From circuit boards and electric components that end up in some Apple products, to patio furniture and plenty of other things. A lot of the goods we use every day are produced in China. And those factories have been getting messages from the local government that there’s not enough electricity. In addition, a lot of cities have had blackouts.
Right now, China is facing its biggest power crisis in more than a decade, which is leading to power outages and temporary factory closures in one of the world’s largest manufacturing hubs.
If factories in China continue having problems getting electricity, there could be ripple effects around the world. And the main problem is coal.
China is the world’s biggest consumer of the dirty fossil fuel and its dependency on it is exposing some pain points in the country’s transition to a greener future, while threatening to delay how quickly consumers will be able to get their made in China products.
To keep manufacturing hubs running, and the lights on for citizens, China needs a lot of power. And last year, about 60% of it came from burning coal. But recently, this demand has soared.
China recovered from the economic impact of the COVID-19 pandemic much earlier than other economies. So as a result, it has been producing and exporting more goods, which requires a lot more electricity usage. Its factories ramped up to make components for iPhones and video games gadgets that consumers globally wanted while stuck at home. But China hasn’t been able to source enough coal from domestic producers because there’s been safety issues in coal mines and anti-corruption probes.
At the same time, importing hasn’t been easy either. The country has imposed an unofficial ban on Australia coal imports which was one of the usual sources they would go to for coal. Since late 2020, China has barred coal from Australia after Canberra called for an independent global inquiry into the origins of COVID-19. So China has had to find other suppliers in Indonesia and Mongolia. But sourcing has been getting more difficult because now other parts of the world are beginning to emerge from the pandemic too. And there’s not enough coal to go around.
At present, coal prices have climbed to their highest level in a decade. When coal prices climb higher, it disincentives power plants in China from generating more power, even if the demand is there. That’s because until very recently, government rules prevented power producers from passing on higher costs to customers. So instead of firing up the generators, they have chosen to cut down production. All this has lead to widespread power shortages in China.
Several Apple suppliers including Concraft, an electronic component supplier, said it had to temporary suspend production for about five days in October. Eson precision which supplies mechanical parts, and Unimicron Technology which makes printed circuit boards, also stopped production for about five days. Meanwhile, more than 10 chip related companies in China’s eastern city, said they temporarily closed their facilities for about five days at the end of September.
China has a big climate goal and to reach that goal, the country has been using a target, electricity use must grow at a lower rate than GDP, but in the first half of this year, electricity use (16.2%) rose more than GDP (12.7%) and hitting Beijing’s target could become more difficult as winter approaches and demand for heating increases.
These power outages really show how reliant China is still on coal, despite their push to transition into greener energy sources and curb carbon emissions. Going into the future, they are going to be forced to balance some goals.
To balance these goals, Beijing hinted in mid-October that it would need to rethink its path and pacing for reaching its climate target. China’s leadership has said electricity curbs for high energy users, such as steel and cement will continue to stay. But to address immediate needs, the country stepped up its coal supplies while allowing prices of coal fired power to increase.
With all the unpredictability, factory owners are starting to think about how to ensure their own stable power source. But, if in the short run, the power crisis in China continues, the impact could hit global economies. It could weigh on manufacturing activity and economic growth in China, which subsequently could affect the rest of the world.