Over the past two to three decades, Taiwan’s tepid economy has been routinely compared with China’s rapid growth. Young Taiwanese have been criticized for lacking a “wolf-like spirit” — for being less ambitious than their Chinese peers. China’s continuous growth has led some to think that it would leave its rivals, including the US, far behind.
However, China’s tightening of industry regulations has stunned global players in the financial markets and investment services sector, prompting the need for a re-evaluation. Last week, when the markets were wondering which industry would be next to face Chinese government scrutiny, large-scale power cuts across the country produced new uncertainty regarding the global economy.
About 16 of China’s 31 provinces last week experienced electricity rationing, media reports said, adding that some manufacturers in the economic powerhouses of Jiangsu, Zhejiang and Guangdong provinces had significant disruptions. Over the coming months, businesses in some cities must schedule around rationing of three days on and four days off, or two days on and five days off, while firms in some areas must cope with irregular outages.
In the peak season for manufacturers, Beijing has had to resort to power rationing because of electricity shortages in some parts of China. The Chinese Communist Party has not only implemented energy consumption controls and carbon neutrality in various provinces, but also blocked Australian coal imports earlier this year, which led to soaring thermal coal prices and lower financial incentives for domestic power companies to generate more electricity.
Outbreaks of COVID-19 infections in South and Southeast Asian countries have also increased manufacturing activity in China, which boosted power demand and contributed to its power shortages.
Time and money are required for the Chinese government to meet this energy challenge. By the end of last week, Beijing allowed utilities to raise prices and use more coal-fired power generation, but weeks are needed for the effects to be noticeable. It remains to be seen whether China’s electricity crisis will be the norm over an extended period as the markets fear.
Beijing has been signaling an upcoming industrial transformation. The country plans to shift away from energy-intensive industries — such as the production of chemicals, steel, cement and textiles — to those with low energy consumption to meet emissions targets, but the transformation is raising concern that pressure on private enterprises is to increase and that Beijing is making another attempt to revive its bloated state-owned sector.
Whatever its goals, Beijing’s unexpected power rationing has not only affected Chinese industries, but also foreign companies, including those in Taiwan. Its actions are likely to harm the Chinese economy and damage global supply chains. Over the past few years, inflationary pressures have risen due to increasing freight rates and raw material prices. If manufacturing disruptions and component shortages at Chinese plants persist, price hikes are likely to spread along global supply chains, making China-induced inflationary pressure a new focus for the world.
The business environment in China — from regulatory tightening to Evergrande Group’s financial turmoil to the recent power rationing — is deteriorating, pushing investment risks higher. If Beijing can purge tech giants such as Alibaba Group Holding and Didi Global overnight, how can foreign companies, including Taiwanese firms, escape?
As a result, it is once again time — just as during the peak of US-China trade tensions — for Taiwanese firms to rethink the deployment of their assets around the world and to realign their supply chains in the post-pandemic era.
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