Factory owners in China and their customers worldwide have been told to prepare for power supply disruptions becoming part of life as President Xi Jinping doggedly weans the world’s second-biggest economy off its dependence on coal.
Months of shortages have cut power to households in China’s north-east and caused outages at factories across the country. But energy demand is still surging amid record demand for Chinese exports, and the problems will be compounded by the prospect of freezing temperatures in winter.
Despite a flurry of central government interventions, spearheaded by premier Li Keqiang, Chinese manufacturers and multinationals alike have been urged to boost energy efficiency in their factories and speed up investment in renewable energy.
Trueanalog Strictly OEM, a factory producing loudspeakers near Guangzhou, is emblematic of the crunch already hitting exporters from frequent outages. Owner Philip Richardson said his company was stuck “playing catch-up”.
“It’s the domino effect when you cut electricity: it directly affects the glues in the production line, we have to reset the jigging, it removes 20 to 30 percent of productivity from the day . . . It’s really a hassle,” he said.
Will Jones, chief operating officer for the British Home Enhancement Trade Association, said a third of members in the DIY and gardening sector reported that suppliers had extended their lead times. The knock-on effect, Jones said, was further inflationary pressure and a wider range of product shortages.
“This is having an impact on an already very challenging situation for suppliers with constraints on the availability of space on container ships and spiraling costs,” said Jones.
The Chinese government has taken a short-term pragmatic approach to address the energy shortfall by reverting to dirtier fuels, despite its longer-term promises to cut coal.
Over the past week, the government ordered a rapid expansion of coal mines. It also decreed sweeping market reforms, forcing all coal-fired power generators to sell into the wholesale market, allowing electricity prices to rise by as much as 20 percent, and lifting price caps for some big users.
The market overhaul is a “huge step” towards liberalization of the power sector, said David Fishman, an energy analyst at the Lantau Group.