Lack of electricity in China causes foreign businesses

Power shortage in China causes foreign businesses to “migrate” to Southeast Asia

The widespread power cut in China caused foreign businesses to accelerate the shift of investment to other countries.

According to Chinese state media, as many as 20 provinces/regions have taken measures to regulate electricity distribution since mid-September 2021. Photo: AFP

Many local governments in China have restricted electricity use or even ordered factories to shut down production for the past several days.

As reflected by CNBC, the measures to limit electricity use come as China faces a shortage of coal for power generation and local governments are under increasing pressure from the call. of the Chinese government on the implementation of carbon emission reductions.

“Some companies have encountered barriers to investing in China. They decided not to rush to invest right now,” said Johan Annell, senior partner at Asia Perspective said. Asia Perspective is investment consulting company for Nordic enterprises operating in East Asia and Southeast Asia.

Mr. Johan Annell revealed that tens of millions of dollars worth of business investments were planned to be poured into China by foreign businesses, because this is still an “attractive destination” for the manufacturing sector. However, energy-related uncertainties in China have led many investors to seek alternative investment options in Southeast Asia, especially Vietnam.

“The instability (electricity crisis) that practically nobody knows what the overall situation is, how it develops, how it will be resolved in the next few months in the exact city/province they invest in. “, Mr. Annell cited concerns in conversations with about 100 businesses intending to invest in China.

“Similar uncertainty is very likely over the next two quarters,” Mr. Annell said.

Last week, many cities in Guangdong – China’s biggest export “factory” – to Shenyang, the capital of Liaoning province, ordered electricity use restrictions with little notice. Of which, Guangdong accounted for about 23% of China’s total exports in the first eight months of the year, according to official data compiled by Wind Information. And Liaoning ranked 16th in terms of export value, accounting for 1.6% of China’s total export value.

The leaders of the American Business Association and the European Business Association confirmed that the China recently large-scale power cut are affecting the business investment decisions of foreign enterprises in this market.

“Companies have always relied on stability and predictability of policy,” said Matt Margulies, vice president of the US-China Business Council. “They need advance notice of power outages for safety and business continuity,” Margulies added.

“They also need to be consulted to come up with solutions that can meet the needs of all stakeholders. The ‘fit to size’ approach is disruptive, increases costs, and reduces costs. confidence in the market,” said a representative of the US-China Business Council.

Job China The sudden widespread power cut caused Chinese economic experts to lower their GDP growth forecast for the country in 2021.

Financial group Goldman Sachs on September 28 lowered its forecast for China’s economic growth in 2021 as widespread power cuts affected millions of homes and forced many factories, including some. supply to Apple and Tesla, had to stop production. Specifically, Goldman Sachs forecasts that the Chinese economy will grow about 7.8%, instead of the previous rate of 8.2%.

At least 17 provinces and regions – accounting for 66% of China’s GDP – have announced power cuts in recent months, mainly targeting “households” that use electricity for heavy industrial production, according to Bloomberg Intelligence. .

Coal is responsible for nearly 60% of the value of the Chinese economy. However, the world’s second largest economy is facing a severe shortage of coal because the supply has been disrupted due to the Covid-19 pandemic, plus pressure from the reduction of coal mining and use to achieve the target. greenhouse gas emissions, and falling coal imports amid trade tensions with Australia.

Previously, Nomura Financial Group also lowered China’s GDP growth forecast in 2021 due to the power crisis. Nomura’s chief economist Ting Lu downgraded China’s GDP growth forecast for 2021 to 7.7%, from 8.2% previously given, in the context of many factories in China having to closed to meet carbon reduction targets.

According to CNBC, Chinese President Xi Jinping announced in September 2020 that the country will achieve its highest carbon emission reduction target by 2030 and reach carbon neutral status by 2060. activate national and local plans to cut coal production and high-carbon processes.

Local governments in China are rushing to act after the National Development and Reform Commission (NDRC) announced mid-August 2021 that as many as 20 localities – accounting for about 70% of China’s GDP – have failed to meet their carbon-related targets.

Coal shortages and record coal prices have made “coal power plants unprofitable in most cases,” said David Fishman, China energy policy researcher at Lantau Economic Consulting. Group said. This expert explains that the current shortage of coal is due to inadequacies in China’s pricing system.