China Power Outages Close Factories and Threaten Growth

High demand and soaring energy prices have forced some factories to shut down, adding further problems for already snarled global supply chains.,

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DONGGUAN, China — Power cuts and even blackouts have slowed or closed factories across China in recent days, adding a new threat to the country’s slowing economy and potentially further snarling global supply chains ahead of the busy Christmas shopping season in the West.

The outages have rippled across most of eastern China, where the bulk of the population lives and works. Some building managers have turned off elevators. Some municipal pumping stations have shut down, prompting one town to urge residents to store extra water for the next several months, though it later withdrew the advice.

There are several reasons electricity is suddenly in short supply in much of China. More regions of the world are reopening after pandemic-induced lockdowns, greatly increasing demand for China’s electricity-hungry export factories.

Export demand for aluminum, one of the most energy-intensive products, has been strong. Demand has also been robust for steel and cement, central to China’s vast construction programs.

As electricity demand has risen, it has also pushed up the price of coal to generate that electricity. But Chinese regulators have not let utilities raise rates enough to cover the rising cost of coal. So the utilities have been slow to operate their power plants for more hours.

In the city of Dongguan, a major manufacturing hub near Hong Kong, a shoe factory that employs 300 workers rented a generator last week for $10,000 a month to ensure that work could continue. Between the rental costs and the diesel fuel for powering it, electricity is now twice as expensive as when the factory was simply tapping the grid.

“This year is the worst year since we opened the factory nearly 20 years ago,” said Jack Tang, the factory’s general manager. Economists predicted that production interruptions at Chinese factories would make it harder for many stores in the West to restock empty shelves and could contribute to inflation in the coming months.

Three publicly traded Taiwanese electronics companies, including two suppliers to Apple and one to Tesla, issued statements on Sunday night warning that their factories were among those affected. Apple had no immediate comment, while Tesla did not respond to a request for comment.

It is not clear how long the power crunch will last. Experts in China predicted that officials would compensate by steering electricity away from energy-intensive heavy industries like steel, cement and aluminum, and said that might fix the problem.

State Grid, the government-run power distributor, said in a statement on Monday that it would guarantee supplies “and resolutely maintain the bottom line of people’s livelihoods, development and safety.”

Still, nationwide power shortages have prompted economists to reduce their estimates for China’s growth this year. Nomura, a Japanese financial institution, cut its forecast for economic expansion in the last three months of this year to 3 percent, from 4.4 percent.

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A power generator at a shoe factory in Dongguan. The rental and fuel costs make electricity from the device twice as expensive as when the factory was simply tapping the grid.Credit…Gilles Sabrie for The New York Times

The electricity shortage is starting to make supply chain problems worse. The sudden restart of the world economy has led to shortages of key components like computer chips and has helped provoke a mix-up in global shipping lines, putting in the wrong places too many containers and the ships that carry them.

Power supplies are little different. Compared with last year, electricity demand is growing this year in China at nearly twice its usual annual pace. Swelling orders for the smartphones, appliances, exercise equipment and other manufactured goods that China’s factories churn out has driven the rise.

China’s power problems are contributing in some part to higher prices elsewhere, like in Europe. Experts said that a surge in prices in China had drawn energy distributors to send ships laden with liquefied natural gas to Chinese ports, leaving others to scurry for further sources.

But the bulk of China’s power problems are unique to the country.

Two-thirds of China’s electricity comes from burning coal, which Beijing is trying to curb to address climate change. Coal prices have surged along with demand. But because the government keeps electricity prices low, particularly in residential areas, usage by homes and businesses has climbed regardless.

Faced with losing more money with each additional ton of coal they burn, some power plants have closed for maintenance in recent weeks, saying that this was needed for safety reasons. Many other power plants have been operating below full capacity, and have been leery of increasing generation when that would mean losing more money, said Lin Boqiang, dean of the China Institute for Energy Policy Studies at Xiamen University.

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A workshop producing shoe parts in Dongguan. Prices for the components have already increased by 30 to 50 percent this year compared with last year.Credit…Gilles Sabrie for The New York Times

China’s main economic planning agency, the National Development and Reform Commission, also ordered 20 large cities and provinces in late August to reduce energy consumption for the rest of the year. The regulators cited a need to make sure that the cities and provinces met full-year targets set by Beijing for their carbon dioxide emissions from the burning of fossil fuels.

Besides coal, hydroelectric dams supply much of the rest of China’s power, while wind turbines, solar panels and nuclear power plants play a growing role.

China’s difficulty in keeping the lights on and the faucets running poses a challenge for Xi Jinping, the country’s top leader, and the Chinese Communist Party. They have taken a triumphalist stance this year, emphasizing China’s success in quickly eliminating outbreaks of the coronavirus and in winning the release of a senior Huawei executive, Meng Wanzhou, in a dispute with the United States and Canada.

But Mr. Xi risks getting tagged for problems as well as successes. He has moved strongly to quell any opposition within the Communist Party and has extended its reach into more sectors of Chinese life. If people in China begin to point fingers, there are few others to blame.

China’s economic rebound from the coronavirus has been driven in large part by heavy investment in infrastructure as well as the rise in exports. Overall industrial use consumes 70 percent of the electricity in China, led by the mostly state-owned producers of steel, cement and aluminum.

“If those guys produce more, it has a huge impact on electricity demand,” Professor Lin said, adding that China’s economic minders would order those three industrial users to ease back.

Disruptions from power shortages have already been felt in Dongguan, a city at the heart of China’s southern manufacturing belt. Its factories produce everything from electronics to toys to sweaters.

The local power transmission authority in Houjie, a township in northwestern Dongguan, issued an order shutting off electricity to many factories from Wednesday through Sunday. On Monday morning, the suspension in industrial electricity service was extended at least through Tuesday night.

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Air-conditioners outside a worker dormitory in Dongguan. Factories in the city produce everything from electronics to toys to sweaters.Credit…Gilles Sabrie for The New York Times

The throaty roar of huge diesel generators rumbled on Monday morning through the streets and alleys of Houjie, where scores of five-story, concrete-walled factories are nestled among low-rise apartment buildings for migrant workers. Air-conditioners were not running as temperatures climbed into the 90s, and only a few fluorescent lights gleamed in some of the factories’ windows.

One of the noisy generators rumbled in a 20-foot yellow shipping container behind a factory where workers in bright blue and orange jumpsuits labored to assemble men’s and women’s leather shoes for American and European buyers.

Mr. Tang, the general manager, said his factory already faced especially strict power usage rules because it had been labeled by the government a “low-profit, high-energy-consuming factory.”

Along nearby alleys, a warren of small workshops was making insoles and other shoe components for assembly at Mr. Tang’s factory and other similar plants nearby. Prices for the components have already increased by 30 to 50 percent this year compared with last year as labor costs and raw material prices rise, Mr. Tang said.

“Many of us working in this line of business say that we are basically losing money this year,” he said at his factory on Monday morning, adding that power outages began this past summer.

Mr. Tang had to turn off his generator for two days last week after local residents filed noise complaints with the local government. He also rented a metal cage to cover the generator to reduce the din.

Some in the neighborhood, particularly shoe component manufacturers, were sympathetic, voicing a mixture of business pragmatism and nationalism.

“Although it’s a bit noisy, I understand it,” said Wang Weidong, the owner of a shoe insole processing workshop. “There’s no other way — we will answer the call of the country.”

Li You contributed research.

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