China’s power crunch pushes foreign businesses to invest in factories elsewhere
A view of electricity power pylons is seen on September 28, 2021 in Beijing, China.
Visual China Group | Visual China Group | Getty Images
BEIJING — Abrupt power cuts in parts of China are pushing some foreign companies to invest in other countries instead.
Many local Chinese government have reduced power consumption, which has limited or stopped factory production. These latest restrictions come at a time when the country is facing a shortage in coal for electricity generation. Regional authorities will be under greater pressure to follow the central government’s calls to cut carbon emissions.
Some companies weren’t sure whether to invest in China. Johan Annell of Asia Perspective said that they decided not to proceed with the project now. Asia Perspective is a consultancy firm that primarily works with Northern European businesses operating in East Asia and Southeast Asia.
These planned foreign business investments were in the tens of millions of U.S. dollars, Annell said. While China is still a “very strong destination” for manufacturing, he said the businesses are now looking to invest instead in Southeast Asia, particularly Vietnam.
“The uncertainty — nobody really knows the overall situation, how it’s going to develop, how it’s going to be implemented [in] the coming next few months in exactly your city and your province,” he said, citing the firm’s conversations with about 100 businesses.
In the last week, Chinese cities from those in the southern export hub of Guangdong to Shenyang, the capital of the northeastern province of Liaoning, have ordered restrictions on electricity use with little to no notice. The abrupt moves have prompted a few China economists to cut their GDP forecasts for the year.
The official figures accessed by Wind Information show that Guangdong has produced 23% more exports to China than the rest of China. With 1.6% of national export value, Liaoning ranks 16th.
Annell explained that the uncertainty is temporary and can be managed for up to a week. Then, it will become more manageable over time. The bigger issue with uncertainty is. These may continue for at least the next two quarters.
Leaders of European and American business associations confirmed that the recent power cut is affecting Chinese foreign investment decisions.
“Companies rely on policy stability and predictability,” said Matt Margulies, vice president for China operations at the U.S.-China Business Council.
He stated that companies need to be notified in advance of any disruptions to the power supply. This will ensure business continuity and safety. They should also be consulted to come up with nuanced solutions to meet all stakeholder needs. An all-or-nothing approach to the market will lead to disruptions, increased costs and create uncertainty.
China’s Ministry of Commerce rescheduled a Thursday afternoon press conference to discuss the issue.
Reports of power restrictions in China and South China were already circulated over the past few months as China tries to lower its carbon emissions.
The shortage of coal has put pressure on local power grids. This is in addition to the high global demand for electricity from China. The lack of power reportedly prompted blackouts in some cities and factories as far back as this past winter.