially adversely affect our business. The PRC government also exercises significant control over China’s economic
growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy
and providing preferential treatment to particular industries or companies. We cannot predict whether changes in China’s
political, economic and social conditions, laws, regulations and policies will have any material adverse effect on our current
or future business, financial condition and results of operations.
Uncertainties and limitations with respect to the PRC
legal system could have a material adverse effect on us.
We are incorporated in Cayman Islands
and are subject to laws and regulations applicable to foreign investment in China and, in particular, laws applicable to
wholly foreign owned companies. The PRC legal system is based on written statutes. Prior court decisions have limited
precedential value. Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to
various forms of foreign investments in China. However, since these laws and regulations are relatively new and the PRC legal
system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and
enforcement of these laws, regulations and rules involve uncertainties and inconsistencies, which may limit legal protections
available to us. For example, we may have to resort to administrative and court proceedings to enforce the legal protection
that we enjoy either by law or contract. However, since PRC administrative authorities and courts have significant discretion
in interpreting and implementing statutory and contractual terms, it may be more difficult than in more developed legal
systems to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy. These
uncertainties may impede our ability to obtain or maintain licenses and permits or enforce the contracts we have entered into
with our business partners, clients and suppliers. In addition, such uncertainties, including the inability to obtain or
maintain licenses and permits and enforce our contracts, could materially adversely affect our business and operations.
Furthermore, intellectual property rights and confidentiality protections in China may not be as effective as in the United
States or other countries. Accordingly, we cannot predict the effect of future developments in the PRC legal system,
including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the
preemption of national laws by local regulations. In addition, due to jurisdictional limitations, matters of comity and
various other factors, the SEC, U.S. Department of Justice and other U.S. authorities may be limited in their ability to
pursue bad actors, including in instances of fraud, in the PRC. For example, there are significant legal and other obstacles
to obtaining information needed for investigations or litigation in the PRC. Similar limitations apply to the pursuit of
actions against individuals, including officers, directors and individual gatekeepers, who may have engaged in fraud or other
wrongdoing. See “—It may be difficult to effect service of process on, or to enforce any judgments obtained
outside the PRC against, us, our directors, or our senior management members who live inside the PRC.” Moreover, local
authorities in the PRC may be constrained in their ability to assist U.S. authorities and overseas investors. In addition,
according to Article 177 of the PRC Securities Law, which became effective in March 2020, no overseas securities regulator,
including the SEC, PCAOB, and the Department of Justice, can directly conduct investigations or evidence collection
activities within the PRC and no entity or individual in China may provide documents and information relating to securities
business activities to overseas regulators without Chinese government approval. Furthermore, shareholder claims that are
common in the U.S., including class action under securities laws and fraud claims, generally are difficult or impossible to
pursue as a matter of law or practicality in the PRC. Investors in the PRC may not have the ability to pursue or seek certain
legal claims and remedies against China-based Issuers, or their officers, directors, and gatekeepers in U.S. courts as
private plaintiffs, and may have to rely on domestic legal claims and remedies that are available in the PRC, which can be
significantly different from those available in the United States and difficult to pursue. These uncertainties and
limitations could limit the legal protections available to us and other foreign investors, including you. In addition, any
litigation in China may be protracted and result in substantial costs and diversion of resources and management
attention.
PRC regulations may subject our future mergers and acquisitions
activity to national security review.
In February 2011, the General Office of
the State Council of China (the “State Council”) promulgated Circular 6, a notice on the establishment of a security
review system for mergers and acquisitions of domestic enterprises by foreign investors. Circular 6 became effective on March 4,
2011. To implement Circular 6, MOFCOM promulgated the MOFCOM Security Review Rules on August 25, 2011, which became effective on
September 1, 2011. According to Circular 6 and the MOFCOM Security Review Rules, national security review is required to be undertaken
to complete mergers and acquisitions (i) by foreign investors of enterprises relating to national defense and (ii) through which
foreign investors may acquire de facto control of a domestic enterprise that could raise national security concerns. When determining
whether to subject a specific merger or acquisition to national security review, the MOFCOM will look at the substance and actual
impact of the transaction. Bypassing national security review by structuring transactions through proxies, trusts, indirect investments,
leases, loans, control through contractual arrangements or offshore transactions by foreign investors is prohibited.
Under the framework of the Foreign Investment
Law that came into effect on January 1, 2020, the scope of national security review expands from mergers and acquisitions to all
foreign investment activities. According to Article 35 of the Foreign Investment Law, a security review system for foreign investment
will be established in the country, under which the security review shall be conducted for any foreign investment affecting or
having the possibility to affect national security. According to Article 40 of the Foreign Investment Law, where any country or
region takes any discriminatory prohibitive or restrictive measures, or other similar measures against China in terms of investment,
China may take corresponding measures against the said country or region in light of the actual conditions.
In addition, even if a merger or acquisition
by foreign investors is not currently subject to national security review, or is determined to have no impact on national security
after such review, it may still be subject to future review. A change in conditions (such as change of business activities, or
amendments to relevant documents or agreements) may trigger the national security review requirement, then the foreign investor
to the merger or acquisition must apply for the relevant approval with the MOFCOM.
Currently, there are no public provisions
or official interpretations specifically providing that our current businesses fall within the scope of national security review
and there is no requirement that foreign investors to those merger and acquisition transactions completed prior to the promulgation
of Circular 6 take initiatives to submit such transactions to MOFCOM for national security review. However, as there is no clear
statutory interpretation on the implementation of the security review system, there is no assurance that the relevant PRC regulatory
authorities will have the same view as us when applying them. If our future merger and acquisition transactions and other indirect
investments are subject to the national security review, the application of the national security review may further complicate
our future merger and acquisition and investment activities, and our expansion strategy may be adversely affected as a result.
PRC regulations relating to overseas investment by PRC
residents may restrict our overseas and cross-border investment activities and adversely affect the implementation of our strategy
as well as our business and prospects.
On July 4, 2014, the State
Administration of Foreign Exchange of China (the “SAFE”) issued the Circular on the Administration of Foreign
Exchange Issues Related to Overseas Investment, Financing and Roundtrip Investment by Domestic Residents through Offshore
Special Purpose Vehicles (the “SAFE Circular 37”), which replaced the former circular commonly known as
“SAFE Circular 75” promulgated on October 21, 2005. The SAFE Circular 37 requires PRC residents to register with
the competent local SAFE branch in connection with their direct establishment or indirect control of an offshore special
purpose vehicle, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or
equity interests in domestic enterprises or offshore assets or interests. The SAFE Circular 37 further requires amendment to
the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or
decrease of capital contribution by PRC individuals, share transfer or exchange, merger, division or other material event. In
the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE
registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the
offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose
vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Moreover, failure to
comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of
foreign exchange controls.
We believe that all of our beneficial owners
who are PRC citizens or residents have completed their registrations with the competent local SAFE branch in accordance with the
SAFE Circular 75 before the promulgation of SAFE Circular 37. However, we may not at all times be fully aware or informed of the
identities of all of our beneficial owners who are PRC citizens or residents, and we may have little control over either our present
or prospective direct or indirect PRC resident beneficial owners or the outcome of such registration procedures. We cannot assure
you that the SAFE registrations of our present beneficial owners or future beneficial owners who are PRC citizens or residents
have been or will be amended to reflect, among others, the shareholding information or equity investment as required by the SAFE
Circular 37 and subsequent implementation rules at all times. The failure of these beneficial owners to comply with the registration
procedures set forth in the SAFE Circular 37 may subject such beneficial owners and our PRC subsidiaries to fines and legal sanctions.
Such failure may also result in restrictions on our PRC subsidiaries’ ability to distribute profits to us or our ability
to inject capital into our PRC subsidiaries or otherwise materially adversely affect our business, financial condition and results
of operations. Furthermore, it is unclear how the SAFE Circular 37 and any future regulation concerning offshore or cross-border
transactions will be interpreted and implemented by the relevant PRC government authorities. We cannot predict how these regulations
will affect our business operations or future strategy.
On December 25, 2006, the People’s
Bank of China promulgated the Measures for Administration of Individual Foreign Exchange, and on January 5, 2007, the SAFE promulgated
relevant Implementation Rules. On February 15, 2012, the SAFE promulgated the Notice on Various Issues Concerning Foreign Exchange
Administration for Domestic Individuals Participating in Equity Incentive Plans of Overseas Listed Companies (the “Stock
Option Notice”). The Stock Option Notice terminated the Application Procedures of Foreign Exchange Administration of Domestic
Individuals’ Participating in an Employee Stock Holding Plan or Stock Option Plan of an Overseas Listed Company issued by
the SAFE on March 28, 2007. According to the Stock Option Notice, PRC citizens who are granted shares or share options by a company
listed on an overseas stock market according to its employee stock holding plan or stock incentive plan are required to register
with the SAFE or its local counterparts by following certain procedures.
We and our employees who are PRC citizens
and individual beneficiary owners, or have been granted restricted shares or share options, are subject to the Individual Foreign
Exchange Rules and its relevant implementation regulations. The failure of our PRC individual beneficiary owners and the restricted
holders to complete their SAFE registrations pursuant to the SAFE’s requirement or the Individual Foreign Exchange Rules
may subject these PRC citizens to fines and legal sanctions. It may also limit our ability to contribute additional capital into
our PRC subsidiaries, and limit our PRC subsidiaries’ ability to distribute dividends to us, or otherwise materially adversely
affect our business.
On December 26, 2017, the NDRC promulgated
the Administrative Measures for the Outbound Investment of Enterprises (the “new ODI Measure”), which took effect from
March 1, 2018, and replaced the Administrative Measures for Approval and Record-filing on Overseas Investment Projects promulgated
by the NDRC on April 8, 2014. The new ODI Measure will further enhance supervision of overseas investments through reports of seriously
unfavorable events, inquiry letters and related supervision systems. Where PRC citizens make investments abroad through overseas
enterprises under their control, the new ODI Measure will apply mutatis mutandis.
Besides overseas investments of PRC
subsidiaries, all of our overseas investments may subject to supervision and inspection under the new ODI Measure, which may
materially increase the complexity of regulatory compliance aspect of our overseas investments. However, the implementation
and interpretation of the new ODI Measure are uncertain and will subject to the practice of the NDRC.
Our ability to access financing could be adversely affected
by PRC regulations.
Laws, regulations and policies issued in
the PRC may apply to our company. For example, the NDRC issued the NDRC Circular, which came into effect on September 14, 2015.
The NDRC Circular requires domestic enterprises and/or their overseas controlled enterprises or branches to procure the registration
of any issue of debt securities outside the PRC with the NDRC prior to such issue, and to notify the NDRC of the particulars of
such issue within a prescribed timeframe after such issue. The NDRC’s acceptance of any application for registration is subject
to the availability of a sufficient amount within the NDRC’s stipulated foreign debt aggregate quota (the “Aggregate
Quota”). Registrations for issue of foreign debt may not be accepted by the NDRC for either administrative reasons or due
to the Aggregate Quota having been fully utilized at the time of filing. There is also no assurance that any registration with
the NDRC will not be revoked or amended in the future.
The application of relevant laws, regulations
and policies issued in the PRC, such as the NDRC Circular, could therefore restrict our ability to raise debt financing and could
also impose registration and reporting requirements that could affect our ability to raise debt financing in a timely manner.
Our China-sourced income is subject to PRC withholding
tax under the CIT Law, and we may be subject to PRC corporate income tax at the rate of 25%.
We are a Cayman Islands holding company
with a substantial part of our operations conducted through our operating subsidiaries in China. Under the Corporate Income Tax
Law of the PRC (the “CIT Law”) which became effective on January 1, 2008 and was amended on February 24, 2017 and December
29, 2018, and the Regulation on the Implementation of the CIT Law (the “Implementation Rules of the CIT Law”) which
became effective on January 1, 2008 and was amended on April 23, 2019, China-sourced passive income of non-PRC tax resident
enterprises, such as dividends paid by a PRC subsidiary to its overseas parent and gains on sales of securities, is generally subject
to a 10% withholding tax. Under an arrangement between China and Hong Kong, such dividend withholding tax rate is reduced to 5%
if the beneficial owner of the dividends is a Hong Kong tax resident enterprise which directly owns at least 25% of the PRC company
distributing the dividends and has owned such equity for at least 12 consecutive months before receiving such dividends. For example,
as JinkoSolar Technology is a Hong Kong company and has owned 73.28% of the equity interest in Jiangxi Jinko directly for more
than 12 consecutive months to date, any dividends paid by Jiangxi Jinko to JinkoSolar Technology will be entitled to a withholding
tax at the reduced rate of 5% after obtaining approval from the competent PRC tax authority, provided that JinkoSolar Technology
is deemed the beneficial owner of such dividends and that JinkoSolar Technology is not deemed to be a PRC tax resident enterprise
as described below. However, according to the Circular of the State Taxation Administration on How to Understand and Identify a
“Beneficial Owner” under Tax Treaties (“STA Circular 601”), effective on October 27, 2009, and the Announcement
of the State Taxation Administration on the Determination of “Beneficial Owners” in the Tax Treaties (“STA Announcement
30”), effective on June 29, 2012, an applicant for treaty benefits, including benefits under the arrangement between China
and Hong Kong on dividend withholding tax, that does not carry out substantial business activities or is an agent or a conduit
company may not be deemed a “beneficial owner” of the PRC subsidiary and therefore, may not enjoy such treaty benefits.
If JinkoSolar Technology is determined to be ineligible for such treaty benefits, any dividends paid by Jiangxi Jinko to JinkoSolar
Technology will be subject to the PRC withholding tax at a 10% rate instead of a reduced rate of 5%. On February 3, 2018, the State
Taxation Administration of China (the “STA”) released Announcement of the State Taxation Administration on Issues concerning
the “Beneficial Owner” in Tax Treaties (the “STA Announcement 9”) which replaced STA Circular 601 and STA
Announcement 30. The STA Announcement 9 comprehensively updates the assessment principles for the determination of beneficial ownership
under agreements between China and other jurisdictions for the avoidance of double taxation. The STA Announcement 9 has also tightened
the first two unfavorable factors of STA Circular 601. This will be challenging for some non-resident taxpayers as their treaty
benefits may be denied for the lack of beneficial ownership status.
The CIT Law, however, also provides
that enterprises established outside China whose “de facto management bodies” are located in China are considered
“PRC tax resident enterprises” and will generally be subject to the uniform 25% PRC corporate income tax rate as
to their global income. Under the Implementation Rules of the CIT Law, “de facto management bodies” is defined as
the bodies that have, in substance, overall management control over such aspects as the production and operation, personnel,
accounts and properties of an enterprise. On April 22, 2009, the STA promulgated the Notice Regarding the Determination of
Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management
Bodies (“STA Circular 82”). According to STA Circular 82, an offshore-incorporated enterprise controlled by a
PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto
management body” in China only if certain conditions are met. Despite of those conditions, as STA Circular 82 only
applies to enterprises incorporated outside China controlled by PRC enterprises or a PRC enterprise, it remains unclear how
the PRC tax authorities will determine the location of “de facto management bodies” for offshore enterprises that
are controlled by individual PRC tax residents or non-PRC enterprises, as our company and JinkoSolar Technology.
Therefore, it remains unclear whether the PRC tax authorities would regard our company or JinkoSolar Technology as PRC tax
resident enterprises. If our company and JinkoSolar Technology are regarded by PRC tax authorities as PRC tax resident
enterprises for PRC corporate income tax purposes, any dividends distributed from Jiangxi Jinko to JinkoSolar Technology and
ultimately to our company could be exempt from the PRC withholding tax, while our company and JinkoSolar Technology will be
subject to the uniform 25% corporate income tax rate on our global income at the same time.
Dividends payable by us to our foreign investors and gains
on the sale of our shares or ADSs may become subject to PRC corporate income tax liabilities.
The Implementation Rules of the CIT Law
provide that (i) if the enterprise that distributes dividends is domiciled in China, or (ii) if gains are realized from transferring
equity interests of enterprises domiciled in China, then such dividends or capital gains are treated as China-sourced income.
It is not clear how “domicile” will be interpreted under the CIT Law. It may be interpreted as the jurisdiction where
the enterprise is incorporated or where the enterprise is a tax resident. Therefore, if our company and our subsidiaries in Hong
Kong are considered PRC tax resident enterprises for tax purposes, any dividends we pay to our overseas shareholders or ADS holders,
as well as any gains realized by such shareholders or ADSs holders from the transfer of our shares or ADSs, may be viewed as China-sourced
income and, as a consequence, be subject to PRC corporate income tax at 10% or a lower treaty rate. If we are required to withhold
PRC income tax on dividends we pay to our overseas shareholders or ADS holders, or if you are required to pay PRC income tax on
gains from the transfer of our shares or ADSs, the value of your investment in our shares or ADSs may be materially adversely affected.
Our ability to make distributions and other payments to
our shareholders depends to a significant extent upon the distribution of earnings and other payments made by our subsidiaries
in the PRC.
We conduct a substantial part of our operations
through our operating subsidiaries in China. Our ability to make distributions or other payments to our shareholders depends on
payments from these operating subsidiaries in China, whose ability to make such payments is subject to PRC regulations. Regulations
in the PRC currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards
and regulations in China. According to the relevant PRC laws and regulations applicable to our operating subsidiaries in China
and their respective articles of association, these subsidiaries are each required to set aside 10% of their after-tax profits
based on PRC accounting standards each year as statutory common reserves until the accumulative amount of these reserves reaches
50% of their registered capital. These reserves are not distributable as cash dividends. As of September 30, 2020, these general
reserves amounted to RMB689.7 million (US$101.6 million), accounting for 3.6% of the total registered capital of all of our operating
subsidiaries in China. In addition, under the CIT Law and its Implementation Rules, dividends from our operating subsidiaries
in China to us are subject to withholding tax to the extent that we are considered a non-PRC tax resident enterprise under the
CIT Law. See “—Our China-sourced income is subject to PRC withholding tax under the CIT Law, and we may be subject
to PRC corporate income tax at the rate of 25%.” Furthermore, if our operating subsidiaries in China incur debt on their
own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions
to us, such as requiring prior approval from relevant banks.
Restrictions on currency exchange may limit our ability
to receive and use our revenue effectively.
Certain portions of our revenue and
expenses are denominated in Renminbi. If our revenue denominated in Renminbi increases or expenses denominated in Renminbi
decrease in the future, we may need to convert a portion of our revenue into other currencies to meet our foreign currency
obligations, including, among others, payment of dividends declared, if any, in respect of our ADSs. Under China’s
existing foreign exchange regulations, foreign currency under current account transactions, such as dividend payments and
trade-related transactions are generally convertible. Accordingly, our operating subsidiaries in China are able to pay
dividends in foreign currencies without prior approval from the SAFE, by complying with certain procedural requirements. On
January 1, 2020, the Foreign Investment Law and its implementing regulations came into effect. According to the Foreign
Investment Law, a foreign investor may, in accordance with the law, freely transfer into or out of the PRC its contributions,
profits, capital earnings, income from asset disposal, intellectual property rights royalties acquired, compensation or
indemnity legally obtained, income from liquidation, etc., made or derived within the territory of the PRC in RMB or any
foreign currency, subject to no illegal restriction by any entity or individual in terms of the currency, amount, frequency
of such transfer into or out of the PRC, etc. The foreign exchange control in the field of foreign investment has been
continuously relaxed. However, in practice, laws and regulations regarding the legality of foreign exchange projects still
need to be followed. The SAFE issued the Circular on Further Promoting the Reform of Foreign Exchange Administration and
Improving Examination of Authenticity and Compliance on January 26, 2017, pursuant to which the SAFE restated the procedures
and reemphasized the bona-fide principle for banks to follow during their review of certain cross-border profit
remittance. We cannot assure you that the PRC government would not take further measures in the future to restrict access to
foreign currencies for current account transactions. Foreign exchange transactions by our operating subsidiaries in China
under capital accounts continue to be subject to significant foreign exchange controls and require the approval of, or
registration with, PRC governmental authorities. In particular, if one of our operating subsidiaries in China borrows foreign
currency loans from us or other foreign lenders, these loans must be registered with the SAFE.
If we finance our subsidiaries in China
by means of additional capital contributions, these capital contributions must be filed or approved by certain government authorities,
including the MOFCOM or its local counterparts. On August 29, 2008, the SAFE promulgated Circular 142, which used to regulate the
conversion by a foreign-invested company of foreign currency into Renminbi by restricting how the converted Renminbi may be
used. On March 30, 2015, the SAFE issued the Circular on Reforming the Administration Approach Regarding the Foreign Exchange Capital
Settlement of Foreign-invested Enterprises (“Circular 19”), which became effective on June 1, 2015 and replaced
Circular 142. Circular 19 provides that the conversion from foreign currency registered capital of foreign-invested enterprises
into the Renminbi capital may be at foreign-invested enterprises’ discretion, which means that the foreign currency registered
capital of foreign-invested enterprises for which the rights and interests of monetary contribution has been confirmed by the
local foreign exchange bureau (or the book-entry of monetary contribution has been registered) can be settled at the banks
based on the actual operational needs of the enterprises. However, Circular 19 does not materially change the restrictions on the
use of foreign currency registered capital of foreign-invested enterprises that Circular 142 has set forth. On June 9, 2016,
the SAFE promulgated the Circular on Reforming and Standardizing the Administrative Provisions on Capital Account Foreign Exchange
(“Circular 16”), which applies to all domestic enterprises in China. Circular 19 and Circular 16 continue to prohibit
foreign-invested enterprises from, among other things, spending Renminbi capital converted from its foreign currency registered
capital on expenditures beyond its business scope. Therefore, Circular 19 and Circular 16 may significantly limit the ability of
our operating subsidiaries in China to transfer and use Renminbi funds from its foreign currency denominated capital, which may
adversely affect our business, financial condition and results of operations.
The expiration or reduction of tax incentives by the PRC
government may have a material adverse effect on our operating results.
The CIT Law imposes a uniform tax rate
of 25% on all PRC enterprises, including foreign-invested enterprises, and eliminates or modifies most of the tax exemptions,
reductions and preferential treatments available under the previous tax laws and regulations. Under the CIT Law, enterprises that
were established before March 16, 2007 and already enjoyed preferential tax treatments have (i) in the case of preferential tax
rates, continued to enjoy such tax rates that were gradually increased to the new tax rates within five years from January 1, 2008
or, (ii) in the case of preferential tax exemptions or reductions for a specified term, continued to enjoy the preferential tax
holiday until the expiration of such term.
Jiangxi Jinko, Jiangxi Materials,
Zhejiang Jinko, Yuhuan Jinko, Haining Jinko and Xinjiang Jinko were designated by the relevant local authorities as
“High and New Technology Enterprises” under the CIT Law. Jiangxi Jinko, Jiangxi Materials and Xinjiang Jinko were
subject to a preferential tax rate of 15% for 2017, 2018 and 2019. Zhejiang Jinko enjoyed the preferential tax rate of 15% in
2015, 2016 and 2017. In 2018, Zhejiang Jinko successfully renewed this qualification and enjoyed the preferential tax rate of
15% in 2018 and 2019. Zhejiang Jinko will continue to enjoy such rate in 2020. Jiangxi Jinko and Jiangxi Materials enjoyed
the preferential tax rate of 15% in 2016, 2017 and 2018 and have successfully renewed this qualification for 2019, 2020 and
2021. Xinjiang Jinko was designated by the relevant local authorities as an “Enterprise in the Encouraged
Industry” and was subject to a preferential tax rate of 15% for 2017, 2018 and 2019, and Xinjiang Jinko was designated
by the relevant local authorities as a “High and New Technology Enterprise” in 2020. Yuhuan Jinko and Haining
Jinko enjoyed the preferential tax rate of 15% in 2019 and will continue to enjoy such rate in 2020 and 2021. However, we
cannot assure you that Zhejiang Jinko, Jiangxi Jinko, Jiangxi Materials, Xinjiang Jinko, Yuhuan Jinko or Haining Jinko will
continue to qualify as “High and New Technology Enterprises” or “Enterprise in the Encouraged
Industries” when subject to reevaluation in the near future. In addition, there are uncertainties on how the CIT Law
and its Implementation Rules will be enforced, and whether its future implementation will be consistent with its current
interpretation. If the corporate income tax rates of some of our PRC subsidiaries increase, our financial condition and
results of operations would be materially adversely affected.
According to the Provisional Regulation
of the PRC on Value-Added Tax as amended on November 19, 2017 and its implementing rules, and the Announcement on Relevant Policies
for Deepening Value-Added Tax Reform promulgated on March 20, 2019, effective from the date of April 1, 2019, gross proceeds from
sales and importation of goods and provision of services are generally subject to a value-added tax (“VAT”) at 13%,
instead of 16%, with exceptions for certain categories of goods that are taxed at a rate at 9%, instead of 10%.
The State Council promulgated the Circular
of the State Council on Cleaning up and Standardizing Preferential Policies on Tax and Other Aspects (“Circular 62”),
on November 27, 2014 in an effort to render the preferential policies on tax, non-tax income, fiscal expenditure, and other
aspects of the local government consistent with the PRC central laws and regulations. According to the Circular 62, the local tax
authorities shall conduct the special clean-up action, which leads to preferential policies violating PRC central laws and
regulations being declared ineffective and repealed and preferential policies not violating PRC central laws and regulations being
retained. In addition, the special clean-up action requires that all provincial governments and relevant authorities shall,
prior to the end of March 2015, report the outcome of the special clean-up action in respect of preferential policies on tax
and other aspects to the Ministry of Finance, and the Ministry of Finance shall then forward the outcome to the State Council for
final determination. On May 10, 2015, the State Council issued the Circular on Matters Relating to Preferential Policies for Tax
and Other Aspects (“Circular 25”), which suspended the implementation of special clean-up action of Circular 62.
Circular 25 provides that in respect of existing local preferential policies with specified time limit, such time limit shall still
apply; if there is no specified time limit, the local governments shall have the discretion to set up a transitional period to
adjust the policies. Furthermore, it provides that preferential tax policies stipulated in the agreements between local governments
and enterprises remain valid and the implemented part of the policies shall not be retrospectively affected. However, it is not
clear whether or not and when the special clean-up action will resume. The repeal of any preferential policy on tax and other
aspects may materially adversely affect our financial condition and business operations.
We face uncertainty with respect to indirect transfers
of equity interests in PRC tax resident enterprises by non-PRC holding companies.
Under the current PRC tax regulations,
indirect transfers of equity interests and other properties of PRC tax resident enterprises by non-PRC holding companies may
be subject to PRC tax. In accordance with the Announcement of the State Taxation Administration on Several Issues concerning the
Enterprise Income Tax on the Indirect Transfers of Properties by Non-Resident Enterprises (“STA Announcement 7”),
issued by the STA on February 3, 2015, if a non-PRC tax resident enterprise indirectly transfers equities and other properties
of a PRC tax resident enterprise and such indirect transfer will produce a result identical or substantially similar to direct
transfer of equity interests and other properties of the PRC tax resident enterprise, the non-PRC tax resident enterprise may
be subject to PRC withholding tax at a rate up to 10%. The Announcement of the State Taxation Administration on Matters Concerning
Withholding of Income Tax of Non-resident Enterprises at Source (“STA Announcement 37”), which was issued by the
STA on October 17, 2017 and became effective on December 1, 2017, renovates the principles and procedures concerning the indirect
equity transfer tax withholding for a non-PRC tax resident enterprise. Failure to comply with the tax payment obligations by
a non-PRC tax resident will result in penalties, including full payment of tax owed, fines and default interest on those tax.
According to STA Announcement 7,
where a non-resident enterprise indirectly transfers equity interests or other properties of PRC tax resident
enterprises, (“PRC Taxable Property”) to avoid its tax liabilities by implementing arrangements without
reasonable commercial purpose, such indirect transfer shall be re-characterized and recognized as a direct transfer of PRC
Taxable Property. As a result, gains derived from such indirect transfer and attributable to PRC Taxable Property may be
subject to PRC withholding tax at a rate of up to 10%. In the case of an indirect transfer of property of establishments of a
foreign enterprise in the PRC, the applicable tax rate would be 25%. STA Announcement 7 also illustrates certain
circumstances which would indicate a lack of reasonable commercial purpose. STA Announcement 7 further sets forth certain
“safe harbors” which would be deemed to have a reasonable commercial purpose. As a general principle, the STA
also issued the Administration of General Anti-Tax Avoidance (Trial Implementation) (“GATA”), which became
effective on February 1, 2015 and empowers the PRC tax authorities to apply special tax adjustments for “tax avoidance
arrangements.”
There is uncertainty as to the application
of STA Announcement 7 as well as the newly issued STA Announcement 37 and GATA. For example, it may be difficult to evaluate whether
or not the transaction has a reasonable commercial purpose, and such evaluation may be based on ambiguous criteria which have not
been formally declared or stated by tax authorities. As a result, any of our disposals or acquisitions of the equity interests
of non-PRC entities which indirectly hold PRC Taxable Property or any offshore transaction related to PRC Taxable Property,
including potential overseas restructuring, might be deemed an indirect transfer under PRC tax regulations. Therefore, we may be
at risk of being taxed under STA Announcement 7 and STA Announcement 37 and we may be required to expend valuable resources to
comply with STA Announcement 7 and STA Announcement 37 or to establish that we should not be taxed thereunder, which may materially
adversely affect our financial condition and results of operations.
As a foreign company, our acquisitions of PRC companies
may take longer and be subject to higher level of scrutiny by the PRC government, which may delay or prevent any intended acquisition.
Circular 10 established additional procedures
and requirements including the requirements that in certain instances foreign investors obtain MOFCOM’s approval when they
acquire equity or assets of a PRC domestic enterprise. According to Article 35 of the Foreign Investment Law, a security review
system for foreign investment will be established in the country, under which the security review shall be conducted for any foreign
investment affecting or having the possibility to affect national security. According to Article 40 of the Foreign Investment Law,
where any country or region takes any discriminatory prohibitive or restrictive measures, or other similar measures against the
People’s Republic of China in terms of investment, the People’s Republic of China may take corresponding measures against
the said country or region in light of the actual conditions. In the future, we may want to grow our business in part by acquiring
complementary businesses, although we do not have plans to do so at this time. Complying with Circular 10, the Foreign Investment
Law and other relevant regulations to complete these transactions could be time-consuming and costly, and could result in an
extensive review by the PRC government and its increased control over the terms of the transaction, and any required approval processes
may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain
our market share.
Our failure to make payments of statutory social welfare
and housing funds to our employees could adversely and materially affect our financial condition and results of operations.
According to the relevant PRC laws and
regulations, we are required to pay certain statutory social security benefits, including medical care, injury insurance, unemployment
insurance, maternity insurance and pension benefits, and housing funds, for our employees. Our failure to comply with these requirements
may subject us to monetary penalties imposed by the relevant PRC authorities and proceedings initiated by our employees, which
could materially adversely affect our business, financial condition and results of operations.
In line with local customary
practices, we have not made full contribution to the social insurance funds, and the contributions we made to the social
insurance funds met the requirement of the local minimum wage standard, instead of the employees’ actual salaries as
required, and have not made full contribution to the housing funds. We estimate the aggregate amount of unpaid social
security benefits and housing funds in China to be RMB597.2 million (US$88.0 million) as of September 30, 2020. We may be
required by the relevant PRC authorities to pay these statutory social security benefits and housing funds within a
designated time period. In addition, an employee is entitled to seek compensation by resorting to labor arbitration at the
labor arbitration center or filing a labor complaint with the labor administration bureau within a designated time period. We
have made provisions for such unpaid social security benefits and housing funds of our former and current PRC subsidiaries.
All employee participants in our share incentive plans who are domestic individual participants may be required to register
with SAFE. We may also face regulatory uncertainties that could restrict our ability to adopt additional option plans for our
directors and employees under PRC law.
All employees participating in our share incentive plans
who are domestic individual participants may be required to register with SAFE. We may also face regulatory uncertainties that
could restrict our ability to adopt additional option plans for our directors and employees under PRC law.
On February 15, 2012, SAFE released the
Stock Option Notice, which superseded the Application Procedures of Foreign Exchange Administration for Domestic Individuals Participating
in an Employee Stock Holding Plan or Stock Option Plan of an Overseas-Listed Company, issued by SAFE in 2007. According to
the Stock Option Notice, PRC individual participants include directors, supervisors, senior management personnel and other employees
who are PRC citizens (which includes citizens of Hong Kong, Macau and Taiwan) or foreign individuals who reside in the PRC for
12 months consecutively. Under the Stock Option Notice, PRC and foreign citizens who receive equity grants from an overseas listed
company are required, through a PRC agent or PRC subsidiary of such listed company, to register with SAFE and complete certain
other bank and reporting procedures. In addition, according to the Stock Option Notice, domestic individual participants must complete
the registration with SAFE or its local branch within three days rather than 10 days from the beginning of each quarter.
Failure to comply with such provisions
may subject us and the participants of our share incentive plans who are domestic individual participants to fines and legal sanctions
and prevent us from further granting options under our share incentive plans to our employees, and we may become subject to more
stringent review and approval processes with respect to our foreign-exchange activities, such as in regards to our PRC subsidiaries’
dividend payment to us or in regards to borrowing foreign currency, which could adversely affect our business operations.
It may be difficult to effect service of process on, or
to enforce any judgments obtained outside the PRC against, us, our directors, or our senior management members who live inside
the PRC.
A majority of our existing directors and
senior management members reside in the PRC and a substantial part of our assets and the assets of such persons are located in
the PRC. Accordingly, it may be difficult for investors to effect service of process on any of these persons or to enforce judgments
obtained outside of the PRC against us or any of these persons. The PRC does not have treaties providing for the reciprocal recognition
and enforcement of judgments awarded by courts in many developed countries, including the Cayman Islands, the United States and
the United Kingdom. Therefore, the recognition and enforcement in the PRC of judgments of a court in any of these jurisdictions
in relation to any matter not subject to a binding arbitration provision may be difficult or even impossible.
Higher labor costs and inflation in China may adversely
affect our business and our profitability.
Labor costs in China have risen in recent
years as a result of the enactment of new labor laws and social development. In addition, inflation in China has increased. According
to the National Bureau of Statistics of China, consumer price inflation in China was 1.6%, 2.1% and 2.9% in 2017, 2018 and 2019,
respectively. Because we purchase raw materials from suppliers in China, higher labor cost and inflation in China increases the
costs of labor and raw materials we must purchase for manufacturing. It is possible that China’s inflation rates may rise
further in 2017. As we expect our production staff to increase and our manufacturing operations to become more labor intensive
when we commence silicon wafer and solar module production, rising labor costs may increase our operating costs and therefore negatively
impact our profitability.
Because we source contractors and purchase
raw materials in China, higher labor cost and inflation in China increases the costs of labor and raw materials we procure for
production. In addition, our suppliers may also be affected by higher labor costs and inflation. Rising labor costs may increase
our operating costs and partially erode the cost advantage of our China-based operations and therefore negatively impact our
profitability.
Risks Related to This Offering and Ownership of Our ADSs
The market price for our ADSs has been volatile, which
could result in substantial losses to investors.
The market price for our ADSs has been
and may continue to be highly volatile and subject to wide fluctuations, which could result in substantial losses to investors.
The closing prices of our ADSs ranged from US$12.36 to US$39.76 per ADS in the nine months ended September 30, 2020. The price
of our ADSs may continue to fluctuate in response to factors including the following:
|
·
|
announcements of new products by us or our competitors;
|
|
·
|
technological breakthroughs in the solar and other renewable power industries;
|
|
·
|
reduction or elimination of government subsidies and economic incentives for the solar industry;
|
|
·
|
news regarding any gain or loss of customers by us;
|
|
·
|
news regarding recruitment or loss of key personnel by us or our competitors;
|
|
·
|
announcements of competitive developments, acquisitions or strategic alliances in our industry;
|
|
·
|
changes in the general condition of the global economy and credit markets;
|
|
·
|
general market conditions or other developments affecting us or our industry;
|
|
·
|
the operating and stock price performance of other companies, other industries and other events or factors beyond our control;
|
|
·
|
regulatory developments in our target markets affecting us, our customers or our competitors;
|
|
·
|
announcements regarding patent litigation or the issuance of patents to us or our competitors;
|
|
·
|
announcements of studies and reports relating to the conversion efficiencies of our products or those of our competitors;
|
|
·
|
actual or anticipated fluctuations in our quarterly results of operations;
|
|
·
|
changes in financial projections or estimates about our financial or operational performance by securities research analysts;
|
|
·
|
changes in the economic performance or market valuations of other solar power technology companies;
|
|
·
|
release or expiry of lock-up or other transfer restrictions on our outstanding ordinary shares or ADSs;
|
|
·
|
sales or perceived sales of additional ordinary shares or ADSs; and
|
|
·
|
commencement of, or our involvement in, litigation.
|
Any of these factors may result in large
and sudden changes in the volume and price at which our ADSs will trade.
We cannot give any assurance that
these factors will not occur in the future again. In addition, the securities market has from time to time experienced
significant price and volume fluctuations that are not related to the operating performance of particular companies.
Particularly, concerns over economic slowdown resulting from the COVID-19 pandemics have triggered a U.S. key market-wide
circuit breaker for several times since March 9, 2020, leading to a historic drop for the U.S. capital market. No guarantee
can be given on how the capital markets will react although actions have been taken worldwide to combat the spread of the
COVID-19. These market fluctuations may also have a material adverse effect on the market price of our ADSs. In the past,
following periods of volatility in the market price of their stock, many companies have been the subject of securities class
action litigation. If we become involved in similar securities class action litigation in the future, it could result in
substantial costs and diversion of our management’s attention and resources and could harm our stock price, business,
prospects, financial condition and results of operations.
Conversion of the convertible notes we offered may dilute
the ownership interest of existing shareholders, including holders who had previously converted their convertible notes.
The conversion of some or all of the convertible
notes will dilute the ownership interests of existing shareholders and existing holders of our ADSs. Any sales in the public market
of the ADSs issuable upon such conversion could adversely affect prevailing market prices of our ADSs. In addition, the existence
of the convertible notes may encourage short selling by market participants because the conversion of the convertible notes could
depress the price of our ADSs.
Provisions of the convertible notes we offered could also
discourage an acquisition of us by a third party.
Certain provisions of the convertible notes
could make it more difficult or more expensive for a third party to acquire us, or may even prevent a third party from acquiring
us. For example, in terms of the convertible notes we offered in 2019, upon the occurrence of certain transactions constituting
a fundamental change, holders of the convertible notes will have the right, at their option, to require us to repurchase all of
their convertible notes or any portion of the principal amount of the convertible notes in integral multiples of US$1,000. We may
also be required to increase the conversion rate for conversions in connection with certain fundamental changes. By discouraging
an acquisition of us by a third party, these provisions could have the effect of depriving the holders of our ordinary shares and
holders of our ADSs of an opportunity to sell their ordinary shares and ADSs, as applicable, at a premium over prevailing market
prices.
The zero strike call option transaction may affect the
value of the convertible notes and/or our ADSs and may result in market activity in the convertible notes and/or our ADSs.
In connection with the issuance of the
convertible notes in 2019, we entered into a zero strike call option transaction with the option counterparty, having an expiration
date of July 28, 2021. Pursuant to the zero strike call option transaction, we will pay a premium for the right to receive, without
further payment, a specified number of ADSs, with delivery thereof by the option counterparty at expiry (subject to our right to
cash settle), subject to early settlement of the zero strike call option transaction in whole or in part. In the case of physical
settlement at expiration or upon any early settlement, the option counterparty will deliver to us the number of ADSs underlying
the zero strike call option transaction or the portion thereof being settled early. In the case of cash settlement, the option
counterparty will pay us cash based on the price of our ADSs based on a valuation period prior to such settlement. The zero strike
call option transaction is intended to facilitate privately negotiated derivative transactions with respect to our ADSs between
the option counterparty (or its affiliate) and investors in the convertible notes by which those investors will be able to hedge
their investment in the convertible notes.
The option counterparty (or its affiliate)
may modify its hedge positions by entering into or unwinding derivative transactions with respect to the ADSs and/or purchasing
or selling ADSs or other securities of ours in secondary market transactions at any time following the pricing of the convertible
notes and shortly before or after the expiry or early settlement of the zero strike call option transaction, and, we have been
advised that the option counterparty may unwind its derivative transactions and/or purchase or sell ADSs in connection with the
expiry of the zero strike call option transaction or any early settlement of the zero strike call option transaction relating to
any conversion, repurchase or redemption of the convertible notes. Those activities could also increase (or reduce the size of
any decrease in) or decrease (or reduce the size of any increase in) the market price of our ADSs and/or the convertible notes.
We do not make any representation or prediction
as to the direction or magnitude of any potential effect that the transactions described above may have on the price of our ADSs
or the convertible notes nor how investors in the convertible notes may use, manage or unwind any privately negotiated derivative
transactions with the option counterparty. In addition, we do not make any representation that the option counterparty (or its
affiliate) will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
We are subject to counterparty risk with respect to the
zero strike call option transactions.
The option counterparty is a financial
institution, and we will be subject to the risk that the option counterparty may become insolvent, default or otherwise fail to
perform its obligations under the zero strike call option transaction. Our exposure to the credit risk of the option counterparty
will not be secured by any collateral and will depend on many factors but, generally, will increase if the market price of our
ADSs increases. If the option counterparty were to become insolvent, default or otherwise fail to perform its obligations under
the zero strike call option transaction, we may suffer more dilution than we currently anticipate with respect to the ADSs assuming
we physically settle the zero strike call option transaction. We can provide no assurance as to the financial stability or viability
of the option counterparty.
You may not receive dividends or other distributions on
our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make them available to you.
Under Cayman Islands law, we may only pay
dividends out of our profits or our share premium account provided always that we are able to pay our debts as they fall due in
the ordinary course of our business. Our ability to pay dividends will therefore depend on our ability to generate sufficient profits.
We cannot give any assurance that we will declare dividends of any amounts, at any rate or at all in the future. We have not paid
any dividends in the past. Future dividends, if any, will be paid at the discretion of our board of directors and will depend upon
our future operations and earnings, capital expenditure requirements, general financial conditions, legal and contractual restrictions
and other factors that our board of directors may deem relevant. Our shareholders may, by ordinary resolution, declare a dividend,
but no dividend may exceed the amount recommended by our board of directors. See “—Risks Related to Our Business and
Industry—We rely principally on dividends and other distributions on equity paid by our principal operating subsidiary, and
limitations on their ability to pay dividends to us could have a material adverse effect on our business and results of operations”
above for additional legal restrictions on the ability of our PRC subsidiaries to pay dividends to us.
The depositary of our ADSs has agreed to
pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities
underlying our ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of
ordinary shares your ADSs represent. However, the depositary is not responsible for making such distribution if it decides that
it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make
a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are
not properly registered or distributed under an applicable exemption from registration. The depositary may also determine that
it is not feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be less
than the cost of mailing such distributions. In these cases, the depositary may determine not to distribute such property. We have
no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such
distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights
or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value
for them if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline
in the value of our ADSs.
Holders of ADSs have fewer rights than shareholders and
must act through the depositary to exercise those rights.
As a holder of ADSs, you will not be treated
as one of our shareholders and you will not have shareholder rights. Instead, the depositary will be treated as the holder of the
shares underlying your ADSs. However, you may exercise some of the shareholders’ rights through the depositary, and you will
have the right to withdraw the shares underlying your ADSs from the deposit facility.
Holders of ADSs may only exercise the
voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement.
Under our current articles of association, the minimum notice period required to convene a general meeting is ten days. When
a general meeting is convened, you may not receive sufficient notice of a shareholders’ meeting to permit you to
withdraw the ordinary shares underlying your ADSs to allow you to cast your vote with respect to any specific matter. In
addition, the depositary and its agents may not be able to send voting instructions to you or carry out your voting
instructions in a timely manner. We plan to make all reasonable efforts to cause the depositary to extend voting rights to
you in a timely manner, but we cannot assure you that you will receive the voting materials in time to ensure that you can
instruct the depositary to vote your ADSs. Furthermore, the depositary and its agents will not be responsible for any failure
to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a
result, you may not be able to exercise your right to vote and you may lack recourse if the shares underlying your ADSs are
not voted as you requested. In addition, in your capacity as an ADS holder, you will not be able to call a shareholder
meeting.
You may be subject to limitations on transfers of your
ADSs.
Your ADSs are transferable on the books
of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient
in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers
of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deem it advisable
to do so because of any requirement of law or of any government or government body, or under any provision of the deposit agreement,
or for any other reason.
Our management has broad discretion over the use of proceeds
from this offering.
Our management will have significant discretion
in applying the net proceeds that we receive from this offering. Although we expect to use the net proceeds from this offering
for our production capacity expansion and other general corporate purposes, our board of directors retains significant discretion
with respect to the use of proceeds. We may use a portion of the net proceeds to fund, acquire or invest in complementary businesses
or technologies. The proceeds from this offering may be used in a manner that does not generate favorable returns. In addition,
if we use the proceeds for future acquisitions, there can be no assurance that we would successfully integrate any such acquisition
into our operations or that the acquired entity would perform as expected.
We are a Cayman Islands exempted company and, because
judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than that under U.S. law, you
may have less protection for your shareholder rights than you would under U.S. law.
Our corporate affairs are governed by our
memorandum and articles of association, as amended and restated from time to time, the Companies Law (2020 Revision) of the Cayman
Islands as amended from time to time and the common law of the Cayman Islands. The rights of shareholders to take action against
the directors, actions by minority shareholders and the fiduciary duties of our directors to us under Cayman Islands law are to
a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively
limited judicial precedent in the Cayman Islands as well as that from English common law, which has persuasive, but not binding,
authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman
Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United
States. In particular, the Cayman Islands have a less developed body of securities laws than the United States. In addition, some
U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands.
In addition, Cayman Islands companies may
not have standing to initiate a shareholder derivative action before federal courts of the United States.
As we are a Cayman Islands exempted
company and a substantial part of our consolidated assets are located outside of the United States and a substantial part of
our current operations are conducted in China, there is uncertainty as to whether the courts of the Cayman Islands or China
would recognize or enforce judgments of U.S. courts predicated upon the civil liability provisions of the securities laws of
the United States or any state against us and our officers and directors, most of whom are not residents of the United States
and the substantial majority of whose assets are located outside the United States. In addition, it is uncertain whether the
Cayman Islands or PRC courts would entertain original actions brought in the Cayman Islands or in China against us or our
officers and directors predicated on the federal securities laws of the United States. While there is no statutory
enforcement in the Cayman Islands of judgments obtained in the federal or state courts of the United States (and the Cayman
Islands are not a party to any treaties for the reciprocal enforcement or recognition of such judgments), a judgment obtained
in such jurisdiction will be recognized and enforced in the courts of the Cayman Islands at common law, without any
re-examination of the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Grand
Court of the Cayman Islands, provided such judgment (a) is given by a foreign court of competent jurisdiction, (b) imposes on
the judgment debtor a liability to pay a liquidated sum for which the judgment has been given, (c) is final, (d) is not in
respect of taxes, a fine or a penalty, and (e) was not obtained in a manner and is not of a kind the enforcement of which is
contrary to natural justice or the public policy of the Cayman Islands. However, the Cayman Islands courts are unlikely to
enforce a judgment obtained from the U.S. courts under civil liability provisions of the U.S. federal securities law if such
judgment is determined by the courts of the Cayman Islands to give rise to obligations to make payments that are penal or
punitive in nature. Because such a determination has not yet been made by a court of the Cayman Islands, it is uncertain
whether such civil liability judgments from U.S. courts would be enforceable in the Cayman Islands.
As a result of all of the above, shareholders
of a Cayman Islands company may have more difficulty in protecting their interests in the face of actions taken by our management,
members of the board of directors or controlling shareholders than they would as shareholders of a company incorporated in a jurisdiction
in the United States. For example, contrary to the general practice in most corporations incorporated in the United States, Cayman
Islands incorporated companies may not generally require that shareholders approve sales of all or substantially all of a company’s
assets. The limitations described above will also apply to the depositary who is treated as the holder of the shares underlying
your ADSs.
Our current articles of association contain anti-takeover
provisions that could prevent a change in control even if such takeover is beneficial to our shareholders.
Our current articles of association contain
provisions that could delay, defer or prevent a change in control of our company that could be beneficial to our shareholders.
These provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect directors
and take other corporate actions. As a result, these provisions could limit the price that investors are willing to pay in the
future for our ADSs. These provisions might also discourage a potential acquisition proposal or tender offer, even if the acquisition
proposal or tender offer is at a price above the then current market price of our ADSs. These provisions provide that our board
of directors has authority, without further action by our shareholders, to issue preferred shares in one or more series and to
fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications,
limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences,
any or all of which may be greater than the rights associated with our ordinary shares, in the form of ADSs or otherwise. Our board
of directors may decide to issue such preferred shares quickly with terms calculated to delay or prevent a change in control of
our company or make the removal of our management more difficult. If our board of directors decides to issue such preferred shares,
the price of our ADSs may fall and the voting and other rights of holders of our ordinary shares and ADSs may be materially adversely
affected.
We are a foreign private issuer within the meaning of
the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies.
Because we qualify as a foreign private
issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States
that are applicable to U.S. domestic issuers, including:
|
·
|
the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q, quarterly certifications
by the principal executive and financial officers, or current reports on Form 8-K;
|
|
·
|
the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security
registered under the Exchange Act;
|
|
·
|
the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities
and liability for insiders who profit from trades made in a short period of time; and
|
|
·
|
the selective disclosure rules by issuers of material nonpublic information under Regulation FD.
|
We are required to file an annual
report on Form 20-F within four months of the end of each financial year. Press releases relating to financial results and
material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or
furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic
issuers. As a result, you may not be afforded the same protections or information that would be made available to you were
you investing in a U.S. domestic issuer.
As an exempted company incorporated in the Cayman Islands,
we may adopt certain home country practices in relation to corporate governance matters. These practices may afford less protection
to shareholders than they would enjoy if we complied fully with the NYSE corporate governance listing standards.
As a non-U.S. company with ADSs listed
on the NYSE, we are subject to the NYSE corporate governance listing standards. However, in reliance on Section 303A.11 of the
NYSE Listed Company Manual, which permits a foreign private issuer to follow the corporate governance practices of its home country,
we have adopted certain corporate governance practices that may differ significantly from the NYSE corporate governance listing
standards. For example, we may include non-independent directors as members of our compensation committee and nominating and
corporate governance committee, and our independent directors are not required to hold regularly scheduled meetings at which only
independent directors are present. Such home country practice differs from the NYSE corporate governance listing standards, because
there are no specific provisions under the Companies Law (2020 Revision) of the Cayman Islands imposing such requirements. Accordingly,
executive directors, who may also be our major shareholders or representatives of our major shareholders, may have greater power
to make or influence major decisions than they would if we complied with all the NYSE corporate governance listing standards. While
we may adopt certain practices that are in compliance with the laws of the Cayman Islands, such practices may differ from more
stringent requirements imposed by the NYSE rules and as such, our shareholders may be afforded less protection under Cayman Islands
law than they would under the NYSE rules applicable to U.S. domestic issuers.
We may be a passive foreign investment company, which
could result in adverse U.S. federal income tax consequences to U.S. Holders of our ADSs or ordinary shares.
A non-U.S. corporation will be considered
a passive foreign investment company, which we refer to as a PFIC, for U.S. federal income tax purposes in any taxable year in
which either 75% or more of its gross income is “passive income” or 50% or more of its assets constitute “passive
assets” (generally based on the average of the quarterly value of the assets). The calculation of the value of our assets
will be based, in part, on the market value of our ordinary shares and ADSs, which is subject to change. The determination as to
whether a non-U.S. corporation is a PFIC is based upon the application of complex U.S. federal income tax rules (which are subject
to differing interpretations), the composition of income and assets of the non-U.S. corporation from time to time and the nature
of the activities performed by its officers and employees.
Based upon our current and projected income,
assets and activities, we do not expect to be considered a PFIC for our current taxable year or in the foreseeable future. However,
because the determination of whether we are a PFIC will be based upon the composition of our income, assets and the nature of our
business, as well as the income, assets and business of entities in which we hold at least a 25% interest, from time to time, and
because there are uncertainties in the application of the relevant rules, there can be no assurance that the United States Internal
Revenue Service will not take a contrary position.
If we are a PFIC for any taxable year during
which a U.S. Holder, as defined in “Taxation—U.S. Federal Income Taxation—Passive Foreign Investment Company”,
holds the ADSs or ordinary shares, the U.S. Holder might be subject to increased U.S. federal income tax liability and to additional
reporting obligations. See “Taxation—U.S. Federal Income Taxation—Passive Foreign Investment Company.”
U.S. Holders are encouraged to consult their own tax advisors regarding the applicability of the PFIC rules to their purchase,
ownership and disposition of the ADSs or ordinary shares.
We may issue additional ordinary shares, other equity
or equity-linked or debt securities, which may materially adversely affect the price of our ordinary shares or ADSs. Hedging
activities may depress the trading price of our ordinary shares.
In accordance with the terms of the
sales agreement, we may offer and sell ADSs having an aggregate gross sales price of up to US$100,000,000 from time to time.
This offering may have a dilutive effect on our earnings per share and the effect of depressing the market price for our
ADSs. We may issue additional equity, equity-linked or debt securities for a number of reasons, including to finance our
operations and business strategy (including in connection with acquisitions, strategic collaborations or other transactions),
to satisfy our obligations for the repayment of existing indebtedness, to adjust our ratio of debt to equity, to satisfy our
obligations upon the exercise of outstanding warrants or options or for other reasons. Any future issuances of equity
securities or equity-linked securities could substantially dilute your interests and may materially adversely affect the
price of our ordinary shares or ADSs. We cannot predict the timing or size of any future issuances or sales of equity,
equity-linked or debt securities, or the effect, if any, that such issuances or sales may have on the market price of our
ordinary shares or ADSs. Market conditions could require us to accept less favorable terms for the issuance of our securities
in the future.
Substantial future sales of our ordinary shares or ADSs
in the public market, or the perception that such sales could occur, could cause the price of our ordinary shares or ADSs to decline.
Sales of our ordinary shares or ADSs in
the public market, or the perception that such sales could occur, could cause the market price of our ordinary shares to decline.
As of September 30, 2020, we had 181,047,597 ordinary shares outstanding, excluding 233,753 ADSs representing 935,012 ordinary
shares reserved for future grants under our share incentive plans, and 2,945,840 ordinary shares as treasury stock. The number
of ordinary shares outstanding and available for sale will increase when our employees and former employees who are holders of
restricted share units and options to acquire our ordinary shares become entitled to the underlying shares under the terms of their
units or options. To the extent these shares are sold into the market, or are converted to ADSs which are sold into the market
place, the market price of our ordinary shares or ADSs could decline.
Your right to participate in any future rights offerings
may be limited, which may cause dilution to your holdings.
We may from time to time distribute rights
to our shareholders, including rights to acquire our securities. However, we cannot make these rights available in the United States
unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration
requirements is available. We are under no obligation to file a registration statement with respect to any such rights or securities
or to endeavor to cause a registration statement to be declared effective. Moreover, we may not be able to establish an exemption
from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience
dilution in your holdings.