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China’s Power Shortage Is Threatening The Global Supply Chain

China’s power shortage is forcing factories to reduce output and threatens with decelerating the country’s economic recovery. The impact, expert...

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This story originally appeared on ValueWalk

China’s power shortage is forcing factories to reduce output and threatens with decelerating the country's economic recovery. The impact, experts say, will be felt across global supply chains ahead of the holiday season.

kepinator / Pixabay - Valuewalk

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China's Power Shortage

Limited air conditioning use, elevators that only operate to go to the upper floors, or the partial or total suspension of work in some industries; in recent weeks, China has faced serious power supply problems, forcing it to ration electricity and causing more than one blackout.

The situation, which affects a substantial part of the country, threatens to cause shortages of certain products before the holidays, and some analysts have already cut forecasts for Chinese economic growth this year.

Due to the power crunch, Chinese companies have been asked to reduce their energy consumption, as reported by CNN. Further, “supply has been cut to some homes, reportedly even trapping people in elevators.”

On Monday, the Global Times informed of a sudden and unprecedented power cut in the provinces of Heilongjiang, Jilin, and Liaoning in the northeast. The limited power “resulted in major disruptions to the daily lives of people and business operations.”

China’s power shortage has also affected the province of Guangdong, one of the country’s top shipping ports, while local authorities reported that several companies have started to decrease electricity demand by operating on a three-day-a-week basis.

What Is Behind?

There are several factors behind China’s power shortage. The first one is the high price of coal –which this month exceeded 1,000 yuan or $150 per ton– in a country still heavily reliant on the material.

Secondly, there is the increase in energy demand spurred by the awakening of other international economies hungry for Chinese exports, while China is attempting to reduce its carbon intensity by 3% this year –even though some provinces have already used most of their energy consumption quotas.

“Beijing's unprecedented determination to enforce energy consumption limits may be beneficial in the long term, but the short-term economic costs are substantial,” analysts at the Nomura group said.

For now, they suggest that the situation is going to last and the rationing will continue, maybe even until next year. These production problems, coupled with rising raw material prices, chip shortages, and delays at ports, suggest that there may be difficulties in meeting pre-Christmas demand, be it late-model clothes, toys, or phones.