China Pre-Olympic Shutdowns. No Juice = No Product.
An auto parts client called me today regarding a deal on which we are working, but quickly got off the line and did not call me back for another hour or so. He apologized and then explained. On Friday, "all" factories in Shandong province (China's second richest and second most populous province) were told to close for two to three days each week until after the Olympics. "Pollution?" I asked. "No, electricity," my client replied. After a brief discussion, however, we both concluded this has to be due more to a shortage of electricity than to the Olympics.
More to the point, however, this client was extremely concerned about not being able to get the product he needed when he needed it and he was already thinking/talking to me about alternatives. He then admitted his China factory counterpart who told him about the factory closings spoke pretty poor English and maybe this closure only applied to really high energy using factories. His parting shot was that _____[big name] auto manufacturer had told him they may just shut down for the summer.
For more on how electricity is affecting factory production in China this summer, and in Shandong in particular, check out these Bloomberg news article, "China's Aluminum Producers Agree to Cut Output by 10%" and "China Zinc, Lead Smelters to Reduce Output by 10%."
Would love comments from anyone with more information regarding shutdowns, how these shutdowns are impacting product delivery, and what is being done to cover for the missed deliveries.
Comments
It's well-known that aluminum processing takes tons of electricity.
Posted by: Mr. Ningbo | July 13, 2008 9:45 PM
Mr. Ningbo,
Yes. That is why in most countries they tend to congregate where there is abundant power. For instance, in Canada and the US, they are usually near hydroelectric power.
Posted by: dan | July 13, 2008 10:14 PM
Wonder if this is a sign that the same kinds of things that were happening in Shenzhen last year are happening morre widely, that is:
1) Previously favoured foreign investors are now getting the same amount of juice as everyone else
2) Individual factory generators are being shut down as they are overly polluting, thus boosting the strain on the grid
3) The previous generator building plan is way behind the curve and not likely to catch up any time soon
4) Household usuage is sky-rocketing in the summer, as always.
Posted by: FOARP | July 14, 2008 12:35 AM
I have a good story about the impact of the Olympics on business...
We had some furniture made last year...a large cabinet that cost us about RMB 800 (about USD 100 at the time) to have done. My wife wanted to move it to another room where it did not match the paint on the walls. So she called in a local furniture person to give us a bid on re-painting it.
The woman came in, took a long look at it and said, "OK, it would be 2,000 RMB to do it". Needless to say, my wife was shocked - "It only cost me 800 to have it made AND painted last year...why so much?"
The furniture woman conjured up a shocked look on her face and said, "Well, the Olympics, of course! Everything is more expensive now!"
I am still not sure what the Olympics has to do with the price of paint in China, but we didn't spend the money to find out!
Posted by: Kent Kedl | July 14, 2008 2:18 AM
LOL @ Mr Ningbo.
Yeah, Aluminium processing does take a large amount of electricity. But without being/having a friend in the Aluminium processing business I doubt it's common knowledge.
A whole bunch of stuff takes a lot of electricity. That's the present problem.
Posted by: Alex | July 14, 2008 7:56 AM
The Olympics in China has served a purpose similar to some catastrophes. It is a handy excuse for price increases, delays, and likely will result in many new relationships being formed. In a very sad way, the courts in New York during the months after 9/11 experienced much the same, and whenever counsel needed time extensions, be the true reason so related or not, they merely needed to say "9/11 Your Honor. You understand." Only some six months later did the judges caution counsel to move beyond this reason.
I expect that many streetwise "entrepreneurs" in Beijing and even elsewhere will do quite well during the Olympics, charging whatever the market will bear for food, transportation and other entertainments, all in the spirit of this special occasion. If power generation is diverted to Beijing to accomplish the goal of a successful Olympic season, which goal has become a national raison d'etre since the Olympics were awarded to Beijing, likely no one will be too vocal about it until after the fact, if such entities wish to receive their full allotments of power or other "entitlements" after the Olympics. In other words, grin and bear it.
Posted by: Law Office of Todd L. Platek | July 14, 2008 4:05 PM
My understanding is that often during the summer when it's hot and people increase their use of air conditioning and refrigeration power shortages are common. So companies often plan offsets (rather work monday to friday they will work friday, saturday and sunday, rest on monday and tuesday then back to work on wednesday). In this way work or production doesn't cease but delivery dates may change to irregular days such as saturday or sunday.
Posted by: laosan | July 14, 2008 10:07 PM
Looks like some growing pains in China
Posted by: Kudzu Fire | July 15, 2008 4:25 AM
we have 5 power generators in our factory.
4 MW installed..
this is to face the 3 days/week power cuts that are now common in Guangdong
Before it may affect only some cities and maybe only 1-2 days/week, now is worse and worse.
I hope that someone with more literary talent would write an article on some major newspaper/magazine on how much this country is getting close to a collapse
Signed: from Dongguan
Posted by: Roberto | July 15, 2008 8:05 PM
Coal prices are too low when combined with the new safety standards.
So utilities cannot get enough coal, nor can exporters like Australia supply enough.
So what is left but to cut back demand from big users, and divert what supplies there is to the Olympics sites?
Posted by: D | July 16, 2008 4:10 AM