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China Power Shortage Affect Manufacturing and Supply Chain in Q4 2021

China power shortage has made manufacturing activity unexpectedly slump in September. At least 20 provinces, including many industrial heartlands, have suffered power shortages in recent weeks, with some unplanned and indiscriminate cuts.

What has caused a power shortage in China?

The fundamental reasons for China’s electricity crisis are the high price of coal and Beijing’s green ambition by strictly limiting energy use. As the economy recovered from the pandemic, strong demand from producers and industry has driven coal prices to record highs, resulting in widespread power outages. Meanwhile, Beijing has attempted to tighten emissions standards to meet its climate target.

High coal price and energy consumption limit are the causes to China power shortage.
High coal price and energy consumption limit are the causes to China power shortage.

How does China power shortage impact manufacturing?

China power shortage is putting a strong impact on most economic sectors, including two major sectors, construction and manufacturing. These industries accounted for almost 70% of China’s electricity consumption last year and are crucial to the economy’s recovery in 2021, according to China’s National Bureau of Statistics.

In September, the Purchasing Managers’ Index (PMI), an indicator of economic health for the manufacturing sector, was 49.6, falling from 50.1 in August. The new orders sub-index fell for two consecutive months, “reflecting a slowdown in manufacturing activity and market demand”.

 All factories across China have to restrict their production activity, even some have to be closed completely.
All factories across China have to restrict their production activity, even some have to be closed completely.

According to Bloomberg, nearly half of China’s localities have exceeded the energy consumption target