China’s energy crisis has come up as the latest shock to global supply chains as the Chinese factories, the world’s biggest exporter, are forced to minimize the use so as to conserve energy by curbing production.
It is reported that the Local governments are ordering the power cuts, trying to avoid missing targets for reducing energy and emissions intensity whereas some are facing an actual lack.
Lu Ting, chief China economist at Nomura Holdings Inc in Hong Kong said “Global markets will feel the pinch of a shortage of supply from textiles, toys to machine parts. The hottest topic about China will very soon shift from “Evergrande” to “Power Crunch.”
Pegatron Corp., a key assembler of the iPhone and a key partner for Apple Inc. reported on Monday that they have started to reduce their energy consumption in iPhone assembly operations in China. The company said that it’s taking energy-saving measures to comply with local government policies.
This energy crunch will cost China’s economy a big time because of other factors also into play such as tightening virus control measures and stringent restrictions in the property market. Resultantly, Nomura Holdings Ltd., China International Capital Corp. and Morgan Stanley have either reduced the GDP growth forecasts or have warned of slower growth because of the power crisis.
Clark Feng, owner of Vita Leisure Co. buys tents and furniture from Chinese manufacturers to sell overseas, stated that the electricity curbs in the eastern province of Zhejiang, where the company is based, have dealt another blow to businesses. This has made the Fabric makers in the province to hike prices and postpone taking new overseas orders further.
Feng is a statement said, “We were already struggling to ship goods overseas, and now with the production capacity restriction, it’s definitely going to be a huge mess. We already had to deal with so many uncertain factors, and now there’s one more. It will be harder to deliver orders, especially for the holiday season.”
According the the Stock Exchange Filing on Monday, in response to the local government’s order to cut electricity consumption, Yiwu Huading Nylon Co. Ltd., a maker of synthetic fabric nylon in Zhejiang has suspended half of its production capacity since Sept. 25. On the other hand the company is expecting the work shall resume normally by October 1 and will look to minimize the impact of the closure.
This crisis may force the companies to raise prices of goods for Chinese consumers and quicken inflation, the People’s Daily, the official newspaper of the Chinese Communist Party, said in an editorial published on Sunday. This would bring unnecessary disorder to the economy and society, it said.
To be sure, the full impact on production remains to be seen in the coming days.