Workers at a coal mine in Mentougu, west of Beijing, cut off coal trucks in December 2019, where China shut down many mines to reduce carbon emissions.
Greg Baker | AFP | Getty Images
China needs to increase its coal supply to avoid an economic downturn this quarter, but Beijing’s icy relations with Australia could make it harder, according to investment bank Mizuho.
The world’s second largest economy is facing power shortages due to a combination of factors. These include: extreme weather, increased demand for Chinese exports and a national pressure to reduce carbon emissions, as determined by President Xi Jinping.
China is an industrial powerhouse and the largest emitter of carbon dioxide on the planet. The country generates most of its electricity by burning coal, but the list of major power plants reached a 10-year low in August.
“Although China unequivocally needs coal as much as it can avoid it [fourth-quarter] The recession due to the tyranny of revolving power shortages, geopolitical tensions with Australia have paved the way for the most convenient source of high-calorie coal from the bottom-up, ”Vishnu Varthan, head of economics and strategy at the Asia and Oceania Treasury Department in Mizuho, said in a note on Monday.
Verthan said Indonesia is in a good position to benefit from demand spill-overs, but the ability to meet shipments could be a barrier.
Due to various constraints including logistics and regulation, China is at risk of rapid coal collection. This means “stuttering in economic activity and attendant kinks in the regional supply chain cannot be completely avoided,” Verthan said.
Meanwhile, some banks have downplayed China’s growth prospects due to the power crisis.
Many observers seem to be concerned about “significant shocks to the value of energy,” Verthan said.
According to Kevin Zee, a senior Asia economist at the Commonwealth Bank of Australia, China’s power shortages could push up the prices of many export products, leading to a slight rise in consumer inflation in developed economies.
Prohibitions on power supplies will slow economic growth and exacerbate the recession caused by problems in China’s residential construction sector, Xi said in a note last week.
“Energy-intensive industries will suffer the most through electricity rationing. The combined share of the industrial sector in the affected provinces, including electricity rations, is about 14% of Chinese GDP,” he said.
So far, Beijing’s policymakers have given no indication of whether China will resume importing Australian coal. According to media reports last week, Indian companies have snatched about 20 million tonnes of Australian coal from Chinese warehouses.