News Briefing

The blow to China from energy austerity has just begun to spread across the world with its harmful effects proliferating from Japan’s Toyota automobile to Australia’s sheep industry and carton manufacturing. When considered, such an extreme power shortage in mainland China - the largest global exporter - will not only jeopardize economic growth but also exert a knock-on effect on the supply chain in the context of a global economy struggling to escape the gloominess of an epidemic.

Impact Analysis

Chinese officials have comprehensively implemented the "dual control of energy consumption” to achieve the goal of carbon neutrality. Because of this, the Yangtze River Delta region where Taiwanese businessmen gather has begun confronting the pressure of power outages and production shutdowns. Among them, Suzhou and Kunshan suddenly informed all manufacturers about power outages and production shutdowns on September 26, of which PCB, passive components, ODM/OEM assembly, power supply, and cooling equipment industries are included. When comprehensively analyzed, it can be seen that the increase in coal prices, as well as the demands for it, are long-term factors that lead to the imbalance between energy supply and demand. Unfortunately, this happens to bump into the KPI checks by local government geared towards the dual control of energy consumption. Summarizing these interconnected factors, this had brought about the Suzhou-Kunshan power rationing incident, triggering global attention and concern. Although this power rationing has exerted little impact on Taiwanese PCB manufacturers currently, such power rationing and production shutdown measures may become the norm before renewable energy plans in China are perfected in the long term. Besides this, manufacturers will surely have to face the cost pressures of rising power prices. Guangdong Province has already fired the first shot as it announced in October that the power price will increase by 25% during peak hours.

Since the beginning of this year, the manufacturing industry - especially electronics – has already been challenged by the spreading epidemic, material rises, chip shortages, and shortages of shipping containers. For now, there are further crises as power rationing and product curtailment are predicted, whereas global supply chains already gasping for relief are most likely to be further burdened by a risk of chain rupture from the heavy blow caused by the power issue. If these unfavorable factors continue, it is conceivable that the future impact on the PCB industry will include rising production costs while manufacturers will have to increase prices to maintain gross profit. Eventually, these overlapping layers will be passed on to consumers. Given the current context of power rationing, the overall PCB production capacity will decline. Coupled with rising materials, Taiwanese manufacturing plants are therefore likely to opt to prioritize producing high-end and high-priced products such as IC substrates as a way to somewhat offset or compensate for the pressure of rising costs. Furthermore, power rationing has not only affected Taiwanese factories but also mainland-invested ones. If the production capacity from Taiwanese and mainland substrate factories is lost from supply chains, the provision of low- and medium-level PCBs will be insufficient, resulting in a chain effect of terminal products being out of stock. In the long run, this should cause substrate factories to relocate their developments elsewhere and thus, reshape the layout of the global PCB supply chain.

The aforementioned possible scenarios are not just inflammatory statements but are a way for the industry to review and reflect on the current circumstances. For example, manufacturers should consider conducting risk strategy management, allocating domestic and overseas production capacity, decentralizing the supply sources of raw material, working on continuous industrial upgrading, and de-regionalizing the flexibility of layouts to avoid sudden changes from the social, political, and economic environment - an issue that all managers have to cope with.

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