Last updated: April 7, 2010
Source: South China Morning Post
Severe drought results in power rationing
The devastating drought in the southwest is forcing once-a-week blackouts at Dongguan factories due to power shortages from the nation’s hydroelectric dams.
Since April 1, Hong Kong manufacturers say power supplies have been suspended one day each week in Dongguan, and some expect the mandatory rationing will spread to industrial towns in Shenzhen.
Several factory owners said they were left with little choice but to generate their own electricity through diesel-powered generators, a dirtier and more expensive alternative.
Some warned that the supply crunch could balloon into a crisis next month, when the peak-production season begins. This would exacerbate recent challenges such as labour shortages, soaring raw material costs and wages, a possible appreciation in the yuan and weak demand in the United States and Europe.
“The export sector improved obviously in the first quarter, but new challenges come from all fronts now,” Toys Manufacturers’ Association of Hong Kong vice-president Yeung Chi-kong said yesterday. “Some costs such as electricity are rising so fast and are beyond our control that it will be lucky if a factory doesn’t lose money.”
To keep production lines moving, Yeung, who is also vice-chairman of toy exporter Blue Box Holdings, said the company’s factory in Dongguan was forced to produce its own electricity, which cost 30 per cent more than power from the state supplier.
He estimated that higher fuel costs, together with about a 21 per cent rise in the minimum monthly wage in Dongguan to 920 yuan (HK$1,046.70) and at least a 20 per cent jump in prices of plastics and paper-packaging materials, would in turn jack up overall operating costs by 5 per cent.
This would erode the factory’s wafer-thin profit margin, he said. “We are trying to pass the extra costs on to customers, but so far they are bargaining extremely hard,” Yeung said.
The once-in-a-century drought ravaging Yunnan, Guangxi and Sichuan provinces has hobbled hydropower plants, which have reduced electricity supplies to Guangdong by about 23 per cent in the first three months of this year.
Electricity from the western provinces supplies about one-third of Guangdong’s power needs.
The Guangdong provincial government placed priority on supply to residential users, and discouraged consumption by energy-consuming industries such as electroplating and cement and steel production. The province signed agreements last month with Hong Kong supplier CLP Power (SEHK: 0002), which will export more power across the border, particularly in summer.
Wilson Shea Kai-chuen, a premium product manufacturer in Dalong in Shenzhen and vice-chairman of the Hong Kong Small and Medium Enterprises Association, said he expected compulsory power blackouts would begin in a few weeks, when the busy season begins.
He said that on April 1, state supplier China Southern Grid recommended factories in Dalong suspend operations a day every week or minimise power consumption.
Dennis Ng Wang-pun, the managing director of exporter Polaris Jewellery, said electricity supply in Panyu in Guangdong remained normal but warned that the electricity crunch would come on top of labour shortages.
His factory in Panyu, which has about 400 workers processing jewellery, was still short of about 100 workers, Ng said. He said new orders improved in the first quarter from the same period last year, at the height of the global financial crisis, but shoppers’ appetite remained weak.
“I don’t see a marked improvement in demand in the US until the second half,” he added.