In this episode…
Sofeast’s CEO Renaud Anjoran dives into what’s causing the power cuts around China that are affecting many manufacturers around the country in late 2021. Some manufacturers are having to close for days at a time or work night shifts, but normal people have also been affected, too.
Many importers will be wondering: “Is my supplier affected?” and “Will my order be delayed?”
Given that this is affecting most o the major manufacturing provinces the likelihood is that it could cause you problems, so he’ll also give you some tips on what to do if your supply chain is affected.
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00:00 – Introduction.
01:28 – What is happening in China to cause power cuts and restrictions? Local authorities are enforcing lower energy consumption due to a lack of energy and high demand, targeting heavy business users in particular. Businesses may be requested to stop operations for a while or operate during off-peak times at night or on certain weekdays. This has hit manufacturing, although even relatively low energy usage manufacturers, such as those doing simple assembly and not doing die casting, injection molding, etc, have been forced to close down for a period of time. Component suppliers are affected and some are complaining of delays. In addition, heavy industries like steel making, fertiliser production, aluminum smelting are certainly affected as they are heavy energy users. PCB and microprocessor manufacturers also consume quite a lot of energy and are affected.
05:32 – Why is the manufacturing sector so impacted by the power crunch? The authorities usually protect critical infrastructure and residential users, so it’s the industrial sector that gets hit by power outages. This has happened periodically, for instance around 10 years ago outages were a common cause of suppliers being delayed. Manufacturers are told in advance of authorities’ plans and can prepare for the outage in advance.
07:28 – What are the reasons behind this power crunch in China? There are a number of reasons for the current crunch:
- The global economic recovery has led to high demand for China-made goods, especially high volume products for home, office, etc, that are shipped by sea (this has also led to an unwelcome boom in sea freight costs), so factories there have been extremely busy.
- The Chinese economy is growing quickly and the non-export economy is using more electricity than before.
- A high demand for energy globally as lockdowns ease and economies recover has led to a higher demand for natural gas and coal, leading to much higher costs. Therefore, power generators in China are suffering under these high prices and could be holding back on generation in order not to be operating at a loss. In Guangdong province, demand for energy has been almost 20% higher this year compared to 2020, and this is not unusual among most provinces.
- China has committed to greatly reducing greenhouse gas emissions and want to show the world that they’re serious. Air pollution has been a problem and the government has already improved it, especially since 2017 when they forced many of the biggest polluters in the manufacturing industry to shut down or make changes to become cleaner. Since China is in a period of high economic growth they’re strictly controlling industrial polluters again, and power restrictions are one tool in the arsenal (they have been known to go easier during periods of weak growth).
- The efforts to get ‘Olympic Blue’ skies in time for the Winter Olympics in Beijing in February 2022. In order to present a great image to the world China will be taking measures to reduce emissions from polluting industries in the north of the country, so more power outages can be expected in the coming months (they followed a similar strategy before Beijing 2008 which was successful in delivering blue skies).
- As the prices of coal rise, China is buying up even more and stockpiling it in time for winter to protect its energy and heating provision during the colder months, but this will in turn increase coal prices further.
18:59 – What can importers with Chinese supply chains do to mitigate the bad effects? You need to plan for more supply chain disruption in the coming months. This probably means delays due to downtime caused by localized power restrictions, cost increases for raw materials and components (electricity costs are an excuse for suppliers and sub-suppliers to try to raise prices), and quality issues caused by tired production operators and quality inspectors working through the night.
Stockpiling some extra inventory and keeping a safety buffer in your timelines can help give you some breathing space if things go against you due to the power cuts.
21:29 – Conclusion: What does this all mean? The power cuts in China are just another issue affecting importers in late 2021. We’re also grappling with high shipping costs and delays and high prices of electronic components. too. It seems this will continue on into 2022.
- What’s behind the power crunch in China [Explainer] – Reuters
- China’s booming export economy in late 2021 – Yahoo! News
- Beijing’s December 2020 decree to bring emissions under control – Reuters
- Olympic Blue skies – Bloomberg
- China stockpiling coal – SPGlobal.com
- China’s power crisis puts squeeze on Apple’s supply chain, electronics manufacturing sector – SCMP
- Growing demand for and high costs of raw materials and components in China
- 5 Challenges Faced By Importers With Asian Supply Chains Going Into 2022 [Podcast]
- Exploring Why Sea Freight Is So Expensive In Summer ’21 [Podcast]
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