China’s economic boom leaves manufacturing hubs short of power

China’s runaway economic recovery has been so successful that it has caused power shortages across dozens of its manufacturing and industrial hubs in the south of the country.

Factories across cities such as Guangzhou, Foshan and Dongguan, known for producing global consumer and high-tech products, have been ordered to use less power and even close for between one to three days a week to mitigate the shortfall.

Klaus Zenkel, chair of the EU Chamber of Commerce in South China, said that about 100 of the organisation’s companies were affected and further shortages risked having an adverse impact on foreign investment in the region.

“After the economic recovery post-pandemic, companies are very busy and have a lot of orders . . . Now some have been asked to shut down three days a week. It’s quite unreasonable,” Zenkel said. “It’s an infrastructure issue that needs to be handled immediately.”

As other economies struggle to return to growth, record demand for power from factories and industry has outstripped supply in Guangdong province, where the cities are located. The problem has been exacerbated by high temperatures as well as low rainfall in Yunnan, which Guangdong partly relies on for hydropower.

Analysts said the central government’s carbon emissions targets had also made local governments reluctant to expand their reliance on coal-fired power, forcing officials to ration electricity instead.

“With China’s carbon plan . . . local governments are very nervous about their use of coal and thermal power,” Shan Guo, Partner at Plenum China Research, said.

Lara Dong, from data provider IHS Markit, said limits on coal imports and domestic production was also a factor contributing to the shortages.

Factories are worried that they will be unable to fulfil their orders in time after the China Southern Power Grid Company said on Saturday that 21 cities and regions across Guangdong would be included in the rationing or restrictions on usage. Companies have to limit the power supply or their electricity will be cut off.

Mike Wang, the manager of an electronics factory in Dongguan hit by the shortages, said staff were “sweating profusely” through 36C days as they could not turn on the air conditioners and fans without breaching power usage limits.

“I am really worried now. I don’t know how to explain to clients [that their orders would be late],” he told the Financial Times. He said that power shortages had hobbled his factory’s efficiency by 20 to 30 per cent.

China has experienced one of the fastest economic recoveries in the world from Covid-19, driven mainly by its industrial and manufacturing sectors. Its economy grew 18.3 per cent in the first quarter of 2021 compared with the same period last year, though the growth rate was boosted by a low base in early 2020.

From January to April, the total electricity consumption of a group of cities in Guangdong, across the border from Hong Kong and Macau known as the “Greater Bay Area”, increased by nearly 30 per cent year on year, the power company said.

Provinces across China are under pressure to reduce their energy intensity — carbon dioxide emissions per unit of GDP — as part of central government efforts to reach peak carbon emissions by 2030 and reach “carbon neutrality” by 2060.

Dong said there was a risk of more rationing as the province approached its expected peak in demand in July or August.

Additional reporting Qianer Liu in Shenzhen and Emma Zhou in Beijing