From iPhones to milk, passing through paper. There Chinese energy crisis it’s hitting everything and starting to spread like wildfire around the world, hitting giants such as Toyota and Apple, as well as Australian sheep farmers and cardboard box manufacturers.
The severe emergency due to electricity shortages – caused by the tightening of CO2 emissions standards and which has already resulted in several blackouts in the country (and Beijing is already partially turning back by increasing production from coal mines) – is bound to damage Chinese growth and the impact on supply chains could hurt the global economy as a whole as China is by far the largest exporter in the world.
The timing couldn’t be worse, with the shipping industry already tackling congested supply lines who are delaying deliveries of clothes and toys for the end of the year holidays. “If electricity shortages and production cuts continue, they could become another factor causing global supply problems, especially if they start to affect the production of export products,” said Louis Kuijs, senior economist of Asia at Oxford. Economics.
Stagflationary shock risk
Economists have already warned of slower growth in China. And neighbors like too Taiwan and Korea they are particularly vulnerable, as are the metal exporters such as Australia and Chile, and key trading partners such as Germany are exposed to this Chinese slowdown.
As for consumers, the question is whether producers will be able to absorb the higher costs or will they pass them on. “This looks like another stagflationary shock for the manufacturing sector, not just for China but for the whole world,” said Craig Botham, Chinese chief economist at Pantheon Macroeconomics. “Price increases are now quite large – a consequence of China’s deep involvement in global supply chains.”
From paper to iPhones
Some industries are already under pressure and the damage they are witnessing could quickly spread to other sectors. Let’s see which ones. Let’s start from paper. The production of cardboard boxes and packaging materials had already been severely tested by the surge in demand during the pandemic. Now, the lockdown in China has hit production even harder, leading to a possible 10% to 15% reduction in supply for September and October, according to Rabobank. This will add further complications to businesses already suffering from the global paper shortage. Food inflation is also heating up and the energy crisis could worsen the situation. Even the chain of food supply is at risk, as the energy crisis makes the harvest season more difficult for the world‘s largest agricultural producer. Global food prices have already jumped to a decade high, and there are concerns that the situation may worsen as China struggles to manage crops, from corn to soy to peanuts and cotton. In recent weeks, several plants have been forced to shut down or reduce production to conserve electricity, such as soy processors that crush beans to produce meal for animal feed and oil for cooking. Fertilizer prices, one of the most important elements of agriculture, are skyrocketing, bending farmers who are already bending under the pressure of rising costs.
The world of technology could also see important repercussions given that China is the world‘s largest production base for products such as the iPhone or various game consoles, as well as being an important center for packaging. semiconductors used in cars and appliances. Several companies have already experienced downtime at their Chinese facilities to comply with local restrictions. Eson Precision Engineering, a subsidiary of Foxconn – the world‘s largest iPhone assembler and key supplier of mechanical parts to Apple and Tesla – has suspended its production for several days in recent weeks at its facilities in the Chinese city of Kunshan in direct response to the city’s policy to stop production. supply of electricity for industrial use.
Pegatron Corp., Apple’s other key partner, said last month that it had begun to take energy-saving measures, while ASE Technology Holding Co., the world‘s largest chip maker, halted production for several days.
Looking at the automotive sector, the industry has so far been spared from the effects of the energy crisis. However, there have been some isolated cases. Toyota, which produces more than 1 million vehicles per year in China at plants concentrated around Tianjin and Guangzhou, said some of its operations were affected by the power shortage.
In dairy sector, power cuts could disrupt milking machines, while pork suppliers will face the pressure of a more limited supply of cold storage. The Australian farmers, who supply around 90% of the world‘s wool for clothing, suffered during the Covid-19 lockdown as garment factories and global retailers close. Outside of China, Australian sheep farmers are bracing for weaker demand just as they try to sell their wool at auctions. The industry has seen i Chinese mills reduce production by up to 40% due to power outages last week, Australian Broadcasting Corp. reported.