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China’s energy crisis takes spark out of some businesses

Rob Schmitz Aug 26, 2011

China’s energy crisis takes spark out of some businesses

Rob Schmitz Aug 26, 2011

Bob Moon: The rapidly rising consumer class in China is now voraciously burning through roughly half the world’s coal. Imported coal prices are soaring
because the Chinese are buying so much of it.
And it still hasn’t headed off the worst energy crisis to hit China in years. The workshop of the world is turning off the lights, and rolling blackouts mean doing business in China is increasingly difficult.

Our China correspondent Rob Schmitz takes to the factory floor to bring us this report.

Rob Schmitz: Morten Vikan came from Norway eight years ago to run this plastic injection mold factory here in the Yangtze Delta. The plant works around the clock making parts for iPhones, GM sedans, and Philips coffee makers.

But in the summer, temperatures rise and the rest of China turns on hundreds of millions of air conditioners. They suck up what’s becoming a dwindling energy supply. China’s national grid power company has told Vikan and tens of thousands of other companies here to expect losing power twice a week through the summer.

Morten Vikan: The problem is the planning. We run 24/7. And when we are suddenly cut off, that means people have to go home. So if we are lucky they will tell us Wednesday afternoon that Thursday and Friday there will be no power for us.

Vikan says they gave even shorter notice during last year’s energy shortage.

Vikan: They call you 10 minutes before and say: You have no power! Cut down!

Vikan says this is a big problem. Summer is the busy season for Chinese factories trying to pump products out for the winter holidays. But China’s struggling to feed its own increasing appetite for energy.

Bill Dodson: The price of coal on the international markets has risen far above what the Chinese government will accept that it can pass down to its consumers.

That’s Bill Dodson. He’s the chief editor of ChinaEnergySector.com and author of the book: “China Inside Out.” Dodson says there’s more to this energy shortage than, well, a shortage. China’s power companies buy coal at market rates. But China’s government forces them to sell power to consumers at artificially low prices — prices that don’t cover their costs. So they just turn the power off.

Why does China’s government insist these companies sell power at bargain basement prices? Dodson says there are three reasons.

Dodson: Social stability, social stability, and social stability. So if energy becomes more expensive than consumers are comfortable with paying, they will actually protest. They will come out onto the streets. And that really is one of the last things the central government wants.

At Morten Vikan’s factory, he’s waging a protest of his own. He’s so fed up with the electricity outages, that he’s bought two diesel power generators. Now he’ll just have to worry about the rising price of gas.

In the Yangtze Delta, I’m Rob Schmitz for Marketplace.

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