Slow-moving factories, workers who “can no longer ensure normal production”, machines stopped … For several months, power cuts have threatened growth and affected the supply chains of factories in southern China.
Electricity supply suspensions have already hit some 20 provinces to varying degrees in recent months. The reasons ? They are numerous but mainly linked to the heavy dependence of the Asian giant on coal – which provides 60% of its electricity production.
“The workshop of the world”
The price of this coal is now at record levels. The authorities also carry out preventive rationing in order to achieve environmental objectives in terms of limiting polluting emissions. Main victim so far: industry. In the southern province of Guangdong, sometimes nicknamed “the workshop of the world” because of its thousands of electronic products and textile factories, the cuts are felt hard. Machines are shut down and workers have to reduce their working hours or work only at night – when restrictions are looser.
“Our contractors are being asked to use night shifts or run their generators for production,” said Sherman Chan, deputy general manager of Express Luck, a TV manufacturer based in Shenzhen. “But as they have to invest additional capital, our costs are also increasing. These rising fees are straining supply chains, already under pressure with overflowing order books due to the economic recovery in the West. The result: from snack giant Toly Bread to suppliers to automaker Tesla, a number of companies have already announced production delays.
Cuts in residential neighborhoods
In Dongguan, a sprawling factory town where millions of workers work, many employees have had to revise their schedules. “Yesterday we had to work at night. And it’s the same today, ”laments Mr. Cui, a handler in a shoe factory forced to limit production. “Of course we are not happy. But we adapt to the schedules, ”he explains, while refusing to reveal his full name. At a pipe factory, Ms. Xu, an employee, estimates that power outages caused production to drop by about 40% in September, especially as the machines need several hours after ignition before they are operational. “We can no longer ensure normal production,” she says.
The authorities are trying to defuse popular discontent. The public electricity supplier pledged Tuesday to guarantee the supply of residential areas, a mission described as “priority political task”. The Beijing authorities have they presented power cuts in some small residential areas of the capital as “maintenance”. And in Shanghai, the town hall canceled the traditional big sound and light show scheduled for Thursday evening on the eve of the National Day, officially for “security” reasons.
China’s growth threatened
These cuts come as energy demand in China, where the economy has largely recovered since spring 2020, now exceeds pre-pandemic levels. Beijing’s restrictions on Australian coal imports, amid diplomatic quarrels with Canberra, are not helping. “The main culprits are the global energy shortage and state control of electricity prices in China,” said Julian Evans-Pritchard, analyst at Capital Economics, in a note.
“Coal and natural gas prices have soared everywhere due to weather conditions and supply chain disruptions,” he says. China controls the prices of electricity for users, so that they are not too high. The rise in the cost of coal is therefore mainly reflected in the operators of the power stations. The cuts have reached such a level that they now threaten the country’s growth. Several international banks such as Goldman Sachs or Nomura have lowered their annual growth forecasts for Chinese GDP this week.
