Usually full of bustling stalls showcasing everything from Christmas decorations to machine parts, China’s famed Yiwu International Trade Market is operating at a much slower pace today.

Escalators and air-conditioning have stopped working inside the sprawling 4-million-square-metre (43 million square feet) complex, and store owners, starved of business thanks to the coronavirus pandemic, snooze in their shops amid the stifling heat.

Yiwu, dubbed China’s manufacturing showroom, was hard hit by the coronavirus pandemic, with travel restrictions leaving foreign buyers unable to visit the trade-dependent city.

But now, it faces a new challenge: power rationing triggered by a crippling electricity crunch that has affected swathes of the world’s No 2 economy.

Not far from the market, in Yiwu’s industrial estates, factory owners fret about more disruptions to production amid the drone of generators, running around the clock to keep the machines running.

“It feels like people have no way of making a living,” said He Meiling, who owns a packaging factory in Yiwu that is only operating at half capacity due to power restrictions.

“The market is messed up, very messed up. Raw material prices have skyrocketed, workers’ wages keep increasing and rent is going up, like the price of everything else, but production is restricted and our earnings are shrinking.

“It looks like a dead end.”

As factories close and production slows, China’s extensive supply chains, barely recovered from the onslaught of the Covid-19 pandemic last year, are once again unravelling, causing supply bottlenecks and shortages.

Reduced production capacity and rising raw material costs have forced He to stop taking urgent orders. The price of PVC alone has increased by more than 50 per cent in the past year, while the diesel needed to run generators is too expensive, she said.
Small businesses like mine might not be able to survive He Meiling

As her profits have been squeezed, the Yiwu businesswoman has become increasingly worried about the fate of her company.

“Small businesses like mine might not be able to survive,” she said.

“If a new policy comes out by the end of this month saying things won’t change for a while, I will have to lay off workers. I won’t be able to afford them.”

Even for factories that have pushed on with the help of diesel-guzzling generators, business has been difficult.

Yiwu resident Ding Anding, whose two siblings own factories manufacturing socks and scarves, respectively, said both of their operations were “bleeding a little” because of the power crisis.

“Although they are both using power generators to keep up production, they can’t operate 24/7 like factories used to because of the noise,” he said. “They have to stop working at night if they are near residential areas, or people will complain.”

Because factories cannot work without electricity, unlike retailers in Yiwu who can put up without air-conditioning, factory jobs are being cut.

In Yuhuan, a county-level city also in southeastern Zhejiang province, factories have reduced production to two or three days a week, but many employees are working 15-hour days to deal with the backlog of orders.

Yao Xiangmin, who is employed in a car parts factory, said his income had been slashed by at least 40 per cent.

“If I don’t work overtime, I make no money,” said Yao, after finishing a gruelling shift at midnight. “There’s nothing I can do, I can only hope that things get back to normal soon.”

Barely able to pay his mortgage, he and other workers have started looking for new jobs.

For many small businesses in Zhejiang province, the power crisis is adding to a string of existing cost pressures that have buffeted China’s manufacturing sector since the pandemic began.

With travel constrained by Covid-related lockdowns and social distancing, Lu Aisu’s suitcase company has seen demand fall off a cliff. Rising raw material costs and power rationing have only added to the pain.

Lu, who has run the business with her husband for three decades, has watched other companies go bankrupt over the past two years – and desperately hopes she is not next.

“Everyone is going through a difficult time,” said Lu, surrounded by suitcases in her store at Yiwu International Trade Market.

“Consumers have less money to spend, we sell fewer goods and the factories receive fewer orders, so production goes down. We are all just trying to survive, while hoping things will get better.”

But the power crisis has not affected businesses equally. Different areas have different rations and bigger companies generally fare better than small ones.

Large companies like SANY Heavy Industry, a multinational heavy equipment manufacturer, have been relatively unaffected.

Li Liangjian, general manager of the firm’s intelligent manufacturing division in Beijing, said their factory in the capital region has adapted operations at night to avoid peak power consumption.

“Much of our production is at night, since the robot will not get tired or be emotional,” he said. “On some occasions we even don’t have to turn on the lights, so we put [production] at night, trying not to compete with the household electricity consumption.”

But many small companies have not been so well prepared. Many firms have complained about poor communication and a lack of notification around power outages.

Unannounced power cuts caught Yiwu textile manufacturer Huang Feng by surprise.

Huang, who makes mid to high-end hats, scarves and other accessories, had expected to complete production and ship his goods overseas before the “golden week” holiday at the start of the month. But due to the power cuts, his production was delayed several days and he missed a shipping cycle, resulting in losses of more than 100,000 yuan (US$15,600).

“The policy came all of sudden at the end of September; we were all completely unprepared, the power cuts were implemented on the day we were notified,” Huang said.
It’s reshuffling the market and washing out the small businesses selling at low prices Huang Feng

“We would have been able to prepare for it with even just a little heads up and wouldn’t have had such a big loss.”

Still, as a bigger company with a network of factories across the country, including several in provinces that have been unaffected by power outages, Huang’s losses have been manageable and his business has been able to adapt.

In contrast, smaller and more labour-intensive businesses with slimmer profit margins have been the most susceptible to cost pressures.

“I think essentially this is not a bad thing,” Huang said, referring to the power cuts.

“It’s reshuffling the market and washing out the small businesses selling at low prices and disrupting the market.

“For us, this new round of power outages is much less challenging than what we went through during the pandemic.”

Like other manufacturers, Huang is still in the dark about when the power crisis will finish – though he said he had heard it was unlikely to be before the end of the year.

Analysts expect power rationing to persist until at least next spring, despite China’s calls to lift coal imports and drum up domestic production.

A shortage of coal – China’s main fuel for power generation – and attempts by provincial governments to meet aggressive curbs on energy consumption have led to electricity rationing.

Early this month, Beijing announced it would liberalise pricing in the power sector in an attempt to tackle electricity shortages.

Rating agency Moody’s said global markets should brace for potential knock-on effects from the Chinese power crisis, should it continue for an extended period of time.

“This could disrupt supply chains across Asia-Pacific given prevailing linkages, which will also increase prices along the chain,” Moody’s managing director Michael Taylor said in a recent report.

“And some companies will pass higher power costs along to their customers, dampening consumer purchasing power.”

by Luna Sun in SCMP, Oct 27, 2021

https://www.scmp.com/economy/china-economy/article/3153740/chinas-power-crisis-export-showroom-yiwu-some-businesses?utm_source=rss_feed