Shenyang Clack, clack, clack – it sounds like a quiet patter of rain when the little screws fall from one conveyor belt to the other. In the distance, a forklift beeps in time, a mechanical, rhythmic pounding can be heard, and there is a smell of oil and lubricants.
Here in Shenyang, the northern Chinese center for power-intensive industry, the Arnold Fasteners company, which belongs to the German Würth Group, manufactures screws for the automotive industry.
Because since the end of September the local authorities have been turning off the power to the company over long stretches – with an advance warning of a few hours. On Monday at 11 p.m. it was that time again.
The authorities announced via messenger service Wechat that from 4 p.m. on the next day, Arnold Fasteners was only allowed to use 25 percent of the amount of electricity that was needed last year. On Wednesday it was only 15 percent. How Haberstock compensates for the missing amount is his problem. He has been in Shenyang since 2008 and there have never been any problems with the energy supply, says the 54-year-old. “I’ve never experienced a power bottleneck like this before.”
Bottlenecks put pressure on growth
The same is true for other companies in the 130 square kilometer industrial park in Shenyang and in large parts of China.
Since August there has been a reduction in electricity supply in more than 20 provinces, particularly in the south and north-east of the country. At times, factories had to make do with a significantly lower amount of electricity for several hours or to close completely. The bottlenecks are already putting pressure on the growth of the world’s second largest economy, and analysts have adjusted their forecasts for this year.
The reason for the shutdowns are supply bottlenecks. Around 60 percent of China’s electricity comes from burning coal. However, because coal prices have risen sharply in recent months and the energy suppliers cannot pass the higher costs on to their customers due to strict regulations, it is no longer economically viable for them to produce the required amount of electricity. Strict energy efficiency requirements that the provinces must meet by the end of the year have also contributed to the rationing.
Because Arnold Fasteners manufactures special screws, a production downtime can quickly lead to a domino effect. “If our production stalls, the production chain of several companies is at risk,” says Managing Director Haberstock.
Arnold Fasteners has grown steadily over the past few years and is now a supplier not only to large German, but also to the many up-and-coming Chinese car manufacturers.
The company in Shenyang with around 235 employees regularly produces around 800 different screws, fasteners and so-called functional parts. Around 450 companies depend on products being delivered on time. For example, there are almost 400 special Arnold screws in a model from a well-known Chinese manufacturer – the company cannot produce cars without them.
German Chamber of Commerce in China tries to mediate
In the past few weeks and months, the European Chamber of Commerce in Beijing has received numerous responses from European companies that have been affected to varying degrees by the power cuts. Basically, the companies do not know from shift to shift whether they could produce at all, says Bernhard Weber, chairman of the representation of the EU chamber in the east Chinese city of Nanjing.
Large companies are also suffering from rationing. Suppliers to Apple and Tesla in China reported at the end of September that they had to stop parts of their production due to the power shortages.
Japanese automaker Toyota admitted the company is also affected. The German carmakers in China, Daimler, BMW and Volkswagen, on the other hand, stated when asked that the electricity bottlenecks have so far had little or no impact on their production.
In a few cases, individual shifts have been adjusted, “mainly due to affected suppliers,” VW said on request. At BMW, which has a large plant in Shenyang together with its Chinese partner, there have not yet been any bottlenecks in the supply chain, the Munich-based company said. Daimler also sees no impact on the locations in China. But they are unanimously observing the situation very closely.
Although both large and small companies are basically affected, it is now beginning to emerge: “The smaller the company and the more electricity-intensive its production, the more difficult it is to work out solutions with the local authorities,” says Jens Hildebrandt, executive board member the German Chamber of Commerce in China.
The German Chamber of Commerce in China is therefore trying to mediate between the companies and the local authorities. According to Hildebrandt, the focus here is to make the communication of power cuts more transparent and understandable, and to make it easier to plan.
How some companies try to improvise
In order to solve his electricity problem, Haberstock quickly rented two containers with diesel engines and had them placed next to the factory hall. When he is no longer allowed to draw electricity from the grid, he starts the motors.
Since September he has had to turn on the generators for six days. The rent for this alone amounts to the equivalent of around 40,000 euros, plus the costs for the diesel.
Because the local energy supplier rationing the quantities for the industry, especially at times when private households consume a lot of electricity, the employees occasionally have to work at night and on weekends. “We do everything we can to avoid production downtime,” says Haberstock.
Due to the rationing, employees occasionally have to work at night and on weekends.
(Photo: dpa)
Haberstock’s neighbors in the industrial park have also placed containers with electricity generators, some with their own plastic tanks on the roof in which the diesel is stored. The makeshift blue, white and yellow boxes stand like foreign objects in the otherwise neatly maintained complex.
The Chinese government and local governments have taken a few measures to counteract this. Coal mine operators were instructed to ramp up their production. In addition, the price that energy suppliers are allowed to charge for their electricity has been increased slightly.
European companies nevertheless fear that the situation could worsen in the coming months when the heating season starts in China. “We are in a marathon, not a sprint,” says Jörg Wuttke, President of the EU Chamber. “It is certain that it will get worse in winter.” Haberstock also adjusts to the fact that the situation will not improve anytime soon. He rented his diesel generators until the end of October.
Climate protection versus emissions
It is paradoxical: Coal is also so expensive because the Chinese government has closed numerous extraction pits in the country due to safety deficiencies in the mines, but also for climate protection.
The price for renting the equipment has tripled within a few weeks.
(Photo: Reuters)
And now the air in Shenyang is polluted with diesel exhaust gases instead of coal. Diesel generators like Arnold’s one swallow 200 liters per hour. The price for renting the equipment has tripled within a few weeks.
The local economy also expects greater uncertainty about the power supply in the long term. Haberstock is also taking precautions. For the next year he has planned the construction of a new hall, there should be space for permanently installed diesel generators. He is also currently in negotiations to install more solar cells on the roofs of the industrial park. “We have to become a little more self-sufficient in terms of power supply,” he says.
Arne Weber, founder and manager of Faytech, a company that produces flat screens in southern China, is currently noticing the advantages of switching to renewable energies.
Its competitors all have power cut issues. At the location of the factory in Suining, southwest China, however, the company is completely supplied with hydropower – there are no bottlenecks there.
Nevertheless, Weber is not without worries. “The situation with our suppliers is dire, many can only work two to four days a week,” he says. Added to this are the rising prices of raw materials. Aluminum in particular, which requires a lot of electricity to manufacture, has become more and more expensive in recent months.
Production bottlenecks also for magnesium
China is the world’s most important producer of aluminum. The production of the raw material, but also of other so-called non-ferrous metals such as nickel, copper and zinc, has continued to decline in recent months due to the electricity bottlenecks.
China is the world’s most important producer of aluminum.
(Photo: dpa)
The situation is also dramatic with magnesium. According to the Metals Association, 95 percent of Europe’s magnesium demand is currently covered by Chinese exports. At least 31 magnesium plants in the world’s most important magnesium production centers, the provinces of Shaanxi and Shanxi, have either been shut down or have had to reduce their production by 50 percent, the trade association estimates.
The association expects that the current magnesium supplies in Germany and throughout Europe will be exhausted in a few weeks at the end of November 2021.
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