China’s Power Restrictions Seeping Into Supply Chains
China is restricting power in at least 20 provinces amid the country’s energy crisis. Production has halted at numerous factories like Apple and Tesla, while some businesses are operating by candlelight. The power restrictions result from shortening coal supplies and toughening emissions standards across the nation.
A Coal-Fueled Country
Coal consumption is at the root of the problem. About 57% of China’s power comes from coal, and consumption shot up due to COVID-19. To better recover from the pandemic, regulators loosened controls on coal-intensive sectors. However, coal has tripled in price and forced power plants to operate at a loss due to China’s cap on utility electricity rates. Since it’s no longer profitable to generate electricity, coal-fueled plants simply shut down.
Plants and factories have experienced a power crunch since March, but some residential areas are starting to feel the repercussions, too. The restrictions enacted earlier this year were driven by President Xi Jinping’s declaration at a 2020 United Nations summit on climate change. The president announced that China would cut its carbon dioxide emissions by more than 65%.
Pressure to Reduce Emissions
Since President Xi’s announcement, only 10 out of 30 mainland regions have reached their energy reduction targets. As a result, the National Development and Reform Commission (NDRC) announced tougher punishments for those who fail to meet the goal. Local governments in Zhejiang, Jiangsu, Yunnan, and Guangdong have asked factories to limit power usage or curb output. High power industries like steel, aluminium, and cement are getting hit the hardest by the restrictions. Machine parts and soft goods like textiles and toys may also face slower production times.
The national energy policy commission said it was working to stabilize coal contracts between mines and power plants. However, Chinese officials have not stated how long they expect the power crunch to last.
Plan Ahead Now
The current power restrictions have delayed production times, and businesses need to plan accordingly ahead of the holiday season. Orders at a Zhejiang textile firm are already taking at least twice as long to fill. Supply chain visibility is crucial right now as China finds the balance of bettering emissions and maintaining production output. With Blacksmith’s team on the ground in China, our clients can respond quickly to the changing situation. Need an expert team to help you pivot your supply chain? Contact us today.