The perfect storm – episode 3 China factory closures

Date: Friday 01 October 2021

---

In the latest of our “perfect storm” articles, we look at the latest impacts on the global supply chain.

In the past week, more than 100 companies have notified stock markets of production suspensions in China.

As the world starts to reopen after the pandemic, demand for Chinese goods is surging and the factories making them need a lot more power.

Rules imposed by Beijing as it attempts to make the country carbon neutral by 2060 have seen coal production slow, even as the country still relies on coal for more than half of its power.

And as electricity demand has risen, the price of coal has been pushed up.

But with the government strictly controlling electricity prices, coal-fired power plants are unwilling to operate at a loss, with many drastically reducing their output instead.

The power shortages in its industrial northeast have triggered a wave of factory closures.

Official figures have shown that in September 2021, Chinese factory activity shrunk to the lowest it had been since February 2020, when coronavirus lockdowns crippled the economy.

Concerns over the power cuts have contributed to global investment banks cutting their forecasts for the country's economic growth.

Goldman Sachs has estimated that as much as 44% of the country's industrial activity has been affected by power shortages. It now expects the world's second largest economy to expand by 7.8% this year, down from its previous prediction of 8.2%.

As many as 20 provinces are believed to be experiencing the crisis to some degree, with factories temporarily shuttered or working on short hours.

 

_{Sources: BBC, Reuters}

---