Electricity Supply Issues in China
Electricity is suddenly in short supply across China. In recent days, factories began getting notices from their local electric utility that they were being forced to shut down heavy electrical demand during certain periods each week. We’re getting mixed signals from factories we work with regarding exactly what percentage of the workweek is affected. For example, in Dongguan factories must shut down their heavy machinery 1 – 2 days per week. In Foshan, factories must currently shut down heavy machinery from 8am to midnight. They can run full production between midnight and 8am. This policy by the central government was in place earlier this year, was lifted throughout the summer months, and is in place again.
Our factories are also telling us that it is unclear how long this situation will last. Speculation is that it will be for several months, likely through the end of the year.
A point of clarification: shutting down heavy electrical demand machinery (i.e. printing presses and molding machines) does not equate to factories shutting down altogether. Light manufacturing and assembly processes can still take place. Therefore, the relationship between these “shutdown” periods and production schedules is not linear. If the printing and molding operations for a production run has already been completed, then the schedule may not be materially affected. But production runs that have not yet commenced will no doubt experience delays in completion. We’re recommending that for any orders you want to ensure will ship out before the Chinese New Year holiday shutdown (1/15/22), the deadline for submitting orders will be 10/8.
The reasons why electricity is in short supply are numerous. 70% of China’s electrical usage is in the industrial sector. Manufacturing demand has been at unprecedented levels all through 2021. Furthermore, demand for steel, cement, and aluminum has skyrocketed as well across China. And these products require very heavy electrical usage.
As demand for electricity has followed increased manufacturing output, (electrical demand in China is growing at twice its usual annual pace) the cost of coal has risen. Two thirds of China’s electrical generating plants burn coal. But Chinese regulators have not allowed utilities to raise rates enough to cover the rising cost of coal. Also, China’s main economic planning agency, the National Development and Reform Commission, has ordered 20 large cities and provinces to reduce energy consumption for the rest of the year. The regulators cited a need to make sure that the cities and provinces met full-year targets set by Beijing for their carbon dioxide emissions from the burning of fossil fuels.
We’ll continue to keep you posted as this situation changes. Suffice it to say, between the challenges we’ve all been experiencing with freight forwarding and now the impact on production scheduling due to electrical supply issues, longer range planning for inventory needs certainly become all the more critical.