From iPhones to Australian wool, China’s energy crisis is starting to pinch the global economy
- The knock-on impact to supply chains from China’s energy crisis could crimp a global economy struggling to emerge from the pandemic
- The electricity crunch is starting to be felt in industries ranging from farming to semiconductor and car production
The hit from China’s energy crunch is starting to ripple throughout the globe, hurting everyone from Toyota Motor to Australian sheep farmers and makers of cardboard boxes.
“If the electricity shortages and production cuts continue, they could become yet another factor causing global supply-side problems, especially if they start to affect the production of export products,” said Louis Kuijs, senior Asia economist at Oxford Economics.
Chinese manufacturing thrown into disarray as country's electricity crisis rolls on
As for consumers, the question is whether manufacturers will be able to absorb higher costs or will pass them along.
“This is looking like another stagflationary shock for manufacturing, not just for China but for the world,” said Craig Botham, chief China economist at Pantheon Macroeconomics. “The price increases by now are pretty broad-based – a consequence of China’s deep involvement in global supply chains.”
Already, though, some industries are under pressure, and the damage they are seeing could quickly fan out to other sectors.
Consider paper. Production of cardboard boxes and packing materials was already strained by skyrocketing demand during the pandemic. Now, temporary shutdowns in China have hit output even harder, leading to a possible 10 per cent to 15 per cent reduction in supply for September and October, according to Rabobank. That will add further complications to businesses already suffering from the global paper shortage.
In recent weeks, several plants were forced to shut or reduce output to conserve electricity, such as soybean processors that crush beans to produce meal for animal feed and oil for cooking. Prices for fertiliser, one of the most important elements of agriculture, are skyrocketing, slamming farmers already buckling under the strain of rising costs.
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The processing industry is set to be more severely affected than staples such as grains and meat, Rabobank analysts wrote in a report this week. In the dairy sector, power cuts could disrupt the operation of milking machines, while pork suppliers will face pressure from tighter supply of cold storage.
Outside China, Australian sheep farmers are bracing for weaker demand just as they seek to sell their wool at auctions. The industry saw Chinese mills reduce production by up to 40 per cent due to power cuts last week, the Australian Broadcasting Corporation reported.
The tech world could also see a dramatic hit, given that China is the world’s biggest production base for gadgets from iPhones to gaming consoles, and a major centre for the packaging of semiconductors used in cars and appliances.
Several companies have already experienced downtime at their Chinese facilities to comply with local restrictions. Pegatron, a key partner for Apple, said last month it began to adopt energy-saving measures, while ASE Technology Holding, the world’s biggest chip packager, halted production for several days.
Any further deterioration of the semiconductor market would also add headaches for carmakers, who have already seen production crunched by the chip shortage. The industry, which is high on the list of protected sectors in times like these, has thus far largely been spared from the effects of the power crisis.
Still, there have been some isolated instances. Toyota, which produces more than 1 million vehicles a year in China at plants centred around Tianjin and Guangzhou, has said some of its operations have been impacted by the power shortages.