The shortages could deliver a one-two punch that may knock China's fragile recovery off course, while spelling further trouble for global supply chains that are already struggling to cope.
"The power rationing will inevitably hurt the economy," said Yan Qin, lead carbon analyst for Refinitiv.
A shortage of electricity could reduce output across virtually every sector of the economy, including key construction and manufacturing industries. Such businesses used nearly 70% of China's electricity last year, according to the National Bureau of Statistics, and have been major drivers of the recovery in 2021.
Guangdong-based Chengde New Material, one of the country's largest stainless steel producers, told clients late last month that it would shut operations for two days per week until power no longer needs to be rationed. The company expects production volumes to decline by 20%, or as much as 10,000 tons of steel per month.
"The companies are not happy about this," said Klaus Zenkel, chair of the European Union Chamber of Commerce in South China. He said as many as 80 of the chamber's member companies might have been affected by the government's orders to suspend operations for a few days a week, adding that domestic manufacturers have been forced to stagger production, too. Some companies have even started renting expensive diesel generators to keep business going, he said.
The power rationing in key metal producing province Yunnan has even caused a decline in the supply of some types of metals, including aluminum and tin, according to government data and independent research.
The production cuts and prospect of missed delivery deadlines across China also risks stretching an already tight global supply chain. Guangdong alone is a manufacturing heartland that accounts for a quarter of China's total trade, including clothes, toys and electronics.
"It [the power shortage] might add to the shipping delays which can be felt around the globe," said Henning Gloystein, director of energy, climate and resources at Eurasia Group.
Adding to the pressure is that Guangdong has already seen its incredibly busy container ports clogged by a Covid outbreak. The shipping backlog could take months to clear and lead to shortages during the year-end holiday shopping season. That leaves little room for any additional problems, such as the power shortages.
"The power shortage may lead to work schedule rearrangement for local manufacturers, challenging the timeliness of delivery [and] therefore the rest of the supply chains," said Lara Dong, senior director for power and renewables in Greater China at IHS Markit.
Jinhua Huacheng Medical Appliance Co.,Ltd.
Manufactuer of disposable medical products: Electrosurgical pencil,grounding plate,skin stapler and ECG electrode
