China is going dark. The Communist government of China says they’re running out of electricity due to the combination of a need to cut CO2 emissions and the rising price of oil and natural gas. Whether it’s a legitimate concern, or they’re doing it to crush factory output and put a kink in the global supply chain hose, the recent blackouts in at least three provinces should remind Congress, and American companies, that China is no longer the reliable business partner they thought it was.
It’s seriously time to look elsewhere. China is choking American supply chains, either by accident…or on purpose. In either case, it’s time to pick up the pace and move on.
Factory suppliers to Apple, Tesla and others have been forced to suspend or reduce operations, the New York Post reported on Monday.
This is a top-down, orchestrated power crunch, something Beijing is selling as a way to reduce CO2 emissions at a time when China does not seem to have the alternative to take over from coal.
Ironically, if China is so worried about CO2 emissions, why did they become the number one producer of newly built coal-fired power plants in 2020 only to ask facilities to produce less electricity from them?
As a result, cities are rationing electricity.
China’s industrial hub of Guangdong cut factory power across industries and the public was urged to reduce power usage for lighting and air conditioning. Parts of the northern provinces of Liaoning, Jilin and Heilongjiang suffered blackouts over the weekend.
Apple supplier Unimicron Technology said that three of its China subsidiaries stopped production from midday Sunday and won’t resume until midnight on Thursday in order to comply with the rations.
Eson Precision, a Foxconn affiliate, said it’s suspended production from Sunday until Friday at its facilities in the city of Kunshan, near Shanghai.
This could create supply chain bottlenecks worldwide, especially in the U.S., China’s biggest export market.
China hydropower and renewables have struggled to keep the lights on. Coal’s contribution to the country’s energy generation has risen back above 70%. But China is facing a supply crunch because it has banned imports of Australian coal, and some coal companies are complying with the government’s net-zero carbon goals. Plus, some of China’s coal mines were closed because of safety issues. Chinese coal inventory has dropped to multi-year lows, leaving it susceptible to more power outages in the months ahead.
China’s energy woes should be held up as another reason to bring supply chains out of China. While CPA imagines that many of those supply chains will be spread out throughout Southeast Asia and Mexico, the best way to be truly resilient is to bring important, critical supply chains back to the U.S.
For example, the semiconductor industry, hit with a shortage, is also lights-out in parts of China. Several chip packaging and testing service providers that supply major global companies like Intel, Nvidia, and Qualcomm received notices to suspend production at facilities in Jiangsu province for several days, Nikkei Asia reported.
China is not all that worried about hurting U.S. supply chains. They have changed their tune from being a place where foreign multinationals can easily manufacture and export, to one where China seeks to compete directly with those brands – be it Apple or Tesla – and sell directly to their home market, and Asia markets. Geely’s Polestar can replace Tesla, for example. Or rising demand for Huawei phones can replace Apple factory labor, for instance. China surely has the market for all of it.
Meanwhile, U.S. corporate interests remain wedded to China despite our market being just as attractive.
“The supply chains of U.S. multinationals are too lean and too China-dependent,” said CPA chief economist Jeff Ferry. “Twenty years ago it suited China to bend over backward to lure American companies to produce there. It’s becoming increasingly clear now that China wants to favor its own companies. U.S. companies urgently need to diversify production away from China.”
China may as well just fake a power crunch to hurt American supply chains. Without serious decoupling from the Chinese supply chain, Beijing must feel they have nothing to lose and everything to gain through events like these that prove to the U.S. that they are the indispensable nation. It will only backfire if there is serious remapping of American manufacturing work out of mainland China.