On Sunday (September 26), Apple Inc supplier Unimicron Technology Corp informed that production has been halted at 3 Chinese factories in order to comply with the new emission standards set by the Communist regime, reported Reuters. The development threatens to break supply chains at the peak season for the sale of electronic goods and items in the country.
Reportedly, China has tightened the ’emission standards’ for heavy industries, leading to a decline in production and impacting the economic growth of the country. Unimicron Technology Corp, a supplier to Apple Inc, has stopped production in its factories starting from September 26 midday to September 30 night. In a statement, it said that the decision was taken to comply with the ‘electricity limiting policy’ of China.
Foxconn affiliate Eson Precision Ind Co Ltd also halted its production in Kunshan city from September 26 onwards. Citing sources, Reuters reported that the impact of the decision has been ‘very small’ in its factory in Kunshan and other parts of China. Concraft Holding Co Ltd has also stopped production for 5 days in light of the new energy policy. Concraft supplies speaker components for Apples’ iPhone.
Supply-demand diparity of coal and its impact
Besides the new emission standards, the situation has been further aggravated due to the coal supply shortage, and its high prices. Reuters reported that the electricity demands of manufacturers such as Apple and Tesla had led to supply-demand disparity, thereby prompting the Chinese government to intervene and curb the use of coal. This culminated in long blackouts in Changchun city while shops in Northeastern China was forced to use candles and shut down malls.
In regions with freezing cold temperatures, the National Energy Administration (NEA) assured to provide basic power supply to keep houses warm. Reuters reported that the power crunch has been grim in Liaoning province, thereby prompting the State Grid Corp to impose powers cuts in both residential and industrial areas last week. Similarly, Huludao city residents have been directed to not use high electricity consuming products such as microwave ovens and water heaters during the peak period. In Harbin city, malls are forced to shut down before the dusk sets in at around 4 pm.
The ongoing power crunch in China has raised concerns of economic slowdown in the country with a hike in coal prices, restrictions on tech and property sectors. The industrial sector showed signs of recovery from the impact of the deadly Wuhan Coronavirus pandemic in China. However, the resultant ‘pickup’ of production activity led to high demand for coal supplies, the eventual government intervention and tightening of emission standards. China has set its energy goals for 2021 and had vowed to reduce energy consumption by 3% this year. However, only 10 out of 30 regions in Mainland China have been able to meet the goals.
Factors that influencued China’s energy curbs
Interstingly, total power generation for the month of August 2021 was 10.1% higher as compared to last year. It was even 15% higher for the same period in 2019. However, the increased production also led to high toxic emissions, surpassing China’s pre-pandemic levels. China which seeks to become carbon neutral in future-directed the factories to reduce production or bring down power usage in provinces such as Zhejiang, Jiangsu, Yunnan and Guangdong provinces. Notices were sent to heavy industries to limit power usage during peak periods (between 7 am-11 pm) or shut down production for 2-3 days each week. Owing to trade dispute with Australia, China was denied coal shipments, which further complicated the problem.
How tech giants are facing the brunt of China’s new policy?
Reuters reported that the power crunch in China has begun to affect tech manufacturers in the eastern and southeastern coasts of the country. Firms such as Tesla and Apple have been facing the brunt of it. About 30 Taiwanese firms with Chinese operations and 15 indigenous Chinese firms had mentioned power curbs hampering production activity in their exchange filings.
Citing Morgan Stanley, Reuters emphasised that the impact is also visible in the aluminium and cement industries, where production capacity fell by 7% and 29% respectively. It is expected that the production of glass, paper, furniture, dyes and soymeal will also be affected. Economic analysts are now projecting a lower growth rate for China this year. The country’s GDP might fall by 1% if trends continue for a longer period, warned Morgan Stanley.
Financial services company, Nomura, decreased China’s GDP forecast from 8.2% to 7.7% for the full year. On September 24, it stated, “The power-supply shock in the world’s second-biggest economy and the biggest manufacturer will ripple through and impact global markets.” In the previous week, a meeting was held by Chinese coal producers to stall price-hike and meet demands.
