The effect of power shortages in China

The Chinese government published a national policy in September 2021 to limit the usage of electricity in high energy consumption industries, such as cement, metal raw material, and textile. Why has this happened? How can importers offset delays in production due to power shortages?

The main reasons are as follows according to our market research:

1. China’s thermal power generation exceeds 70%, while hydropower, nuclear and wind power make up less than 20%. Power plants typically use coal as their main power generation method. The combination of limiting mining in China and lower coal importing volumes in recent years has created a gap between the supply and demand of coal. Now, power plants must limit power output due to the increasing coal costs.

2. Due to higher export volumes in 2021 because of COVID-19, demand for electricity was 17% higher than 2020. The electric power grid must ensure it can bear this increasing demand for businesses, while also ensuring there is a enough power for citizens’ daily usage.

3. China has also made commitments to the global community to limit carbon emission. Policies are being enacted to achieve the following 30-year and 60-year goals: “strive for peak carbon dioxide emissions by 2030, and to achieve carbon neutrality by 2060.”

For these reasons, power usage is highly restricted. To ensure the stable operation of each province’s power grid and a reliable power supply, the Chinese government implemented an orderly power consumption plan in September 2021. 

These policies resulted in significant changes to the big energy consumption provinces in southern China, like Jiangsu, Zhejiang, Guangdong, and Fujian province. Factories in these regions—particularly those in the steel, chemical, and textile industries, along with their relevant upstream and downstream enterprises—can only utilize electricity a few days a week and are barred from usage for the rest of the week. The weekly electricity allowances vary by region.

As a result of the power limitation policies, raw material costs have been increasing at different rates and preparation time is longer than before as well.

While many provinces lifted electricity restriction policies beginning in 2022, it is expected that power limitations will continue intermittently for several years as the government has committed to a long-term policy on high energy consumption enterprises as mentioned above.

To overcome these challenges, CPG suggests:

– Placing orders earlier than normal and allocating more lead time
– Sourcing alternative suppliers as a backup in case your existing supplier cannot meet your purchasing volumes due to the power limitations
– Stay informed about power limitation policy developments and make decisions accordingly to your purchasing plan

 

While government policies have been set in good faith, there will be some lasting effects on the supply chain. Proper planning and staying in-the-know may help offset some of the challenges posed by these policies.

For more information on how CPG can help, contact us.

 

By Christina Zhao