The impact of China’s energy crisis is beginning to reverberate around the world, hurting everyone from Toyota Motor Corporation to Australian sheep farmers and cardboard makers.
Not only will the severe power shortage of the world’s largest exporter affect its own growth, but the impact on supply chains could cripple the global economy struggling to get out of the epidemic.
Time could not be worse, as the shipping industry is already facing congested supply lines, delaying the delivery of clothing and toys for the year-end holiday. As China begins its harvest season, it raises concerns about sharply higher grocery bills.
“If power shortages and production cuts continue, they will become another factor causing global supply problems, especially if they start to affect the production of export goods,” said Louis Quiz, senior Asia economist at Oxford Economy.
Economists have already warned that China’s growth will be slow. At Citigroup, a vulnerability index indicates that exporters of manufactured goods and commodities are particularly at risk of weakening the Chinese economy. Neighboring countries such as Taiwan and Korea are sensitive, while metal exporters such as Australia and Chile and key trading partners such as Germany are somewhat exposed.
For consumers, the question is whether manufacturers can absorb higher costs or overcome them.
“This appears to be another shock to production not only for China but for the world as well,” said Craig Bodham, chief Chinese economist at Pantheon Macroeconomics. “Now the price increase is on a much broader basis — the result of China’s deeper involvement in global supply chains.”
Beijing seeks to supply electricity while trying to stabilize the situation. The impact of the world economy depends on how quickly those efforts pay off. Many Chinese factories have cut production for this week’s “Golden Week” holiday, and economists are watching closely to see if the power shortage will increase again.
Already, some industries are under pressure, and the damage they see will quickly be exposed to other sectors.
Consider the paper. The production of cardboard boxes and packaging materials has already suffered due to the need to touch the sky during epidemics. Now, temporary strikes in China have hit output even harder, leading to a 10% to 15% reduction in supplies for September and October, Rabopank said. This will add more problems to businesses that are already suffering from a global paper shortage.
Food inflation is heating up and the energy crisis is making it worse
The food supply chain is also at risk as the energy crisis makes the harvest season more challenging for the world’s largest agricultural producer. Global food prices have already risen for a decade, and there are growing concerns that the situation will worsen as China struggles to handle crops ranging from corn to soybeans to peanuts and cotton.
In recent weeks, many plants have been forced to shut down or reduce emissions to save electricity, while soybean processors have crushed beans to make oil for animal feed and cooking. Fertilizer prices, one of the most important components of agriculture, are skyrocketing, crushing farmers under the pressure of already rising costs.
Rabobank analysts wrote in a report this week that the processing industry will be hit harder than staple foods such as grains and meat. In the dairy sector, power cuts can disrupt the operation of milking machines, while pork suppliers may face pressure from refrigerated storage.
Outside of China, Australian sheep farmers face weak demand as they seek to sell their wool at auction. The Australian Broadcasting Corporation (IBC) said last week that the industry had seen Chinese factories cut production by up to 40% due to power outages.
China is the world’s largest manufacturer of gadgets from iPhones to gaming consoles and a major hub for the packaging of semiconductors used in autos and equipment.
Many companies have already experienced idle time at their Chinese facilities in accordance with local regulations. Begatron Corporation, Apple’s major partner, began energy-saving operations last month, while ASE Technology Holding Co., the world’s largest chip package, suspended production for several days.
The overall impact on the technology sector has so far been limited due to the regular shutdown of a week-long holiday. If the energy crisis worsens, it will hit production ahead of the crucial year-end shopping season. Industry, including Dell Technologies Inc. and Sony Group Corporation, could not bear another distribution shock after the epidemic-induced turmoil expanded the global chip shortage by 2022 and beyond.
Further deterioration of the semiconductor market will add to the headaches for automakers who have already crushed production due to chip shortages. The industry, which is high on the list of protected sectors in such times, has thus largely escaped the effects of the power crisis.
Still, there are some isolated cases. Toyota, which produces more than 1 million vehicles a year at its Tianjin and Guangzhou plant in China, says some of its operations have been affected by power shortages.
-Assisted by Jasmine NG, Debbie Wu and Peter Vergo.
(This story was not edited by NDTV staff and was automatically created from Syndicate Feed.)