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China tech

China power outages spur new wave of supply chain shifts

Apple suppliers and others look overseas to reduce risks of 'overcentralization'

Uncertainty over energy supplies in China is causing tech manufacturers to revisit their plans for production diversification. (Source photo by Reuters)

TAIPEI -- Widespread power outages in China are reigniting a push by tech manufacturers to shift production away from Asia's biggest economy, with suppliers to Apple, Amazon and others scrambling to keep production on track ahead of the busy holiday season.

At a midsize electronics accessories maker in Zhongshan, Guangdong Province, power outages have become the new normal.

"There have been sporadic power outage notices since this June, but it has become a regular thing since mid-September," a manager told Nikkei Asia. "Now we get a notice every week telling us which days the following week that they will cut the power."

The company's 500 employees make Bluetooth receivers, headphones and other consumer electronics accessories for international brands like Harman Kardon and Edifier. With its electricity supply reduced to just two days a week, it has to rely on its own power generators to maintain a basic level of operations.

"If the situation continues, some shipments will definitely be delayed," the manager said. "We may also again think if we have to rent or build a new factory somewhere out of the country."

Suppliers in cities across Jiangsu, Zhejiang and Guangdong provinces -- where tens of thousands of tech facilities are based -- say they have faced varying levels of power restrictions this month as local governments clamp down on energy use. Soaring commodity prices, surging electricity demand amid a post-pandemic recovery and President Xi Jinping's carbon reduction commitments have all been cited as reasons for the curbs.

Apple suppliers have already warned that such cuts pose a threat to supply chain continuity following a weeklong power outage in late September. Now concerns are growing that the disruption will prove long-lived.

"We heard that the situation could last till the end of this year or even longer," said an executive at a speaker supplier in Dongguan, adding that the company, which serves Amazon, Lenovo and others, is sometimes restricted to just three days of power per week.

"Such inconvenience could be gradually unbearable," the executive said. "Now we are again reopening our evaluations of overseas plants, perhaps in Vietnam, Batam in Indonesia, or Thailand."

Edward Yang, chairman of Goodway Machine Tools Group, a supplier to Toyota, Ford and Samsung, said the effects could last far longer than outages themselves: "Companies operating in China will certainly face much higher electricity rates going forward. This will spur a wave of industry structural changes in pursuing low-carbon emission while also prompting companies to diversify their capacity to lower the risks of overcentralization."

The interconnected nature of the supply chain has amplified the effects of the power cuts. A server manufacturer supplying Amazon's AWS, Facebook and Microsoft based in the Chinese city of Kunshan said it is relying on stockpiled components to keep production going after many of its own suppliers were hit by power cuts.

"We are counting on the inventories to support our shipments at the moment," an executive at the company said. "In the meantime, we really want to accelerate our expansion plans in Taiwan sooner. The situation is really unsafe for supply chain continuity."

Making matters worse, suppliers say, is a lack of clarity over who will receive power and who won't.

"It is very chaotic and confusing. Some suppliers managed to secure power supplies based on their friendly relations and negotiations with the local governments, while some were affected badly," an executive at an Apple supplier told Nikkei Asia. Many large Chinese tech suppliers, such as emerging iPhone assembler Luxshare and its subsidiaries across different provinces, were also spared from the power suspension, according to three people familiar with the matter.

Luxshare did not immediately respond to Nikkei Asia's request for comment.

Another executive of an Apple supplier of printed circuit boards said local governments are deciding who to give electricity to based in part on the value of the products being made: "If you don't bring as much value as, say, displays or high-end semiconductors but consume a lot of energy, sorry you are out! It's better that you just shut down and move away."

Printed circuit boards are crucial for mounting chips and components but are not particularly high in value -- and producing them requires a large amount of energy.

The uncertain electricity supplies come against a backdrop of other concerns for companies operating in China.

"It's not just about power issues," said an iPhone supplier executive who declined to be named, as supply chain shifts are a sensitive topic in China. "From Jack Ma to the crackdowns on gaming and education ... these all suggest increasing uncertainty for enterprises operating in China. People are scared."

Karen Ma, a researcher at Hsinchu-based Industrial Technology Research Institute, expects a wider range of companies to start diversifying away from China.

"Previously, only multinational assemblers proceeded with plans for diversification. But it is foreseeable that the other players in the supply chains will move at least some part of its production. ... At the end of the day, their customers such as Apple, Google, HP and Dell want a more resilient supply chain beyond China."

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