With a severe shortage of electricity, some production companies are forced to implement power rationing and suspend production.
The demand for Chinese products is at an all-time high. As industries reopen after the epidemic, factories in China experienced a 20.6% increase in power consumption.
With easing COVID-19 restrictions and demand for products increasing in the global economy, power rationing in China could have implications across the world.
One of the supply-side reasons for the blackouts could be an increasing dependency on China for global trade. As global demand for products rises, more and more countries are looking to import cheap products from this region.
To cater to the global economy, power rationing might force China to eliminate its outdated production capacity and upgrade to modern solutions. Foreign trade companies might be able to raise prices and earn higher revenues for the country.
Another reason for the blackouts in China is the global increase in coal prices. With unexpected rains in Indonesia and China’s decision to curb coal mining, global coal prices have risen significantly. Due to political disputes, China was forced to switch its coal imports from Australia to the US.
As a result, the country must pay a higher price due to the longer distance. From a national perspective, power rationing in China was essential to avoid an unnecessary increase in production capacity. With less power available for factories, fewer products can be manufactured in mass quantities.
Is Power Rationing Good for China?
In a way, power rationing might be beneficial for the economy of China. While the country currently has a reputation for manufacturing at a low cost, they might be able to control this blind expansion of production capacity.
Since there is limited power available to run the country, not all factories can manufacture products in masses. Instead, power rationing forces them to control future overcapacity and reduces the level of competition.
As production levels will fall, there will finally be an end to factory dumping at minimal prices in China. Companies will not export their products at low rates, which can push up U.S. inflation. Manufacturers will finally be able to dictate the prices of their products and earn significant revenue for the local economy to flourish.
Additionally, with lower production capacities across China, industrial carbon emissions can be at an all-time low. China already has a climate policy that is working to reduce coal consumption and switch to greener alternatives. With these power cuts, industries might show an increased interest in helping China achieve its environment-friendly objectives
With low levels of production, China would not have to import as many raw materials from foreign countries. Not only does this contribute positively towards their balance of payments, but it also suppresses the high demand for raw materials
While power rationing is affected households and businesses in China, there is more to the story than on the surface. As global trade becomes increasingly dependent on China, the country can easily take advantage of the situation and aim to earn higher profits.
Since China has a largely outdated production capacity, this power rationing could finally eradicate these inefficient methods of production. Factories can make use of modern technology to lower their electricity consumption and increase quality control measures.
Instead of mass-producing products and supplying them at a low cost to countries like the US, China finally has a chance to improve the reputation of its products.
Although power rationing may sound like a tough situation for the locals, it might be exactly what they need to protect their future.
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