China’s power crisis is forcing foreign companies to invest in factories elsewhere

A view of electricity pylons can be seen in Beijing, China on September 28, 2021.

Gong Wenbao | Visual China Group | Getty Images

BEIJING – Abrupt blackouts in parts of China are pushing some overseas companies to invest in other countries instead.

In the past few days, many local Chinese governments have restricted electricity consumption and restricted or even stopped factory production. The latest containments come as the country faces a shortage of coal for electricity generation and pressure on regional authorities to comply with central government demands to reduce carbon emissions.

“Some companies were just around the corner to invest in China. They decided not to move on now, ”said Johan Annell, partner at Asia Perspective, a consulting firm that works primarily with Northern European companies operating in East and Southeast Asia.

These planned foreign business investments were in the tens of millions, Annell said. While China is still a “very strong target” for manufacturing, companies are now investing in Southeast Asia, particularly Vietnam, instead.

“The uncertainty – nobody really knows the overall situation, how it will develop, how it will be implemented [in] the next few months in your city and province, “he said, citing the company’s discussions with around 100 companies.

Widespread power outages

In the past week, Chinese cities from the southern export hub of Guangdong to Shenyang, the capital of northeast Liaoning Province, have placed restrictions on electricity consumption with or without notice. The abrupt moves have led some Chinese economists to cut their GDP projections for the year.

In context, Guangdong Province produces the most exports in China, with about 23% of the total for that year through August, according to official data accessed via Wind Information. Liaoning Province ranks 16th in terms of export value, with 1.6% of the national total.

“That short-term uncertainty, that’s something you can deal with for a week or so and catch up with over time,” Annell said. “The bigger problem is this uncertainty. It may very well continue for the next two quarters.”

The leaders of the US and European business associations confirmed that the recent power outages are affecting investment decisions by foreign companies in China.

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“Businesses rely on political stability and predictability,” said Matt Margulies, vice president of China Operations for the US-China Business Council.

“You need to be notified in advance of any power interruption to ensure security and business continuity,” he said. “They also need to be consulted to find nuanced solutions that meet the needs of everyone involved. A unified approach will be disruptive, increase costs and reduce confidence in the market. “

China’s Ministry of Commerce has postponed a request for comment to a weekly press conference scheduled for Thursday afternoon.

Reports and anecdotes about electricity restrictions, especially in southern China, have been circulating in recent months, especially as the country is trying to reduce its CO2 emissions.

Local power grids have also come under pressure due to the scarcity of coal and the factories’ high demand for electricity to meet the strong global demand for Chinese goods. According to reports, the lack of electricity in some cities and factories led to blackouts last winter.

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