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China power cuts disrupt industrial production, supply chains

On Behalf of | Sep 30, 2021 | Business Issues

The recent energy cuts disrupting residential and industrial areas throughout parts of China represent the latest challenge for U.S. and global businesses with operations in the world’s most populous country. Among the outcomes could lead to a shortage of global goods.

Those unexpected energy cuts occurred on Sept. 27 in three northeastern provinces as well as the southern province of Guangdong, considered a major industrial and shipping center. As a result of the outages in Guangdong province, the government ordered companies to limit energy consumption to reduce the demand for power. Some companies are doing so by remaining in production only two or three days a week.

Additional challenges expected

The extensive power cuts have hurt industrial output in key regions as manufacturers hope to meet global demand as more economies open up post-pandemic. Chinese-made goods are in much higher demand as a result, but the power cuts promise to disrupt production and supply chains as well as threaten growth.

Already confronted by delays due to shortages and shipping delays, critical global suppliers anticipate additional challenges for their businesses.

Business analysts speculate that the biggest factor contributing to the energy cuts is China President Xi Jinping’s drive to minimize carbon emissions and get the country on track to being carbon neutral by 2060. China is the world’s largest polluter and relies on coal for 56% of its power.

In the meantime, the price of coal has risen drastically, and industries face extreme pressure due to high energy prices.

This is not the first time that energy supply problems struck China in recent months. This summer, the country experienced its worst power crisis in a decade.

Perhaps this represents an anomaly or a sign of things to come. Regardless, U.S. companies doing business in China or that want to set up operations there must brace themselves for energy-related uncertainty.