Power shortage not a major production challenge

Despite power rationing, China's export manufacturers are not hit significantly by the past months' electricity shortage.

Major producing provinces, including Guangdong and Zhejiang, often implement a rotating electricity schedule during the summer and winter months. This is to ensure residential areas will have continuous power supply. Guangdong, for instance, experienced electricity outages one or two nonconsecutive days per work week.

But because factories were informed of the power cuts ahead of schedule, they were able to rearrange their production plans in advance and make sure delivery deadlines are met. The schedules can also be seen on the official websites of local power supply bureaus. For instance, the county of Anji in Zhejiang's northern city of Huzhou posts weekly electricity outage schedules on its power supply bureau's website.

Many companies were fortunate enough to not have delivery deadlines on the same day as the scheduled power cuts. Others, including Dongguan Foxron Precision Metal Parts Co. Ltd, shifted production hours on affected days. For Dongguan Foxron, that was 10 hours every Tuesday. Its workers rested during the day and made precision machined parts at night.

Further, industrial enterprises that are considered to be among the country's leading companies are protected from electricity outages. Their factories have a continuous supply even on days with scheduled power cuts. Companies have to submit applications to be included in the list. The downside is that their employees cannot work at night. In Dongguan, Guangdong, the municipal government recognized 60 such businesses, which together generated more than $15 billion in 2009 sales.

But there were a few suppliers that felt the impact of the power rationing. At Dongguan Orient Technology Co. Ltd, plastic-injection machines run nonstop with technicians working on two shifts per day. Every time they are turned off during scheduled electricity outages, the company spends more on electricity and labor when they are restarted. This is because plastic-injection machines often need two hours to warm up.

Factories that have no power on days when deliveries are scheduled try to rearrange production plans for clients with tight schedules. Shipments for customers that can wait a little longer are postponed by a week, at most.

One of office furniture exporter F-Bartl Group's chair suppliers in Anji had to delay delivery in August. On that month, working days in Zhejiang were limited to just three days because of heightened electricity demand due to the high temperature. F-Bartl kept communication lines open to its buyers so there were no problems with the late shipment.

Despite the constant power cuts, small and midsize factories in Guangdong and Zhejiang have not purchased generators due to cost concerns. A 150kW unit, for instance, costs more than $6,000 and can only supply enough electricity for one-third of a plant's production line. Further, about $350 worth of diesel is needed daily. When combined with other expenses, using generators can raise manufacturing costs 60 percent.

Efforts to curb high electricity load gaps

China is boosting investment in power grid development to increase the country's electricity output. In July, the load gap in Guangdong reached 3.6 million kWh, the highest recorded so far for the year. Zhejiang's recorded electricity load gap for the same month was 3 million kWh.

Between January and July 2010, about $25 billion was invested in power grid development. Of this, $5.2 billion was spent on hydropower, $9.5 billion on coal and $5.7 billion for wind power.

The China Electricity Council said in the same period, total power output increased 18 percent to 2,347.8 billion kWh. Specifically, hydropower output grew 8 percent to 341.6 billion kWh and coal went up 20 percent to 1,913.1 billion kWh.

Additionally, both Guangdong and Zhejiang required high-energy consuming industries such as steel, chemical and cement to stop production for 15 days the past summer to ease the pressure on the electricity load gap.