China's power shortages fan economic woes
The world economy is facing growing uncertainty due to global supply constraints, prompted by lingering power shortages in China. Various signs are already apparent, indicating additional global inflationary pressure due to a supply crisis affecting many areas ranging from energy to semiconductors, shipbuilding, food and beverages.
A shortage of crude oil, coal and natural gas has already led to a steep rise in their prices. Worse still, the problem shows no sign of abating for the time being as it is closely connected to the much-touted policy of carbon neutrality aimed at tackling climate change. For instance, oil prices in the U.S. surged for the fifth straight day Wednesday to their highest since 2014.
As China has been desperate to secure natural gas amid a shortage of power due to a lack of coal, the prices of natural gas futures rose by 7 percent a day over the weekend. The Chinese authorities have already begun to cut electricity supplies to 20 industrial hub provinces including Jiangsu, Zhejiang and Guangdong.
U.S. Federal Reserve Chairman Jerome Powell noted that inflation will ease eventually, but said that he thinks the current pressures will continue to run into 2022. "The current inflation spike is really a consequence of supply constraints meeting very strong demand, and that is all associated with the reopening of the economy, which is a process that will have a beginning, a middle and an end," Powell said during a Senate hearing last Wednesday.
Concern is growing that many Korean companies will be affected by the power shortages in China. The possible suspension of production lines at Chinese firms will negatively affect Korean companies manufacturing parts and materials for Chinese companies. Japan's leading investment bank Nomura Securities analyzed Korea as among nations most vulnerable to the crisis in China's global supply chain along with Taiwan and Malaysia. The Korea Center for International Finance said in a report Friday that the global supply crisis will dampen world economic growth and prolong inflation, dealing severe blows to major countries relying on global trading.
Korean plants in China have already been suffering setbacks. For instance, POSCO's stainless steel production plant in Jiangsu Province suspended some of its lines from Sept. 17. The semiconductor lines of Samsung Electronics and SK hynix in China are also highly likely to be affected.
In desperation, LG Group Chairman Koo Kwang-mo convened an emergency meeting Sept. 30 to discuss how to deal with the problem. The situation is getting more serious for Korean companies as they rely heavily on the Chinese and U.S. markets. It is time for both business and the government to exert joint efforts to minimize the fallout from the global supply disruption.
The world economy is facing growing uncertainty due to global supply constraints, prompted by lingering power shortages in China. Various signs are already apparent, indicating additional global inflationary pressure due to a supply crisis affecting many areas ranging from energy to semiconductors, shipbuilding, food and beverages.
A shortage of crude oil, coal and natural gas has already led to a steep rise in their prices. Worse still, the problem shows no sign of abating for the time being as it is closely connected to the much-touted policy of carbon neutrality aimed at tackling climate change. For instance, oil prices in the U.S. surged for the fifth straight day Wednesday to their highest since 2014.
As China has been desperate to secure natural gas amid a shortage of power due to a lack of coal, the prices of natural gas futures rose by 7 percent a day over the weekend. The Chinese authorities have already begun to cut electricity supplies to 20 industrial hub provinces including Jiangsu, Zhejiang and Guangdong.
U.S. Federal Reserve Chairman Jerome Powell noted that inflation will ease eventually, but said that he thinks the current pressures will continue to run into 2022. "The current inflation spike is really a consequence of supply constraints meeting very strong demand, and that is all associated with the reopening of the economy, which is a process that will have a beginning, a middle and an end," Powell said during a Senate hearing last Wednesday.
Concern is growing that many Korean companies will be affected by the power shortages in China. The possible suspension of production lines at Chinese firms will negatively affect Korean companies manufacturing parts and materials for Chinese companies. Japan's leading investment bank Nomura Securities analyzed Korea as among nations most vulnerable to the crisis in China's global supply chain along with Taiwan and Malaysia. The Korea Center for International Finance said in a report Friday that the global supply crisis will dampen world economic growth and prolong inflation, dealing severe blows to major countries relying on global trading.
Korean plants in China have already been suffering setbacks. For instance, POSCO's stainless steel production plant in Jiangsu Province suspended some of its lines from Sept. 17. The semiconductor lines of Samsung Electronics and SK hynix in China are also highly likely to be affected.
In desperation, LG Group Chairman Koo Kwang-mo convened an emergency meeting Sept. 30 to discuss how to deal with the problem. The situation is getting more serious for Korean companies as they rely heavily on the Chinese and U.S. markets. It is time for both business and the government to exert joint efforts to minimize the fallout from the global supply disruption.
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