Just as the Evergrand crisis sends a shockwave through its financial system, China may at first be overwhelmed by the power supply push that could hit Asia’s largest economy.
In addition to increasing demand for electricity and raising the price of coal and gas, the use of electricity is being cut off with the strict goal of reducing emissions from Beijing. It is coming first in the country’s massive manufacturing industry: from aluminum smelters to textile producers and soybean processing plants, factories are being instructed to shut down completely in activity or in some cases.
Nearly half of China’s territory has missed the energy consumption target set by Beijing and is now under pressure to control its use of electricity. Among the worst affected are Jiangsu, Zhejiang and Guangdong – a trio of industrial powerhouses that account for about a third of China’s economy.
“With the market now focusing on unprecedented sanctions on Evergrande and Beijing’s property sector, another major push in terms of supply could be underestimated or even missed,” Nomura Holdings Inc. analysts, including Tim Lu, warned in a note. China’s economy is forecast to shrink this quarter.
The growing power crisis in China – perhaps overshadowed by whether Evergrand will default on its huge on – reflects the extremely tight power supply worldwide that has already disrupted European markets. Economic returns from the Covid Lockdown have increased demand from families and businesses as production is hampered by low investment by miners and drillers.
But China’s energy crisis is partly its own because President Xi Jinping tried to secure a blue sky at the Winter Olympics in Beijing next February and show the international community that he is serious about de-carbonizing the economy.
The economy is at risk of severe shortages of coal and gas this winter – which are used to heat homes and power plants. Earlier there was ration power in cold months but it never had to deal with the global price of this fuel.
The power crisis has begun to affect homes as well as businesses after power cuts in some factories, urging Guangdong Province residents to rely on natural light and limit the use of air conditioners.
Tears are worth it
China’s thermal coal futures rose last month, repeatedly setting records, as concerns over mine safety and pollution limit domestic production while it continues to ban shipments from top supplier Australia. Meanwhile, natural gas prices from Europe to Asia have reached seasonal highs as countries try to outperform each other in order to deliver a rapid decline.
In the wake of the previous winter power outage in China, many have turned to diesel generators to alleviate power shortages from the power grid. This year, the danger is that government policies have further limited the energy industry’s potential to increase production to meet growing demand, said Zheng Hao, chief expert at Shangji Xinzheng Energy.
Yunnan Aluminum Co., a 9 9 billion metal producer that is used in everything from cars to soda cans, has cut production due to pressure from Beijing. The shock is also being felt in China’s huge food sector. The soybean crusher, which turns the crop into edible oil and animal feed, was ordered to close in Tianjin this week.
According to Nikki, suppliers of Apple Inc. and Tesla Inc. shut down production at some of their sites in China on Sunday. Foxconn’s facilities in the world’s largest iPhone production complex-Longhua, Guanlan, Taiyuan and Zhengzhou হয়নি were not affected by the power supply restrictions, the report said.
Several small companies have started informing their stock exchanges that they have been instructed to close or stop their activities. While they may be overlooked by major foreign investors who do not cover these firms, the end result may be a lack of everything from textiles to electronics components that could break the supply chain and hurt the profits of multinational companies.
In Jiangsu, a province near Shanghai, whose economy is almost as big as Canada’s, steel mills have shut down and some cities are turning off street lights. In nearby Zhejiang, about 160 energy-intensive companies, including textile firms, were shut down. While in Liaoning in the far north, 1 city ordered the immediate disconnection of emergency power, partly responsible for the coal ging surge.
“Power control will be shut down and will affect the global market,” said Nomura Lu. “Soon global markets will experience a shortage of supplies from textiles, toys to machine parts.”
The declines are a new threat to the economy, which faces multiple pressures after a repeat of the V-shape last year. And like the energy crisis in Europe, this pressure has become a challenge for policymakers: how to pursue environmental goals without harming a stable economy. Beijing is targeting 6% growth after expanding 12.7% in the first half.
Larry Hu, head of Chinese economics at Macquarie Group, said: “Policymakers appear to be willing to embrace slower growth for the rest of this year to meet carbon emissions targets.” “GDP targets of more than 6% can be easily achieved, but it is not easy to achieve emissions targets due to strong growth in the first half.”