Power outages in China close factories, threaten growth
DONGGUAN, China – Power cuts and even blackouts have slowed down or closed factories across China in recent days, adding a new threat to the country’s slowing economy and potentially even more booming chains. global supplies ahead of the busy Christmas shopping season in the West.
The blackouts have reverberated across much of eastern China, where most of the population lives and works. Some building managers have turned off the elevators. Some municipal pumping stations have closed, prompting a city to urge residents to store additional water for the next few months, though it later withdrew the advisory.
There are several reasons why electricity is suddenly scarce in much of China. More regions of the world are reopening their doors after the pandemic-induced shutdowns, dramatically increasing demand for power-hungry Chinese export factories.
Export demand for aluminum, one of the most energy-intensive products, has been strong. Demand has also been strong for steel and cement, at the heart of China’s vast construction programs.
As the demand for electricity has increased, the price of coal to produce that electricity has also increased. But Chinese regulators have not let utilities raise their tariffs enough to cover the rising cost of coal. Utilities have therefore been slow to run their power plants for more hours.
In Dongguan City, a major manufacturing hub near Hong Kong, a shoe factory that employs 300 workers rented a generator last week for $ 10,000 a month to keep work going. Between the rental costs and the diesel to feed it, electricity is now twice as expensive as when the plant simply connected the network.
“This year is the worst year since we opened the plant almost 20 years ago,” said Jack Tang, general manager of the plant. Economists predicted that production disruptions at Chinese factories would make it more difficult for many Western stores to restock empty shelves and could contribute to inflation in the months to come.
Three Taiwanese publicly traded electronics companies, including two suppliers from Apple and one from Tesla, issued statements on Sunday evening warning that their factories were among those affected. Apple did not immediately comment, while Tesla did not respond to a request for comment.
It is not known how long the power crisis will last. Chinese experts predicted that authorities would compensate by diverting electricity from heavy, energy-intensive industries like steel, cement and aluminum, and said that this could solve the problem.
State Grid, the government-run electricity distributor, said in a statement Monday that it would guarantee supply “and resolutely maintain the results of livelihoods, development and human security.”
Yet nationwide electricity shortages have prompted economists to lower their estimates of China’s growth this year. Nomura, a Japanese financial institution, cut its forecast for economic expansion in the last three months of this year to 3%, from 4.4%.
The shortage of electricity is starting to exacerbate the problems in the supply chain. The sudden restart of the global economy has resulted in shortages of key components such as computer chips and has helped to confuse global shipping lines, placing too many containers and the ships that carry them in the wrong places.
The power supplies are little different. Compared to last year, electricity demand in China is increasing this year to nearly twice its usual annual rate. Higher orders for smartphones, home appliances, exercise equipment and other manufactured goods produced by Chinese factories drove the rise.
China’s electricity problems are partly contributing to higher prices elsewhere, such as in Europe. Experts said a price spike in China prompted energy distributors to send ships loaded with liquefied natural gas to Chinese ports, leaving others to rush to other sources.
But most of China’s electricity problems are unique to the country.
Two-thirds of China’s electricity comes from burning coal, which Beijing is trying to curb to tackle climate change. Coal prices have increased with demand. But because the government keeps electricity prices low, especially in residential areas, household and business use has increased regardless.
Faced with additional money wasted for every additional ton of coal they burn, some power plants have shut down for maintenance in recent weeks, saying it was necessary for safety reasons. Many other power plants are operating below full capacity and are wary of an increase in output when that would mean further loss of money, said Lin Boqiang, dean of the China Institute for Policy Studies Energy from Xiamen University.
China’s main economic planning agency, the National Development and Reform Commission, also ordered 20 major cities and provinces in late August to reduce their energy consumption for the rest of the year. Regulators cited the need to ensure cities and provinces meet annual targets set by Beijing for their carbon dioxide emissions from the combustion of fossil fuels.
Besides coal, hydroelectric dams provide much of the rest of China’s electricity, while wind turbines, solar panels and nuclear power plants play an increasing role.
China’s difficulty in keeping the lights on and the taps open poses a challenge for Xi Jinping, the country’s top leader, and the Chinese Communist Party. They have taken a triumphant stance this year, highlighting China’s success in quickly eliminating coronavirus outbreaks and securing the release of senior Huawei executive Meng Wanzhou in a dispute with the United States and Canada.
But Mr. Xi risks being labeled for problems as well as successes. It has acted strongly to suppress any opposition within the Communist Party and has extended its reach to more areas of Chinese life. If the Chinese start to point fingers, there are few others to blame.
China’s economic rebound after the coronavirus was largely due to heavy investment in infrastructure as well as increased exports. Global industrial use consumes 70 percent of China’s electricity, led by predominantly state-owned producers of steel, cement and aluminum.
“If these guys produce more, it has a huge impact on the demand for electricity,” said Prof Lin, adding that China’s economic officials would order these three industrial users to calm down.
Disruption due to power shortages has already been felt in Dongguan, in the heart of southern China’s manufacturing belt. Its factories produce everything from electronics to toys to sweaters.
The local power transmission authority in Houjie, a township in northwest Dongguan, issued an order to cut power to many factories from Wednesday to Sunday. Monday morning, the suspension of industrial electricity service was extended at least until Tuesday evening.
The hoarse roar of huge diesel generators echoed through the streets and alleys of Houjie on Monday morning, where dozens of five-story factories with concrete walls are nestled among low-rise apartment buildings for migrant workers. Air conditioners did not work as temperatures rose in the 90s, and only a few fluorescent lights were shining in some of the factory windows.
One of the loud generators rumbled into a 20-foot yellow shipping container behind a factory where workers dressed in bright blue and orange overalls were working to assemble men’s and women’s leather shoes for American and European buyers.
Mr. Tang, the general manager, said his factory already faces particularly strict energy use rules because the government called it a “low-profit, high-energy-consuming factory.” “.
Along the nearby alleys, a maze of small workshops made insoles and other shoe components for assembly at Mr. Tang’s factory and other similar factories nearby. Component prices are already up 30-50% from last year as labor costs and raw material prices rise, Tang said.
“A lot of us who work in this line of business say we’re basically losing money this year,” he said Monday morning at his factory, adding that the power outages started this summer.
Mr. Tang had to turn off his generator for two days last week after residents filed noise complaints with the local government. He also rented a metal cage to cover the generator to reduce the noise.
Some in the neighborhood, especially the shoe component makers, were sympathetic, expressing a mixture of commercial pragmatism and nationalism.
“Although it’s a bit loud, I understand it,” said Wang Weidong, owner of a shoe sole processing workshop. “There is no other way – we will answer the call of the country.”
Li you contributed research.